-----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, Rc5YVfpRrGPfwSUioJXO35tOjrUReNcimZW5xANBW9H8bAd6whyZikOQfpNswh/x Rx62Vqat0oD7NlJgp7SWeQ== 0001140361-07-017573.txt : 20070831 0001140361-07-017573.hdr.sgml : 20070831 20070831163535 ACCESSION NUMBER: 0001140361-07-017573 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20070602 FILED AS OF DATE: 20070831 DATE AS OF CHANGE: 20070831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CONSUMERS INC CENTRAL INDEX KEY: 0000004811 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 581033765 STATE OF INCORPORATION: GA FISCAL YEAR END: 0529 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05815 FILM NUMBER: 071094894 BUSINESS ADDRESS: STREET 1: PO BOX 2328 STREET 2: 418A BATTLEFIELD PKWY CITY: FORT OGLETHORPE STATE: GA ZIP: 30742 BUSINESS PHONE: 7068613347 MAIL ADDRESS: STREET 1: P O BOX 2328 STREET 2: 418-A BATTLEFIELD PARKWAY CITY: FORT OGLETHORPE STATE: GA ZIP: 30742 10-K 1 form10k.txt AMERICAN CONSUMERS 10-K 6-2-2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 2, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-5815 AMERICAN CONSUMERS, INC. (Exact Name of Registrant as Specified in Its Charter) GEORGIA 58-1033765 (State or other jurisdiction (I.R.S. Employer of incorporate or organization) Identification No.) 55 HANNAH WAY, ROSSVILLE, GA 30741 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (706) 861-3347 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.10 PAR VALUE (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter: As of December 2, 2006 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $526,966. (Calculated for these purposes by multiplying the total number of outstanding shares held by non-affiliates by the average of available bid and asked price information for such date.) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 785,757 shares of Common Stock, $0.10 par value, as of July 16, 2007. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes: (1) specified portions of the Registrant's Annual Report to Shareholders for the fiscal year ended June 2, 2007, incorporated by reference into Part II of this Annual Report on Form 10-K. (2) specified portions of the Registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission for the Registrant's 2007 Annual Meeting of Shareholders, incorporated by reference into Part III of this Annual Report on Form 10-K. PART I ------ ITEM 1. BUSINESS Incorporated in Georgia in 1968, American Consumers, Inc. (which we refer to herein as the "COMPANY," "WE" or "US," and "ACI"), operates eight (8) supermarkets within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee. All of the Company's supermarkets are operated under the name "Shop-Rite." All of the Company's supermarkets are self-service and are engaged in the retail selling of groceries including meats, fresh produce, dairy products, frozen foods, bakery products, tobacco products, and miscellaneous other non-food items. The Company's supermarkets feature national brand merchandise with only a minor part of sales from controlled-label, private-label or generic merchandise. "Controlled-label" or "private-label" merchandise is merchandise purchased from national or local suppliers under a trade name chosen by the wholesaler supplying the merchandise. The Company's supermarkets offer milk and certain dairy products, as well as frozen vegetables and jellies, under the controlled-labels "Foodland," "Food Club," "Ultimate Choice," "Freshland," "Price Saver," "Top Crest," "Top Care," "Select" and "Valu Time." Bread and related bakery items are also offered as controlled-label groceries. During the fiscal year ended June 2, 2007, the Company's major supplier of staple groceries was Mitchell Grocery Corporation ("MITCHELL"), with its principal corporate offices in Albertville, Alabama. For the fiscal year ended June 2, 2007, approximately 81% of the Company's total inventory purchases of $25,766,340 were made from Mitchell. Various local suppliers within the geographical area served by the Company's supermarkets provide the Company with certain perishable items, including produce, and accounted for approximately 19% of the Company's total inventory purchases during fiscal 2007. The Company believes that there are other adequate and convenient sources of groceries, including several area and local suppliers, which could meet its needs. Accordingly, while the Company has elected to purchase the majority of its inventory from Mitchell for reasons of cost, the Company is not dependent upon any particular supplier for its requirements of groceries. The supermarket industry is highly competitive and the principal method of competition historically has been the pricing of groceries. The Company's current major competitors now include various local and four regional chains, as well as one major national retailer (Wal-Mart). The nature of price competition which the Company encounters from these major competitors includes the sale of selected items at below cost prices as "loss-leaders" or "advertised specials," the practice of "double couponing" or matching coupon discounts with additional cash discounts, loyalty card programs, as well as the sale of certain main line items at prices below the Company's wholesale cost. The Company believes that its major competitors have been and are able to obtain preferential treatment from suppliers in the form of advertising allowances, lower prices and other concessions not available to the Company. These factors allow our competitors to engage in the aggressive pricing and promotional activities described above at a level that the Company cannot match, putting us at a competitive disadvantage. As a result of these competitive conditions, it has been difficult to achieve meaningful sales increases apart from the addition of two new store locations in recent years. As discussed in more detail below, these factors also have made it difficult for the Company to sustain consistent improvements in gross profit. 1 Management believes that, in recent periods, entry into the Company's trade area by Save-A-Lot and United Grocery Outlets, and further expansion in the area by Food Lion and Wal-Mart in addition to the presence of Ingle's and Bi-Lo, have created a situation of ongoing price competition and increasingly expensive advertising and promotional activities which place an operation the size of the Company at a significant competitive disadvantage. These developments, combined with increased overhead expenses and rising inventory costs, have resulted in increased pressure on the Company's market share, sales and profits during fiscal 2007, the effects of which continue to threaten the profitability of the Company. The addition of two stores since April of 2001 and the change in our principal inventory supplier in March of 2000 has allowed the Company to better compete in the marketplace. The Company recorded a net profit for the fiscal year ended June 2, 2007 of $97,502, representing our first profitable year since fiscal 2003. This compares to net losses sustained for the fiscal years ended June 3, 2006, May 28, 2005 and May 29, 2004 of $167,379, $331,360 and $236,050, respectively. We recorded a net profit of $40,134 for the fiscal year ended May 31, 2003. Sales increased by $503,124 (or 1.51%) as compared to fiscal 2006 even though fiscal 2006 was a fifty three week year while fiscal 2007 was only a fifty two week year. While this increase was significantly less than that experienced during the prior two fiscal years, adjusting to eliminate the effects of the extra week of operations during fiscal 2006 would have yielded an annual sales increase of 3.46% for fiscal 2007. Additional factors contributing to the lower sales growth experienced for fiscal 2007 included pricing adjustments implemented during the year to recover certain prior increases in our wholesale costs, as well as the absence of the new store openings and certain major sales promotions which significantly impacted the increases reported for the prior two years. Our 23.73% gross margin for fiscal 2007 represents a decrease of 0.45% from fiscal 2006 and a decrease of 0.16% as compared to fiscal 2005. This reduction reflects the fact that competition prevented us from succeeding until the third quarter of fiscal 2007 in adjusting our retail prices to recover increases in our wholesale costs for certain items (principally certain private label merchandise) which occurred earlier in the year. The gross margin also was impacted by our introduction of certain lower-priced, lower-margin generic merchandise this year, as well as certain targeted merchandise sales and other weekly advertised specials run to stimulate sales. Management's ongoing efforts to control the Company's operating, general and administrative expenses helped translate the relatively small sales increase into the Company's first net profit in four years, despite the slight reduction in our gross margin. We achieved a measure of success in reducing these expenses both in absolute terms (by $260,829) and as a percentage of sales (by 1.15%) during fiscal 2007 as compared to the prior year. The two principal components of the 2007 decrease, however, were the absence of a $98,750 charge for a loss due to employee theft that impacted the fourth quarter of fiscal 2006 and a decrease of $126,091 in depreciation expense for fiscal 2007 versus 2006. The 2006 theft loss was an unusual item and, given the age and fully depreciated status of a significant portion of our physical equipment, management expects annual depreciation charges to return to more historically consistent levels as the Company moves through anticipated replacement cycles for this equipment in future periods. Two primary factors contributed to the reduction in the Company's net loss for fiscal 2006. The first of these was an increase in sales of $1,178,737 (or approximately 3.67%) as compared to fiscal 2005. Approximately 55% of this sales increase was due to the fact that our 2006 fiscal year contained 53 weeks, while fiscal 2005 was a 52-week year, with a significant portion of the remaining increase attributable to two successful sales promotions that the Company conducted during the third and fourth quarters of fiscal 2006. The second major factor contributing the 2 Company's reduced net loss for the year was our fiscal 2006 gross margin of 24.18%, which represents an improvement of 0.29% over fiscal 2005 and an improvement of 0.21% as compared to fiscal 2004. This reversed the 0.08% reduction in gross margin that we experienced for fiscal 2005 as compared to fiscal 2004. The gross margin improved because, whereas gross margin was negatively impacted during the second half of fiscal 2005 by the fact that our primary inventory supplier increased its wholesale markup from 3.0% to 3.5% during the third quarter and competition prevented us from immediately passing the increase through to the retail level, management succeeded during fiscal 2006 in strategically adjusting the Company's retail pricing mix to recapture the remainder of this increase. Similarly, while we were not able to immediately adjust our prices to recover a fuel surcharge that the supplier implemented during the second quarter of fiscal 2006, ongoing adjustments to our pricing mix also offset this increase in our wholesale inventory costs by fiscal year end. Unfortunately, increases in several items of operating, general and administrative expenses, including a significant non-recurring theft loss experienced during the fourth quarter of fiscal 2006, more than offset the improved gross margin, resulting in the net loss for the year. The gross margin reduction that occurred in the second half of fiscal 2005, coupled with significant increases in operating, general and administrative expenses for the year, were the principal drivers of the $95,310 increase in net loss for fiscal 2005 versus 2004. Major factors contributing to the net loss experienced in fiscal 2004 included expenditures associated with the establishment of our eighth grocery store location in Tunnel Hill, Georgia, payroll increases at all store locations and a significant increase in our worker's compensation insurance premium. Management actively monitors both the gross margin and the Company's retail pricing structure in an attempt to maximize profitability. Management began working on the Company's gross margin during the quarter ended August 31, 2002, at which time the gross margin stood at 22.79% for the fiscal year ended June 1, 2002. While occasional improvements in gross profit have been seen in recent periods, such as the increase we achieved during fiscal 2006, it is difficult to maintain a trend of consistent improvement in the gross margin due to competitive conditions which often delay the Company's ability to pass through price increases experienced at the wholesale level. Accordingly, while management attempts to offset increases in its cost, such as our principal supplier's pricing increases discussed above, further improvements in the gross margin may not be achievable at this time, and further deterioration in the Company's gross margin is possible. Management believes that competitive pressures on the Company, which have led to the losses experienced in three out of the last four fiscal years, will continue to increase over time as a result of larger competitors, which are in a better position than the Company to withstand prolonged price competition, opening more new stores in the Company's trade area. Backlog is not a significant factor in the Company's business. The Company employs approximately 85 full-time employees and approximately 141 part-time and seasonal employees. The Company believes it is in compliance with all federal, state and local laws relating to environmental protection. No capital expenditures for equipment relating to environmental protection are presently anticipated. 3 The Company is engaged in a single line of business; namely, the retail, self-service grocery business which is not divisible into separate segments. The following table sets forth information for the last three (3) fiscal years as to the total sales and revenue of the Company contributed by each class of products which contributed a significant percentage of the total retail sales and revenues of the Company in the last three (3) fiscal years.
Fiscal 2007 Fiscal 2006 Fiscal 2005 Product Class (52 Weeks) (53 Weeks) (52 Weeks) - -------------------------- ------------- ------------- ------------- Grocery and Non-Food Items $ 21,627,218 $ 21,183,034 $ 20,526,293 Meat and Deli 9,419,858 9,533,808 9,230,478 Produce 2,735,976 2,563,086 2,344,420
ITEM 1A. RISK FACTORS The following are certain risk factors that could affect the Company's business, results of operations and financial condition. These risk factors could cause the Company's actual results to differ materially from those projected in the forward-looking statements contained in our Annual Report on Form 10-K. Before investing in the Company, investors should know that making such an investment involves some risks. The risks that are described below are not the only ones the Company faces, and there may be other risks and uncertainties not presently known to us, or that we presently deem immaterial, that could affect our business. If any of the following risks occur, the Company's business, results of operations or financial condition could be negatively affected. The Company does not undertake any obligation to update forward-looking statements. FOR FOUR OUT OF THE PAST SEVEN FISCAL YEARS WE HAVE BEEN UNABLE TO OPERATE PROFITABLY DUE TO A HIGH LEVEL OF COMPETITION IN THE RETAIL GROCERY STORE BUSINESS. THIS INTENSE COMPETITION MAY BE EXPECTED TO HAVE A NEGATIVE IMPACT ON THE PRICES WE MAY CHARGE FOR OUR PRODUCTS AND, ACCORDINGLY, ON THE COMPANY'S REVENUES, MARGINS AND PROFITABILITY. The retail food industry in which the Company operates is extremely competitive and is generally characterized by narrow profit margins and high inventory turnover. We are competing against national, regional and local supermarket chains, independent and specialty grocers, and nontraditional food stores, such as super-centers and club stores, as well as convenience stores and prepared food retailers. Our principal competitors compete primarily on the basis of price, quality of products, product assortment, service and store location. An overall lack of inflation in food prices and increasingly competitive markets have made it difficult generally for grocery store operators to achieve comparable store sales gains and maintain profitability. Because sales growth has been difficult to attain, competitors have attempted to maintain market share through increased levels of promotional activities and discount pricing, creating a more difficult environment in which to consistently increase year-over-year-sales. Our responses to these competitive pressures, such as additional promotions and increased advertising, have in the past adversely affected our operating margins and our overall profitability, and may continue to do so in the future. Further, these competitive pressures often delay our ability to adjust our prices to reflect increases in our costs, such as increases in wholesale inventory prices or in other elements of our overhead. Accordingly, we may not be able to fully absorb any future cost increases through our efforts to adjust retail prices or increase efficiencies in other areas of operations, which could result in increased losses in future periods. 4 OUR LEVEL OF OUTSTANDING INDEBTEDNESS, COUPLED WITH THE LOSSES WE HAVE EXPERIENCED IN FOUR OF THE LAST SEVEN YEARS AND INCREASING INTEREST EXPENSE AND OTHER BANK CHARGES, COULD IMPAIR OUR FINANCIAL FLEXIBILITY AND NEGATIVELY IMPACT OUR BUSINESS. As of June 2, 2007, our aggregate outstanding indebtedness stood at $2,118,162 as compared to total assets for the Company of $3,724,487 at such date. Our level of indebtedness could: - make it difficult for us to satisfy our obligations, including making interest payments; - limit our ability to obtain additional financing to fund both working capital and capital spending requirements; - limit our financial flexibility in planning for, and reacting to, industry changes; - place us at a competitive disadvantage as compared to less leveraged companies; - increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and - require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing the availability of our cash flow for other purposes. Historically, we have financed our working capital requirements principally through cash flow from operations. During the past four years, however, we have increased our reliance on both bank and vendor financing due to increased losses which coincided with increased inventory and capital spending requirements beginning in fiscal 2004 related to the establishment of our eighth grocery store location. While we believe that our cash flows and existing financing arrangements will continue to supply our working capital needs, if our operating losses should increase relative to depreciation and other non-cash charges, we could be required to seek additional financing through bank loans, or other sources, in order to meet our working capital needs. If we could not obtain such additional financing, or could not do so on commercially reasonable terms, we could be required to reduce our current level of operations. We also could be forced to delay or cancel future planned equipment upgrades and other capital spending if we are not able to obtain appropriate financing for such projects on commercially reasonable terms. Further, increased interest expense resulting from higher debt levels and rising interest rates, as well as increased bank service charges related to both temporary overdrafts in our accounts and fees for processing larger numbers of credit and debit card transactions required to maintain sales, have contributed significantly to our losses in recent periods and may continue to adversely impact our future performance. OUR EFFORTS TO ACHIEVE INITIAL COMPLIANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT MAY RESULT IN SIGNIFICANT ADDITIONAL EXPENSES, AND ANY FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND STOCK PRICE. We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting beginning with our annual report for the Company's 2008 fiscal year and annual attestation reports 5 by our independent auditors addressing the effectiveness of such internal controls beginning with our annual report for the Company's 2009 fiscal year. We expect our efforts to achieve initial compliance with these provisions to require a significant commitment of management resources and to result in significant additional expenses, which may have a significant adverse effect on our financial condition and results of operations over the next two fiscal years. Further, we have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, our external auditors have brought to our attention a need to adopt increased security measures related to our financial accounting systems, increase the segregation of duties related to certain of our accounting and financial reporting processes and improve our cash controls and cash management procedures. During the course of our testing we may identify additional deficiencies. We may not be able to remediate such deficiencies in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could be adversely affected. OUR COMMON STOCK IS NOT ACTIVELY TRADED AND IS NOT TRADED ON AN ESTABLISHED EXCHANGE, AND A MAJORITY OF OUR STOCK IS HELD BY INSIDERS, WHICH MAY BE EXPECTED TO RESULT IN LIMITED LIQUIDITY AND STOCK PRICE VOLATILITY FOR INVESTORS. Our common stock is quoted on the Pink Sheets under the symbol "ANCS". The Pink Sheets is not an established exchange, and we do not have enough shareholders or outstanding shares to support an active trading market. Accordingly, the market for our common stock is not liquid and the historical prices at which our stock has traded may not provide a reliable indication of future market prices. For those reasons, the trading price of our common stock could fluctuate significantly. Volatility in our stock price could also result from the following factors, among others: - the fact that we are presently unable to pay dividends to our stockholders due to the ongoing losses experienced in most of our recent fiscal years; - the fact that a majority of our outstanding common stock (approximately 63.1%) is controlled by the Company's officers and directors, principally by Michael A. Richardson, our Chief Executive Officer, and his wife, Diana K. Richardson; - quarterly variations in the Company's operating results; - changes in governmental regulations; - the operating and stock price performance of other companies in our industry; and - general stock market and economic conditions. 6 UNFAVORABLE CHANGES IN GOVERNMENTAL REGULATION MAY IMPOSE ADDITIONAL COSTS AND ADMINISTRATIVE BURDENS ON THE COMPANY THAT COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Our stores are subject to various federal, state and local laws, and regulations affecting our business. We must comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling, land use and zoning, community right-to-know laws, equal employment opportunity, workplace safety, minimum wages and other employment practices and licensing for the sale of food. We cannot predict the nature of future laws, regulations, interpretations or their application, or determine what effect additional government regulations or administrative orders, when and if promulgated, or disparate federal, state or local schemes would have on our future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or substantiation. Any or all of such requirements, to the extent they either raise the wholesale prices for our inventory or impose direct costs on the Company, could have an adverse effect on our results of operations and financial condition. Further, the Sarbanes-Oxley Act of 2002 includes provisions addressing audits, financial reporting and disclosure, conflicts of interest and corporate governance at public companies. We have already incurred increased professional fees during fiscal years 2005 through 2007 related to compliance with these provisions. As discussed above, we also expect our efforts to achieve initial compliance with the provisions of Section 404 of this Act, which deals with management's report on internal controls and an auditor's examination of such report, to impose significant additional costs on the Company over the next two fiscal years. We expect these costs to include additional significant increases in accounting and consulting fees, as well as additional internal personnel costs and the indirect costs imposed by the diversion of scarce management resources to deal with regulatory compliance matters as opposed to operational issues. These increased costs are likely to adversely affect our financial condition and results of operations because, as discussed above, the intensely competitive nature of our business makes it difficult for ACI to recover cost increases through adjustments to our retail prices. Additionally, while compliance with these regulations may ultimately increase our operational efficiency, obtaining financing to help with the initial funding of our compliance efforts may prove difficult if we are not able to demonstrate a short-term return on the investment to potential lenders. THE MAJORITY OF OUR OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES IS COMPOSED OF PERSONNEL COSTS, SO THAT INCREASES IN PREVAILING WAGES, BENEFITS AND OTHER ASSOCIATED COSTS, SUCH AS RECENT LEGISLATION MANDATING INCREASES IN THE FEDERAL MINIMUM WAGE, COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The majority of our operating, general and administrative expenses is composed of employee payroll and related insurance and benefits expense. Accordingly, our financial performance may be greatly influenced by increases in wage and benefit costs. We compete with other businesses in our markets in attracting and retaining employees. Tight labor markets, increased overtime, government mandated increases in the minimum wage and a higher proportion of fulltime employees could all result in an increase in our labor costs. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, we may be required to increase not only the wages of our minimum wage employees but also the wages paid to employees whose wage rates are above minimum wage. A shortage of 7 qualified employees also could require us to increase our wage and benefit offerings in order to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees. Additionally, various proposals that would require employers to provide health insurance for all of their employees are being considered from time-to-time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees on terms materially different from our existing programs could also significantly increase our costs. Due to competitive conditions in our business, any such increases in labor and benefits costs would be difficult for us to recover through contemporaneous price increases, and there can be no assurance that we would be able to absorb such cost increases through efforts to increase efficiencies in other areas of our operations. Accordingly, increased labor and benefits costs could have a material adverse effect on our financial condition and results of operations. WE ARE VULNERABLE TO ADVERSE CHANGES IN ECONOMIC CONDITIONS IN THE CONCENTRATED GEOGRAPHIC REGION IN WHICH WE OPERATE, AS WELL AS CHANGES AFFECTING THE NATIONAL ECONOMY, AND NEGATIVE ECONOMIC DEVELOPMENTS EITHER LOCALLY OR NATIONALLY COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS. Our operations are concentrated within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee. We are therefore vulnerable to regional economic downturns as well as to natural and other catastrophic events that may impact our local region, in addition to being vulnerable to any such events that may affect the national economy as a whole. Economic conditions such as interest rates, energy costs and unemployment rates may adversely affect both our sales and our cost structure, which could lead to higher losses, and may also adversely affect our future growth and expansion. Further, since our operations are concentrated in a single, relatively compact geographical area, opportunities for future store expansion may be limited, which may adversely affect our business and results of operations. THE LOSS OF ANY OF OUR KEY EMPLOYEES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We are heavily dependent upon the services of Michael A. Richardson, our President and Chief Executive Officer, and Paul R. Cook, our Executive Vice President and Chief Financial Officer, as well as certain other key personnel. If Mr. Richardson, Mr. Cook or any of our other key personnel were to unexpectedly leave our Company, our business, financial condition and results of operations could be materially and adversely affected. CHANGES IN THE TERMS ON WHICH SUPPLIERS REQUIRE THE COMPANY TO PAY FOR STORE MERCHANDISE COULD HAVE AN ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Similar to many retailers, the Company has payment terms with most of its suppliers that extend payment for up to 30 days beyond the date the product is purchased. Those payment terms are subject to change at any time. If the Company's suppliers change their payment terms for whatever reason and require faster payment by the Company, it could have a material adverse effect on the Company's business, financial condition and results of operations. A CHANGE IN SUPPLIER REBATES COULD ADVERSELY AFFECT OUR RESULTS. We receive allowances, credits and income form suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Certain of these funds are based on volume of net sales or purchases, growth rate of net sales or purchases and marketing 8 programs. If we do not grow our net sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by our suppliers. Additionally, suppliers routinely change the requirements for, and the amount of, funds available. No assurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. A reduction in, the discontinuance of, or a significant delay in receiving such incentives, as well as the inability to collect such incentives, could have a material adverse effect on our business, results of operations and financial condition. WE DEPEND ON ONE PRINCIPAL SUPPLIER FOR A SUBSTANTIAL PORTION OF OUR MERCHANDISE INVENTORY. A DISRUPTION IN SUPPLY OR A CHANGE IN OUR RELATIONSHIP COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We purchase approximately 81% of our merchandise including grocery, meat and produce items, from a single wholesale grocer, Mitchell Grocery Corporation. Mitchell has been a supplier of ours since 2000. We do not have a written contract with Mitchell but a change of merchandise suppliers, a disruption in supply or a significant change in our relationship with Mitchell could have a material adverse effect on our business and results of operations and ability to service our outstanding indebtedness. AS A RESULT OF SELLING FOOD PRODUCTS, WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND ADVERSE PUBLICITY THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR PROFITABILITY AND BUSINESS OPERATIONS. The packaging, marketing, distribution and sale of food products purchased from others entail an inherent risk of product liability, product recall and adverse publicity resulting from such events. Any such products may contain contaminants that we may inadvertently redistribute. These contaminants may, in certain cases, result in illness, injury or death if processing at the foodservice or consumer level does not eliminate the contaminants. Even an inadvertent shipment of adulterated products may violate the law and may lead to an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against us or that we will not be obligated to perform such a recall in the future. If a product liability claim is successful, our insurance may not be adequate to cover all liabilities that we may incur, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If we do not have adequate insurance or contractual indemnification available from the producer of the product or others in the supply chain, product liability claims relating to defective products could have a material adverse effect on our business, financial condition and results of operations. In addition, adverse publicity about these types of claims and concerns, whether or not valid, may discourage consumers from buying our products or cause production and delivery disruptions, which also could have a material adverse effect on our business, financial condition and results of operations. IF WE WERE HELD LIABLE FOR ANY FUTURE ENVIRONMENTAL DAMAGES OR CLEANUP COSTS, OUR BUSINESS AND FINANCIAL CONDITION COULD BE ADVERSELY IMPACTED. Our operations subject us to various laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous materials and the cleanup of contaminated sites. Under some environmental laws, such as the Comprehensive 9 Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statues, responsibility for the entire cost of cleanup of a contaminated site can be imposed upon any current or former site owners or operators, or upon any party who sent waste to the site, regardless of the lawfulness of the original activities that lead to the contamination. We believe we are currently in substantial compliance with all applicable environmental requirements. However, future developments such as more aggressive enforcement policies, new laws or discoveries of unknown conditions may require expenditures that could have a material adverse effect on our business and financial condition. ADVERSE OUTCOMES IN ANY FUTURE LEGAL PROCEEDINGS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. From time to time, we may be made a party to legal proceedings, including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business. We are not presently a party to any material legal proceedings, and we estimate our exposure to any such claims and litigation arising in the normal course of business and currently believe we have made adequate provisions for such exposure. Unexpected future outcomes in any such matters, however, could result in a material adverse effect on our financial condition and results of operations. ANY DISRUPTIONS TO THE OPERATION OF, OR BREACHES IN THE SECURITY OF DATA MAINTAINED IN, THE INFORMATION TECHNOLOGY SYSTEMS ON WHICH OUR BUSINESS INCREASINGLY DEPENDS COULD ADVERSELY AFFECT THE COMPANY. Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations. If we were to experience difficulties maintaining existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations. Additionally, these systems contain valuable proprietary data that, if breached, would have an adverse effect on the Company. 10 ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES The executive offices of the Company are located in a 4,000 square-foot office building on Hannah Way, just off Battlefield Parkway in Rossville, Georgia, which the Company holds under a lease for a term of three years, expiring in September 2009 with one two-year renewal option. The Company's supermarkets are located in Ringgold, LaFayette, Chatsworth, Chickamauga and Tunnel Hill, Georgia; Stevenson, Alabama; and Dayton and Jasper, Tennessee. All of the eight locations are leased from unaffiliated landlords. Summary information concerning these leases is presented below:
Square Current Lease Renewal Location Footage Term Options - --------------- ------- ------------------- ------------- Ringgold, GA 14,400 12/01/02 - 11/30/07 - LaFayette, GA 20,500 02/01/07 - 01/31/12 1-5 yr. terms Chatsworth, GA 24,360 04/29/03 - 04/30/08 2-5 yr. terms Chickamauga, GA 13,840 01/01/05 - 12/31/09 1-5 yr. term Tunnel Hill, GA 18,900 01/01/04 - 08/31/07 3-5 yr. terms Stevenson, AL 23,860 06/01/04 - 05/31/09 1-5 yr. term Dayton, TN 23,004 08/01/07 - 07/31/12 - Jasper, TN 25,000 05/01/06 - 04/30/14 2-5 yr. terms ------- 163,864 =======
The supermarkets in Ringgold, LaFayette, Chatsworth and Tunnel Hill, Georgia; Stevenson, Alabama; and Dayton, Tennessee, are located in strip shopping centers. The stores in Chickamauga, Georgia and Jasper, Tennessee are free-standing. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party, or to which any of its property is subject, nor have any material legal proceedings been terminated during the fourth quarter of the Company's fiscal year. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 11 EXECUTIVE OFFICERS OF THE COMPANY The Company's Board of Directors appoints the Company's Executive Officers for a term of one year. The names, ages, offices held with the Company, business experience during the past five years, and certain directorships held by each of the Company's Executive Officers are set forth in the following table:
Name and Year Office(s) Presently First Elected as Held, Business Experience Executive Officer and Certain Directorships Age - --------------------- --------------------------------- --- Michael A. Richardson Chairman of the Board of 61 1977 Directors, President, Chief Executive Officer, member of the Executive Committee of the Board of Directors. Paul R. Cook Executive Vice-President, 57 1987 Treasurer, Chief Financial Officer, Director, member of the Executive Committee of the Board of Directors. Director of Capital Bank, Fort Oglethorpe, Georgia since May 1993. James E. Floyd Vice-President, member of 63 1991 the Executive Committee (ex-officio). Reba S. Southern Secretary, member of the 54 1991 Executive Committee (ex-officio).
12 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (a) The approximate number of record holders of the Company's common stock at June 2, 2007, was 782. The Company does not have any equity compensation plans. The remaining information required by paragraph (a) of this Item 5 is incorporated herein by reference to page 4 of the Company's Annual Report to security holders for the fiscal year ended June 2, 2007. (b) Not applicable. (c) Issuer Repurchases: ------------------- The following table presents information with respect to repurchases of common stock made by the Company during the fourth quarter of the fiscal year covered by this report:
Average Total Number of Maximum Number of Total Number Price Shares Purchased as Shares that May Yet of Shares Paid per Part of a Publicly Be Purchased Period Purchased (1) Share Announced Plan Under the Plan - ------------------------ ------------- --------- ------------------- ------------------- March 4 - March 31, 2007 165 $ 1.00 - - April 1 - April 28 2007 715 $ 1.00 - - April 29 - June 2, 2007 440 $ 1.00 - - TOTAL 1,320 $ 1.00 - - ============= ========= =================== ===================
(1) Represents shares repurchased at $1.00 per share in response to unsolicited requests from unaffiliated shareholders during the quarter. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated herein by reference to page 3 of the Company's Annual Report to security holders for the fiscal year ended June 2, 2007. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated herein by reference to pages 6 through 19 of the Company's Annual Report to security holders for the fiscal year ended June 2, 2007. 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not engage in derivative transactions, nor does it hold or issue financial instruments for trading or other speculative purposes. The Company is exposed to market risk related to changes in interest rates primarily as a result of its borrowing activities. The effective interest rate on the Company's borrowings under its Line of Credit Agreements and under its outstanding notes varies with the prime rate. The Company does not maintain any interest rate hedging arrangements. Based on the Company's outstanding indebtedness at June 2, 2007 a one percent (1.0%) increase in the prime interest rate would increase interest expense applicable to our variable rate debt (and reduce our income) by approximately $8,000 annually. Conversely, a one percent (1.0%) decrease in the prime interest rate would decrease interest expense applicable to our variable rate debt (and increase our net income) by approximately $8,000 annually. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated herein by reference to pages 20 through 35 of the Company's Annual Report to security holders for the fiscal year ended June 2, 2007. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this annual report, an evaluation was performed, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. No change in the Company's internal control over financial reporting occurred during fourth fiscal quarter of the period covered by this annual report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 14 PART III -------- ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Executive Officers - ------------------ Information concerning the Company's Executive Officers is set forth in Part I of this report on Form 10-K under the caption "Executive Officers of the Company." Audit Committee Financial Expert - -------------------------------- All three of the Company's independent directors currently serve on the Audit Committee, and each is an experienced business professional. Thomas L. Richardson is the retired chief executive officer of Learning Labs, Inc., a position he held for 27 years. He has had over 31 years of experience in reviewing the Company's financial reporting process through service as an independent director. Danny R. Skates has 12 years of senior management experience as Vice President and General Manager of Jackson Chevrolet Pontiac Buick GMC, Inc., and Andrew V. Douglas has had extensive experience with the business of independent grocery retailers such as the Company through his service as a retail counselor for Fleming Companies, Inc., our former principal supplier. Accordingly, in light of their backgrounds and their understanding of the Company's business, the Board of Directors believes that the members of the Audit Committee will be able to provide effective oversight for the Company's financial reporting process and its relationship with its independent accountants. Nevertheless, the Company's Board of Directors has not determined that any member of the Company's Audit Committee qualifies as an "audit committee financial expert" under the SEC's detailed, technical definition of that term. Code of Ethics - -------------- The Company has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") which applies to its principal executive officer, principal financial officer and principal accounting officer or controller, and any persons performing similar functions. A copy of the Code of Ethics is filed as Exhibit 14 to this Report. The remaining information required by this Item is incorporated herein by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company's 2007 Annual Meeting of Shareholders, under the headings "INFORMATION ABOUT NOMINEES FOR DIRECTOR" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE." 15 ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company's 2007 Annual Meeting of Shareholders, under the headings "DIRECTOR COMPENSATION," "EXECUTIVE COMPENSATION" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION." Additionally, in accordance with Instruction (2) to Item 407(e)(5) of SEC Regulation S-K, the section of such proxy statement entitled "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF AMERICAN CONSUMERS, INC." is incorporated herein by reference as "furnished" but not "filed" disclosure, pursuant to General Instruction G(3) to SEC Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities Authorized for Issuance Under Equity Compensation Plans - ------------------------------------------------------------------ The Company has not adopted any equity compensation plans. The remaining information required by this Item is incorporated herein by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company's 2007 Annual Meeting of Shareholders, under the headings "PRINCIPAL SHAREHOLDERS" and "INFORMATION ABOUT NOMINEES FOR DIRECTOR." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated herein by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company's 2007 Annual Meeting of Shareholders, under the headings "CERTAIN TRANSACTIONS" and "DIRECTOR NOMINATION PROCESS AND INDEPENDENCE DETERMINATIONS." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item is incorporated herein by reference to the Company's definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company's 2007 Annual Meeting of Shareholders, under the heading "AUDIT FEES." 16 PART IV ------- ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. The following Financial Statements included in the Company's 2007 Annual Report to the security holders for the fiscal year ended June 2, 2007, are incorporated by reference in Item 8 hereof: - Report of Independent Registered Public Accounting Firm - Balance Sheets - June 2, 2007 and June 3, 2006 - Statements of Income and Changes in Stockholders' Equity - Fiscal Years Ended June 2, 2007, June 3, 2006 and May 28, 2005 - Statements of Cash Flows - Fiscal Years Ended June 2, 2007, June 3, 2006 and May 28, 2005 - Notes to Financial Statements 2. None of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are required under the related instructions, or else are inapplicable to the Company, and therefore no such schedules have been filed. 3. The Exhibit Index attached to this report is incorporated by reference into this Item 15(a)(3). 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN CONSUMERS, INC. Date: August 28, 2007 By: /s/ Michael A. Richardson ------------------------------ Michael A. Richardson Chairman of the Board, President and Chief Executive Officer 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 registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------- -------------------------- ---------------- /s/ Michael A. Richardson Chairman of the Board, August 28, 2007 - ------------------------- President and Chief Michael A. Richardson Executive Officer /s/ Paul R. Cook Executive Vice-President, August 28, 2007 - ------------------------- Chief Financial Officer, Paul R. Cook Treasurer (Chief Accounting Officer) and Director /s/ Virgil E. Bishop Director August 28, 2007 - ------------------------- Virgil E. Bishop /s/ Danny R. Skates Director August 28, 2007 - ------------------------- Danny R. Skates /s/ Thomas L. Richardson Director August 22, 2007 - ------------------------- Thomas L. Richardson /s/ Andrew V. Douglas Director August 29, 2007 - ------------------------- Andrew V. Douglas
EXHIBIT INDEX Exhibit 3 Articles of Incorporation and By-Laws. Incorporated by reference to Exhibit 3 to Form 10-K for the year ended May 29, 1993. Exhibit 10.1 Lease for the Company's Ringgold, Georgia location. Incorporated by reference to Exhibit 10(e) to Form 10-K for the year ended May 29, 1993. Exhibit 10.2 Lease Agreement for the Company's LaFayette, Georgia location. Incorporated by reference to Exhibit 10(f) to Form 10-K for the year ended May 29, 1993. Exhibit 10.3 Lease Agreement for the Company's Chatsworth, Georgia location. Incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended May 29, 1993. Exhibit 10.4 First Lease Amendment Agreement for the Company's Chatsworth, Georgia location, dated March 19, 2003. Incorporated by reference to Exhibit 10.15 to Form 10-K for the year ended May 31, 2003. Exhibit 10.5 Lease Agreement for the Company's Chickamauga, Georgia location. Incorporated by reference to Exhibit 10(h) to Form 10-K for the year ended May 29, 1993. Exhibit 10.6 Letter Agreement, dated August 3, 1994, concerning three 5- year extension options for the Company's Chickamauga, Georgia location. Incorporated by reference to Exhibit 10 to Form 10-Q for quarterly period ended August 27, 1994. Exhibit 10.7 Renewal Lease Agreement for the Company's Stevenson, Alabama location. Incorporated by reference to Exhibit 10(h) to Form 10-K for the year ended May 28, 1994. Exhibit 10.8 Lease Agreement for the Company's Dayton, Tennessee location. Incorporated by reference to Exhibit 10(j) to Form 10-K for the year ended May 29, 1993. Exhibit 10.9 Lease Agreement for the Company's Executive Offices. Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarterly period ended September 1, 2001. All references incorporating exhibits from documents previously filed by the Company with the SEC are to SEC File No. 0-5815 Exhibit 10.10 Lease Agreement for the Company's Jasper, Tennessee location. Incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended June 2, 2001. Exhibit 10.11 Lease Agreement for the Company's Tunnel Hill, Georgia location, dated December 20, 2003 between the Company and Tunnel Properties, LLC. Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended February 28, 2004. Exhibit 10.12 Demand Note with Variable Interest Rate between the Company and Michael A. and Diana K. Richardson. Incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended May 29, 2004. Exhibit 10.13 Demand Note with Variable Interest Rate between the Company and Matthew A. Richardson. Incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended May 29, 2004. Exhibit 10.14 Commercial Variable Rate Revolving or Draw Note between the Company and Northwest Georgia Bank, dated as of June 27, 2006. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated July 25, 2006. Exhibit 10.15 Commercial Security Agreement between the Company and Northwest Georgia Bank, dated as of June 27, 2006. Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated July 25, 2006. Exhibit 10.16 Assignment of Certificate of Deposit between the Company and Northwest Georgia Bank, dated as of June 27, 2006. Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K dated July 25, 2006. All references incorporating exhibits from documents previously filed by the Company with the SEC are to SEC File No. 0-5815 Exhibit 10.17 Commitment Letter between the Company and Gateway Bank and Trust Company, dated as of March 16, 2007. Filed herewith.* Exhibit 10.18 Business Loan Agreement and Promissory Note between the Company and Gateway Bank and Trust Company, dated as of May 3, 2007, for $180,000 Term Loan. Filed herewith.* Exhibit 10.19 Commercial Security Agreement between the Company and Gateway Bank and Trust Company for $180,000 Term Loan, dated as of May 3, 2007. Filed herewith.* Exhibit 10.20 Assignment of Deposit Account between the Company and Gateway Bank and Trust Company for $180,000 Term Loan, dated as of May 3, 2007. Filed herewith.* Exhibit 10.21 Business Loan Agreement and Promissory Note between the Company and Gateway Bank and Trust Company, dated as of May 3, 2007, for $800,000 Revolving Line of Credit. Filed herewith.* Exhibit 10.22 Commercial Security Agreement between the Company and Gateway Bank and Trust Company for $800,000 Revolving Line of Credit, dated as of May 3, 2007. Filed herewith.* Exhibit 10.23 Assignment of Deposit Account between the Company and Gateway Bank and Trust Company for $800,000 Revolving Line of Credit, dated as of May 3, 2007. Filed herewith.* Exhibit 10.24 Letter Agreement, dated as of May 3, 2007, between the Company and Gateway Bank and Trust Company. Filed herewith.* Exhibit 10.25** Narrative Summary of the Company's Executive Officer Base Salaries for Fiscal 2008 (with no material changes from fiscal 2007). Filed herewith. Exhibit 10.26** Narrative Summary of the Company's Cash Bonus Plan for fiscal 2008 (with no material changes from fiscal 2007). Filed herewith. Exhibit 10.27** Narrative Summary of Director Compensation Arrangements for the Company (no material changes from fiscal 2007 description). Filed herewith. All references incorporating exhibits from documents previously filed by the Company with the SEC are to SEC File No. 0-5815 Exhibit 13 Information Incorporated by Reference from Annual Report to Shareholders for the Fiscal Year ended June 2, 2007. Filed herewith. Exhibit 14 Code of Business Conduct and Ethics. Incorporated by reference to Exhibit 14 to Form 10-K for the year ended May 29, 2004. Exhibit 23 Consent of Hazlett, Lewis & Bieter, PLLC. Filed herewith. Exhibit 31.1 C.E.O. Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). Filed herewith. Exhibit 31.2 C.F.O. Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). Filed herewith. Exhibit 32.1 C.E.O. Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b). Filed herewith. Exhibit 32.2 C.F.O. Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b). Filed herewith. * Re-filed with this Annual Report on Form 10-K solely to correct certain typographical errors in the copies of the contracts which were filed as Exhibits 10.1 through 10.8 to the Company's Current Report on Form 8-K dated May 3, 2007. ** Indicates a management contract or compensatory plan or arrangement. All references incorporating exhibits from documents previously filed by the Company with the SEC are to SEC File No. 0-5815 EX-10.17 2 ex10_17.txt EXHIBIT 10.17 [LETTERHEAD OF GATEWAY BANK & TRUST COMPANY] March 16, 2007 American Consumers, Inc. 55 Hannah Way Rossville, GA 30741 Gentlemen: Gateway Bank & trust (the "Bank") is pleased to approve your loan request to provide a credit facility, not to exceed a total of $980,000.00, consisting of: A) A term loan (the "Term Loan") in an amount not to exceed $180,000.00 to refinance company installment debt owed to Northwest Georgia Bank; and B) A Revolving line of credit (the "Revolver"), in the maximum amount of $800,000.00, to provide short-term cash flow needs while replacing a similar line at Northwest Georgia Bank. The Term Loan and the Revolver shall be subject to the terms and conditions set for herein. (1) Borrower: The "Borrower" on both the Term Loan and the Revolver shall be American Consumers, Inc., doing business as Shop Rite. (2) Basic terms of the Term Loan: (a) The term shall be 5 years. (b) Interest shall accrue at a variable rate based on the Prime Rate as set forth in the Wall Street Journal. Today, that rate is 8.25%, and the rate shall change monthly with changes in the Prime Rate. (c) Monthly payments of principal and interest will be based on a 5-year amortization period. (3) Basic terms of the Revolver: (a) The term shall be 12 months. (b) Interest shall accrue at a variable rate based on the Prime Rate as set forth in the Wall Street Journal. Today, that rate is 8.25%, and the rate shall change monthly with changes in the Prime Rate. (c) Monthly payments of interest only shall be due and payable monthly, whenever any amount shall be outstanding under the Revolver. (d) A borrowing base certificate is to be submitted to the bank on a quarterly basis, with said certificate to be provided to you by the bank. At no time shall the balance of the line exceed 40% of eligible inventory; should the line balance exceed 40% of eligible inventory, the bank will allow a 15 day cure period for the imbalance to be corrected by the Borrower. (4) Origination Fees: Borrower shall pay to Bank at closing of the Term Loan & Revolver, an origination fee equal to 0.60% of the note amount of both credits. (5) Use of Proceeds and Advances: (a) The proceeds of the Term Loan shall be used to payoff similar debt at Northwest Georgia Bank. (b) Any advance under the Revolver shall be used for short-term cash needs in the normal course of business and to payoff a line at Northwest Georgia Bank. (6) Collateral: The Term Loan and the Revolver shall be secured by a first priority assignment of all of the Borrower's accounts receivable, cash flow, accounts, inventory, furniture, fixtures, equipment, machinery, leasehold improvements, computers, office equipment, cash registers, and generally all business assets now owned or hereafter acquired. The bank will also take an Assignment of a $300,000.00 CD, currently held at Northwest Georgia Bank, to be held at GWBT upon maturity of the CD on July 1, 2007, as additional collateral. The Term Loan and the Revolver shall be cross-defaulted and cross-collateralized. Personal guaranties of Michael Richardson and P.R. Cook also required. (7) Documentation Expenses/Closing Costs: The Borrower shall pay all fees and expenses incurred by the Bank in properly documenting the facility identified herein, as well as all other fees and expenses incurred by the Bank, including, but not limited to, attorney's fees, appraisal fees, title insurance premiums, environmental assessments, survey costs, engineering and inspection fees (where applicable). Borrower shall pay all such expenses incurred, whether or not the Term Loan or the Revolver closes. (8) Loan Conditions and Covenants: (a) The Borrower shall provide to the Bank quarterly financial statements, certified by the Chief Financial Officer of the Borrower, within forty-five (45) days after the end of each calendar quarter, which statements shall include balance sheets, quarterly and year-to-date income statements, detailed Accounts Payable and Inventory listings, and any other information requested by the Bank. (b) The Borrower shall provide to the Bank annual financial statements, audited by an independent certified pubic accounting firm acceptable to the Bank, within ninety (90) days after the end of each calendar year, which statements shall include balance sheets, income statements, and any other information requested by the Bank. (c) The Borrower shall adhere to the conditions of the borrowing base certificate, as discussed in the terms section of the Revolver herein. (d) The Borrower shall not enter into any debt obligation, loan or lease arrangement, with a value of $50,000.00 or greater without the bank's prior consent, which will not be unreasonably withheld. (e) The Borrower shall make the Bank its primary bank of account, as evidenced by operating accounts, reserve accounts, and other ancillary bank products as needed. (9) Expiration: This commitment shall be null and void unless a copy of the same, executed by the Borrower is returned to the Bank within ten (10) days hereof. Thereafter, the commitment shall expire with no obligation to the Bank. (10) Additional Requirements: (a) Receipt of appropriate resolutions and/or other such documentation satisfactory to the Bank's legal counsel expressly authorizing the execution of all required loan documents. (b) Evidence of general and professional liability and workman's comprehensive insurance coverage on all the facilities and activities of the Borrower, as well as hazard insurance coverage. (c) The accuracy of all information, representations, and materials submitted with or in support of the application for this credit facility, and the failure of the accuracy thereof or any material change therein, shall, at the option of the Bank, operate to terminate this commitment and all of the Bank's obligations hereunder. (d) Continuing compliance and performance by the Borrower with all of the conditions and requirements set forth herein. (e) Continuing compliance with all applicable laws and regulations now, or hereafter relating to this credit facility and to the operations of the Borrower's business as currently conducted. (f) Neither this commitment nor the loan proceeds shall be assigned by the Borrower without prior written consent of the Bank, and any attempt at such assignment without the Bank's consent shall be void. (g) No change in the provisions of this commitment shall be binding unless in writing and executed in the name of, and by an authorized officer of, the Bank. (h) Except as may be prohibited by applicable laws and regulations, the Borrower shall establish and maintain cash management services for all of its operations and facilities through the Bank. This letter sets forth the general terms and conditions of the credit facility, but is not intended to be exhaustive. The collateral documents to be executed shall contain the agreements and requirements set forth herein, and may also contain such other agreements, covenants, and requirements as may be required by the Bank and/or determined by the Bank's legal counsel to be necessary to evidence the Term Loan, the Revolver, and the Bank's security interests. Please indicate your acceptance of the terms and conditions set forth herein, subject to the negotiation and execution of mutually acceptable definitive agreements embodying such terms and conditions, by signing and returning a copy of this commitment letter. Sincerely, /s/ R. Shawn Rogers R. Shawn Rogers Sr. Vice President We hereby accept the above terms and conditions as proposed, subject to the negotiation and execution of mutually acceptable definitive agreements on substantially the terms set forth herein, this 22nd day of March, 2007. ---- ----- American Consumers, Inc. By: /s/ Paul R. Cook ---------------------------- Name: Paul R. Cook -------------------------- Title: Executive Vice President ------------------------- EX-10.18 3 ex10_18.txt EXHIBIT 10.18 BUSINESS LOAN AGREEMENT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/ ACCOUNT OFFICER INITIALS COLL $180,000.00 05-03-2007 05-05-2012 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS BUSINESS LOAN AGREEMENT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Borrower") and GATEWAY BANK & TRUST ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. TERM. This Agreement shall be effective as of May 3, 2007, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until May 5, 2012. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Georgia. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains its principal office at 55 HANNAH WAY, ROSSVILLE, GA 30741. Unless Borrower has designated otherwise in writing, this is the principal office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities. Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None. Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial BUSINESS LOAN AGREEMENT (Continued) Page 2 ================================================================================ condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements. Furnish Lender with the following: Annual Statements. As soon as available, but in no event later than sixty (60) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, prepared by Borrower. Tax Returns. As soon as available, but in no event later than sixty (60) days after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by a tax professional satisfactory to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, as Lender may request from time to time. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender's forms, and in the amounts and under the conditions set forth in those guaranties.
Names of Guarantors Amounts --------------------- ------- MICHAEL A. RICHARDSON 100.000% of $180,000.00 PAUL R. COOK 100.000% of $180,000.00
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for the following specific purposes: BORROWER TO FURNISH BANK WITH QUATERLY BORROWING BASE REQUIRING BORROWER'S LINE BALANCE TO STAY AT 40% OR LESS OF INVENTORY. BORROWER HAS 15 DAYS FROM THE DATE OF THE CERTIFICATE TO CURE ANY IMBALANCE. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner. Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to BUSINESS LOAN AGREEMENT (Continued) Page 3 ================================================================================ evidence and secure the Loans and to perfect all Security Interests, LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business. Agreements. Borrower will not enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Borrower fails to make any payment when due under the Loan. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired. Insecurity. Lender in good faith believes itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help BUSINESS LOAN AGREEMENT (Continued) Page 4 ================================================================================ enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates. Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties. Borrower understands and agrees that in making the Loan, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time Is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GAAP. The word "GAAP" means generally accepted accounting principles. Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or BUSINESS LOAN AGREEMENT (Continued) Page 5 ================================================================================ waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $180,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MAY 3, 2007. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
LENDER: GATEWAY BANK & TRUST By: /s/ R. Shawn Rogers (Seal) --------------------------------------- Authorized Signer PROMISSORY NOTE - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/ ACCOUNT OFFICER INITIALS COLL $180,000.00 05-03-2007 05-05-2012 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ Principal Amount: $180,000.00 Initial Rate: 8.250% Date of Note: May 3, 2007 PROMISE TO PAY. AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Borrower") promises to pay to GATEWAY BANK & TRUST ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Hundred Eighty Thousand & 00/100 Dollars ($180,000.00), together with interest on the unpaid principal balance from May 3, 2007, until paid in full. PAYMENT. Subject to any payment changes resulting from changes in the index, Borrower will pay this loan in 60 payments of $3,684.37 each payment. Borrower's first payment is due June 5, 2007, and all subsequent payments are due on the same day of each month after that. Borrower's final payment will be due on May 5, 2012, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay lender at lender's address shown above or at such other place as lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each month. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 8.250% per annum. The interest rate to be applied to the unpaid principal balance during this Note will be at a rate equal to the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial annual rate of simple interest of 8.250%. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.000% per annum or more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (A) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (B) increase Borrower's payments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue Borrower's payments at the same amount and increase Borrower's final payment. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $10.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: GATEWAY BANK & TRUST, Main, 5102 Alabama Hwy, Ringgold, GA 30736. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 10.000% of the unpaid portion of the regularly scheduled payment or $10.00, whichever is greater, regardless of any partial payments Lender has received. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the total sum due under this Note will continue to accrue interest at the interest rate under this Note. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default In Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. LENDER'S RIGHTS. Upon default. Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's costs of collection, including court costs and fifteen percent (15%| of the principal plus accrued interest as attorneys' fees, if any sums owing under this Note are collected by or through an attorney at law, whether or not there is a lawsuit, and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. GOVERNING LAW. This Note will be governed by federal law applicable to lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Note has been accepted by lender in the State of Georgia. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 or five percent (5%) of the face amount of the check, whichever is greater, if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. PROMISSORY NOTE (Continued) Page 2 ================================================================================ RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on The indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. COLLATERAL. Borrower acknowledges this Note is secured by UCC ON ALL BUSINESS ASSETS, INCLUDING BUT NOT LIMITED TO: ACCOUNTS, A/R, CASH FLOW, INVENTORY, FURNITURE, FIXTURES, EQUIPMENT, REFIRIGERATORS, FREEZERS, MACHINERY, COMPUTERS, REGISTERS, LEASEHOLD IMPROVEMENTS; CD#28-6873622 WITH THE APPROXIMATE BALANCE OF $312,161.01 HELD AT NORTHWEST GEORGIA BANK. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency. Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: GATEWAY BANK & TRUST P. O. Box 129 RINGGOLD, GA 30736. GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties waive any right to require Lender to take action against any other party who signs this Note as provided in O.C.G.A. Section 10-7-24 and agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lander without the consent of or notice 1o anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.19 4 ex10_19.txt EXHIBIT 10.19 COMMERCIAL SECURITY AGREEMENT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/ ACCOUNT OFFICER INITIALS COLL $180,000.00 05-03-2007 05-05-2012 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "* * * " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS COMMERCIAL SECURITY AGREEMENT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Grantor") and GATEWAY BANK & TRUST ("Lender"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement: UCC ON ALL BUSINESS ASSETS, INCLUDING BUT NOT LIMITED TO: ACCOUNTS, A/R, CASH FLOW, INVENTORY, FURNITURE, FIXTURES, EQUIPMENT, REFIRIGERATORS, FREEZERS, MACHINERY, COMPUTERS, REGISTERS, LEASEHOLD IMPROVEMENTS. In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (A) All accessions, attachments, accessories, replacements of and additions to any of the collateral described herein, whether added now or later. (B) All products and produce of any of the property described in this Collateral section. (C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section. (D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process. (E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that: Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. Notices to Lender. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing. Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located. Removal of the Collateral. Except in the ordinary course of Grantor's business, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral. Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be COMMERCIAL SECURITY AGREEMENT (Continued) Page 2 ================================================================================ filed against the Collateral. Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located. Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days. Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral, Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized. Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change. GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Grantor fails to make any payment when due under the Indebtedness. Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase COMMERCIAL SECURITY AGREEMENT (Continued) Page 3 ================================================================================ or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor's or any Grantor's ability to repay the Indebtedness or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. Insecurity. Lender in good faith believes itself insecure. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Georgia Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor. Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver. Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property. Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper. Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be COMMERCIAL SECURITY AGREEMENT (Continued) Page 4 ================================================================================ granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America, Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code: Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default". Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986. Pub, L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Grantor. The word "Grantor" means AMERICAN CONSUMERS, INC. DBA SHOP RITE. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $180,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 3, 2007. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.20 5 ex10_20.txt EXHIBIT 10.20 ASSIGNMENT OF DEPOSIT ACCOUNT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/COLL ACCOUNT OFFICER INITIALS $180,000.00 05-03-2007 05-05-2012 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS ASSIGNMENT OF DEPOSIT ACCOUNT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Grantor") and GATEWAY BANK & TRUST ("Lender"). ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a security interest in the Collateral, including without limitation the deposit accounts described below, to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" means the following described deposit account ("Account"): CD#28-6873622 WITH THE APPROXIMATE BALANCE OF $312,161.01 HELD AT NORTHWEST GEORGIA BANK together with (A) all interest, whether now accrued or hereafter accruing; (B) all additional deposits hereafter made to the Account; (C) any and all proceeds from the Account; and (D) all renewals, replacements and substitutions for any of the foregoing. CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that: Ownership. Grantor is the lawful owner of the Collateral free and clear of all loans, liens, encumbrances, and claims except as disclosed to and accepted by Lender in writing. Right to Grant Security Interest. Grantor has the full right, power, and authority to enter into this Agreement and to assign the Collateral to Lender. No Prior Assignment. Grantor has not previously granted a security interest in the Collateral to any other creditor. No Further Transfer. Grantor shall not sell, assign, encumber, or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. No Defaults. There are no defaults relating to the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly do everything required of Grantor under the terms, conditions, promises, and agreements contained in or relating to the Collateral. Notice to Third Party Issuer. With regard to any certificates of deposit or similar Collateral for which Lender is not the issuer. Grantor agrees to notify the issuer or obligor of the interests hereby granted to Lender and to obtain from such issuer or obligor (a) acknowledgment of the interests in favor of Lender, and (b) the issuer's or obligor's agreement to waive in favor of Lender any and all rights of set-off or similar rights or remedies to which issuer or obligor may be entitled. Grantor further agrees, in connection therewith, to execute and cause the issuer or obligor to execute any and all acknowledgments, waivers and other agreements in such form and upon such terms as Lender may request. Proceeds. Any and all replacement or renewal certificates, instruments, or other benefits or proceeds related to the Collateral that are received by Grantor shall be held by Grantor in trust for Lender and immediately shall be delivered by Grantor to Lender to be held as part of the Collateral. Validity; Binding Effect. This Agreement is binding upon Grantor and Grantor's successors and assigns and is legally enforceable in accordance with its terms. Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this Agreement is in effect, Lender may retain the rights to possession of the Collateral, together with any and all evidence of the Collateral, such as certificates or passbooks. Lender may notify the institution which issued the Collateral of this Agreement. Grantor agrees that such institution will not pay any amount on the Collateral, other than to Lender, so long as this Agreement is in effect. This Agreement will remain in effect until (a) there no longer is any Indebtedness owing to Lender; (b) all other obligations secured by this Agreement have been fulfilled; and (c) Grantor, in writing, has requested from Lender a release of this Agreement. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of any certificate or passbook for the Collateral but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility (A) for the collection or protection of any income on the Collateral; (B) for the preservation of rights against issuers of the Collateral or against third persons; (C) for ascertaining any maturities, conversions, exchanges, offers, tenders, or similar matters relating to the Collateral; nor (D) for informing the Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Grantor fails to make any payment when due under the Indebtedness. Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Page 2 ================================================================================ in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. Default In Favor of Third Parties. Should Grantor or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor's or any Grantor's ability to repay the Indebtedness or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. Insecurity. Lender in good faith believes itself insecure. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or at any time thereafter, Lender may exercise any one or more of the following rights and remedies, in addition to any rights or remedies that may be available at law, in equity, or otherwise: Accelerate Indebtedness. Lender may declare all Indebtedness of Grantor to Lender immediately due and payable, without notice of any kind to Grantor. Surrender of Account. Lender may surrender the Account to the Issuer and obtain payment thereunder subject to any early withdrawal penalty imposed by the Issuer, when applicable. Application of Account Proceeds. Lender may obtain all funds in the Account from the issuer of the Account and apply them to the Indebtedness in the same manner as if the Account had bean issued by Lender. If the Account is subject to an early withdrawal penalty, that penalty shall be deducted from the Account before its application to the Indebtedness, whether the Account is with Lender or some other institution. Any excess funds remaining after application of the Account proceeds to the Indebtedness will be paid to Grantor as the interests of Grantor may appear. Grantor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Account to the Indebtedness. Lender also shall have all the rights of a secured party under the Georgia Uniform Commercial Code, even if the Account is not otherwise subject to such Code concerning security interests, and the parties to this Agreement agree that the provisions of the Code giving rights to a secured party shall nonetheless be a part of this Agreement. Transfer Title. Lender may effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as Grantor's attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. Other Rights and Remedies. Lender shall have and may exercise any or all of the rights and remedies of a secured creditor under the provisions of the Georgia Uniform Commercial Code, at law, in equity, or otherwise. Deficiency Judgment. If permitted by applicable law, Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section. Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (1) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (2) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (3) to settle or compromise any and all claims arising under the Collateral, ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Page 3 ================================================================================ and in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (4) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America, Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code: Account. The word "Account" means the deposit accounts described in the "Collateral Description" section. Agreement. The word "Agreement" means this Assignment of Deposit Account, as this Assignment of Deposit Account may be amended or modified from time to time, together with all exhibits and schedules attached to this Assignment of Deposit Account from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default". Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Grantor. The word "Grantor" means AMERICAN CONSUMERS, INC. DBA SHOP RITE. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the indebtedness. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents, Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $180,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 3, 2007. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.21 6 ex10_21.txt EXHIBIT 10.21 BUSINESS LOAN AGREEMENT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/COLL ACCOUNT OFFICER INITIALS $800,000.00 05-03-2007 05-02-2008 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- BORROWER: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS BUSINESS LOAN AGREEMENT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Borrower") and GATEWAY BANK & TRUST ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement ("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth In this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. TERM. This Agreement shall be effective as of May 3, 2007, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Georgia. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains its principal office at 55 HANNAH WAY, ROSSVILLE, GA 30741. Unless Borrower has designated otherwise in writing, this is the principal office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities. Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None. Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years. Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial BUSINESS LOAN AGREEMENT (Continued) Page 2 ================================================================================ condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will: Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, Investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements, Furnish Lender with the following: Annual Statements. As soon as available, but in no event later than sixty (60) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, prepared by Borrower. Tax Returns. As soon as available, but in no event later than sixty (60) days after the applicable filing date for the tax reporting period ended, Federal and other governmental tax returns, prepared by a tax professional satisfactory to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, as Lender may request from time to time. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantors named below, on Lender's forms, and in the amounts and under the conditions set forth in those guaranties.
Names of Guarantors Amounts - --------------------- ----------------------- MICHAEL A. RICHARDSON 100.000% of $800,000.00 PAUL R. COOK 100.000% of $800,000.00
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for the following specific purposes: BORROWER TO FURNISH BANK WITH QUATERLY BORROWING BASE REQUIRING BORROWER'S LINE BALANCE TO STAY AT 40% OR LESS OF INVENTORY. BORROWER HAS 15 DAYS FROM THE DATE OF THE CERTIFICATE TO CURE ANY IMBALANCE. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner. Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower. Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to BUSINESS LOAN AGREEMENT (Continued) Page 3 ================================================================================ evidence and secure the Loans and to perfect all Security Interests. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended). Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business. Agreements. Borrower will not enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Borrower fails to make any payment when due under the Loan. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower, Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired. Insecurity. Lender in good faith believes itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help BUSINESS LOAN AGREEMENT (Continued) Page 4 ================================================================================ enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates. Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement: Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. GAAP. The word "GAAP" means generally accepted accounting principles. Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous BUSINESS LOAN AGREEMENT (Continued) Page 5 ================================================================================ Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $800,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MAY 3, 2007, THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
LENDER: GATEWAY BANK & TRUST By:/s/ R. Shawn Rogers (Seal) --------------------------------------- Authorized Signer PROMISORY NOTE - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/COLL ACCOUNT OFFICER INITIALS $800,000.00 05-03-2007 05-02-2008 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- BORROWER: AMERICAN CONSUMERS. INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ Principal Amount: $800,000.00 Initial Rate: 8.250% Date of Note: May 3, 2007 PROMISE TO PAY. AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Borrower") promises to pay to GATEWAY BANK & TRUST ("Lender"), or order, in lawful money of the United States of America, the principal amount of Eight Hundred Thousand & 00/100 Dollars ($800,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid Interest on May 2, 2008. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning June 5, 2007, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each month. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 8.250% per annum. The interest rate to be applied to the unpaid principal balance during this Note will be at a rate equal to the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial annual rate of simple interest of 8.250%. NOTICE: Under no circumstances will the interest rate on this Note be less than 6.000% per annum or more than the maximum rate allowed by applicable law. PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $ 10.00. Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: GATEWAY BANK & TRUST, Main, 5102 Alabama Hwy, Ringgold, GA 30736. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged $25.00, regardless of any partial payments Lender has received. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the total sum due under this Note will continue to accrue interest at the interest rate under this Note. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's costs of collection, including court costs and fifteen percent (15%) of the principal plus accrued interest as attorneys' fees, if any sums owing under this Note are collected by or through an attorney at law, whether or not there is a lawsuit, and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Georgia. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $ 15.00 or five percent (5%) of the face amount of the check, whichever is greater, if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any PROMISSORY NOTE (Continued) Page 2 ================================================================================ and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. COLLATERAL. Borrower acknowledges this Note is secured by UCC ON ALL BUSINESS ASSETS, INCLUDING BUT NOT LIMITED TO: ACCOUNTS, A/R, CASH FLOW, INVENTORY, FURNITURE, FIXTURES, EQUIPMENT, REFIRIGERATORS, FREEZERS, MACHINERY, COMPUTERS, REGISTERS, LEASEHOLD IMPROVEMENTS; CD#28-6873622 WITH THE APPROXIMATE BALANCE OF $312,161.01 HELD AT NORTHWEST GEORGIA BANK. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following persons currently are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of their authority: MICHAEL A. RICHARDSON, President of AMERICAN CONSUMERS, INC. DBA SHOP RITE; and PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns, NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency. Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: GATEWAY BANK & TRUST P. O. Box 129 RINGGOLD, GA 30736. GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties waive any right to require Lender to take action against any other party who signs this Note as provided in O.C.G.A. Section 10-7-24 and agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.22 7 ex10_22.txt EXHIBIT 10.22 COMMERCIAL SECURITY AGREEMENT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/COLL ACCOUNT OFFICER INITIALS $800,000.00 05-03-2007 05-02-2008 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS. INC., DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS COMMERCIAL SECURITY AGREEMENT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Grantor") and GATEWAY BANK & TRUST ("Lender"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement: UCC ON ALL BUSINESS ASSETS, INCLUDING BUT NOT LIMITED TO: ACCOUNTS, A/R, CASH FLOW, INVENTORY, FURNITURE, FIXTURES, EQUIPMENT, REFIRIGERATORS, FREEZERS, MACHINERY, COMPUTERS, REGISTERS, LEASEHOLD IMPROVEMENTS. In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (A) All accessions, attachments, accessories, replacements of and additions to any of the collateral described herein, whether added now or later. (B) All products and produce of any of the property described in this Collateral section. (C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section. (D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process. (E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoft rights provided in this paragraph. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that: Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender. Notices to Lender. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing. Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located. Removal of the Collateral. Except in the ordinary course of Grantor's business, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral. Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral, Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done COMMERCIAL SECURITY AGREEMENT (Continued) Page 2 ================================================================================ on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral. Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located. Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized. Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change. GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Grantor fails to make any payment when due under the Indebtedness. Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. COMMERCIAL SECURITY AGREEMENT (Continued) Page 3 ================================================================================ Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor's or any Grantor's ability to repay the Indebtedness or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by Judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. Insecurity. Lender in good faith believes itself insecure. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Georgia Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor. Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver. Collect Revenues. Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper. Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender In the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance COMMERCIAL SECURITY AGREEMENT (Continued) Page 4 ================================================================================ shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement, Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code: Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default". Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto. Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Grantor. The word "Grantor" means AMERICAN CONSUMERS, INC. DBA SHOP RITE. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $800,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 3, 2007. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.23 8 ex10_23.txt EXHIBIT 10.23 ASSIGNMENT OF DEPOSIT ACCOUNT - -------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL/COLL ACCOUNT OFFICER INITIALS $800,000.00 05-03-2007 05-02-2008 422 086 - -------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "- - - " has been omitted due to text length limitations. - -------------------------------------------------------------------------------- GRANTOR: AMERICAN CONSUMERS, INC. DBA SHOP RITE LENDER: GATEWAY BANK & TRUST 55 HANNAH WAY MAIN ROSSVILLE, GA 30741 5102 ALABAMA HWY RINGGOLD, GA 30736 (706) 965-5500 ================================================================================ THIS ASSIGNMENT OF DEPOSIT ACCOUNT dated May 3, 2007, is made and executed between AMERICAN CONSUMERS, INC. DBA SHOP RITE ("Grantor") and GATEWAY BANK & TRUST ("Lender"). ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a security interest in the Collateral, including without limitation the deposit accounts described below, to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. COLLATERAL DESCRIPTION. The word "Collateral" means the following described deposit account ("Account"): CD#28-6873622 WITH THE APPROXIMATE BALANCE OF $312,161.01 HELD AT NORTHWEST GEORGIA BANK together with (A) all interest, whether now accrued or hereafter accruing; (B) all additional deposits hereafter made to the Account; (C) any and all proceeds from the Account; and (D) all renewals, replacements and substitutions for any of the foregoing. CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that: Ownership. Grantor is the lawful owner of the Collateral free and clear of all loans, liens, encumbrances, and claims except as disclosed to and accepted by Lender in writing. Right to Grant Security Interest. Grantor has the full right, power, and authority to enter into this Agreement and to assign the Collateral to Lender. No Prior Assignment. Grantor has not previously granted a security interest in the Collateral to any other creditor. No Further Transfer. Grantor shall not sell, assign, encumber, or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. No Defaults. There are no defaults relating to the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly do everything required of Grantor under the terms, conditions, promises, and agreements contained in or relating to the Collateral. Notice to Third Party Issuer. With regard to any certificates of deposit or similar Collateral for which Lender is not the issuer, Grantor agrees to notify the issuer or obligor of the interests hereby granted to Lender and to obtain from such issuer or obligor (a) acknowledgment of the interests in favor of Lender, and (b) the issuer's or obligor's agreement to waive in favor of Lender any and all rights of set-off or similar rights or remedies to which issuer or obligor may be entitled. Grantor further agrees, in connection therewith, to execute and cause the issuer or obligor to execute any and all acknowledgments, waivers and other agreements in such form and upon such terms as Lender may request. Proceeds. Any and all replacement or renewal certificates, instruments, or other benefits or proceeds related to the Collateral that are received by Grantor shall be held by Grantor in trust for Lender and immediately shall be delivered by Grantor to Lender to be held as part of the Collateral. Validity; Binding Effect. This Agreement is binding upon Grantor and Grantor's successors and assigns and is legally enforceable in accordance with its terms. Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, end continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this Agreement is in effect, Lender may retain the rights to possession of the Collateral, together with any and all evidence of the Collateral, such as certificates or passbooks. Lender may notify the institution which issued the Collateral of this Agreement. Grantor agrees that such institution will not pay any amount on the Collateral, other than to Lender, so long as this Agreement is in effect. This Agreement will remain in effect until (a) there no longer is any Indebtedness owing to Lender; (b) all other obligations secured by this Agreement have been fulfilled; and (c) Grantor, in writing, has requested from Lender a release of this Agreement. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of any certificate or passbook for the Collateral but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility (A) for the collection or protection of any income on the Collateral; (B) for the preservation of rights against issuers of the Collateral or against third persons; (C) for ascertaining any maturities, conversions, exchanges, offers, tenders, or similar matters relating to the Collateral; nor (D) for informing the Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Grantor fails to make any payment when due under the Indebtedness. Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Page 2 ================================================================================ in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor. Default in Favor of Third Parties. Should Grantor or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or Grantor's or any Grantor's ability to repay the Indebtedness or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. Insecurity. Lender in good faith believes itself insecure. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or at any time thereafter, Lender may exercise any one or more of the following rights and remedies, in addition to any rights or remedies that may be available at law, in equity, or otherwise: Accelerate Indebtedness. Lender may declare all Indebtedness of Grantor to Lender immediately due and payable, without notice of any kind to Grantor. Surrender of Account. Lender may surrender the Account to the Issuer and obtain payment thereunder subject to any early withdrawal penalty imposed by the Issuer, when applicable. Application of Account Proceeds. Lender may obtain all funds in the Account from the issuer of the Account and apply them to the Indebtedness in the same manner as if the Account had been issued by Lender. If the Account is subject to an early withdrawal penalty, that penalty shall be deducted from the Account before its application to the Indebtedness, whether the Account is with Lender or some other institution. Any excess funds remaining after application of the Account proceeds to the Indebtedness will be paid to Grantor as the interests of Grantor may appear. Grantor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Account to the Indebtedness. Lender also shall have all the rights of a secured party under the Georgia Uniform Commercial Code, even if the Account is not otherwise subject to such Code concerning security interests, and the parties to this Agreement agree that the provisions of the Code giving rights to a secured party shall nonetheless be a part of this Agreement. Transfer Title. Lender may effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as Grantor's attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. Other Rights and Remedies. Lender shall have and may exercise any or all of the rights and remedies of a secured creditor under the provisions of the Georgia Uniform Commercial Code, at law, in equity, or otherwise. Deficiency Judgment. If permitted by applicable law, Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section. Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Georgia without regard to its conflicts of law provisions. This Agreement has been accepted by Lender In the State of Georgia. No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (1) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (2) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (3) to settle or compromise any and all claims arising under the Collateral, ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Page 3 ================================================================================ and in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (4) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement. Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full. Time is of the Essence. Time is of the essence in the performance of this Agreement. DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code: Account. The word "Account" means the deposit accounts described in the "Collateral Description" section. Agreement. The word "Agreement" means this Assignment of Deposit Account, as this Assignment of Deposit Account may be amended or modified from time to time, together with all exhibits and schedules attached to this Assignment of Deposit Account from time to time. Borrower. The word "Borrower" means AMERICAN CONSUMERS, INC. DBA SHOP RITE and includes all co-signers and co-makers signing the Note and all their successors and assigns. Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default". Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Grantor. The word "Grantor" means AMERICAN CONSUMERS, INC. DBA SHOP RITE. Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness. Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement. Lender. The word "Lender" means GATEWAY BANK & TRUST, its successors and assigns. Note. The word "Note" means the Note executed by AMERICAN CONSUMERS, INC. DBA SHOP RITE in the principal amount of $800,000.00 dated May 3, 2007, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement. Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement. Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 3, 2007. THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR: AMERICAN CONSUMERS, INC. DBA SHOP RITE By: /s/ Michael A. Richardson (Seal) By: /s/ Paul R. Cook (Seal) -------------------------------------- ---------------------------------------- MICHAEL A. RICHARDSON, President of PAUL R. COOK, Chief Financial Officer of AMERICAN CONSUMERS, INC. DBA SHOP RITE AMERICAN CONSUMERS, INC. DBA SHOP RITE
EX-10.24 9 ex10_24.txt EXHIBIT 10.24 5 / 3 , 2007 - ---------- American Consumers, Inc. 55 Hannah Way Rossville, GA 30741 Gentlemen: This letter agreement amends and clarifies certain terms in the two Business Loan Agreements and related Promissory Notes being executed of even date herewith concerning that certain credit facility, not to exceed $980,000, being provided by Gateway Bank & Trust (the "Lender") to American Consumers, Inc. doing business as Shop Rite (the "Borrower"), consisting of: A) The Business Loan Agreement for a term loan in the amount of $180,000.00 (the "Term Loan Agreement"); and B) The Business Loan Agreement for a revolving line of credit in the maximum amount of $800,000.00 (the "Revolver Loan Agreement" and, together with the Term Loan Agreement, the "Loan Agreements"). Each of the Term Loan Agreement and the Revolver Loan Agreement are hereby modified as follows: 1. The paragraph entitled "Other Agreements" on page 2 of each of the Loan Agreements is hereby modified to read as follows: OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreement; provided, however, that this paragraph shall only apply to any such noncompliance or default that would materially, adversely affect Borrower's financial condition or properties. 2. The paragraph entitled "Adverse Change" on page 3 of each of the Loan Agreements is hereby modified to read as follows: ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition. 1 Additionally, the first sentence of the paragraph entitled "Variable Interest Rate" on the face of the Promissory Notes related to each of the Loan Agreements is hereby modified to read as follows: The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate (the "Index"). By execution of this Letter Agreement below, each of the parties hereby agrees to and accepts the modifications to the terms of each of the Loan Agreements and their related Promissory Notes set forth herein, as of this 3rd day of May, 2007. GATEWAY BANK & TRUST AMERICAN CONSUMERS, INC. By: /s/ Shawn Rogers By: /s/ Michael A. Richardson ------------------ --------------------------- Name: Shawn Rogers Name: Michael A. Richardson ------------------ --------------------------- Title: Sr. Vice President Title: President ------------------ -------------------------- 2 EX-10.25 10 ex10_25.txt EXHIBIT 10.25 EXHIBIT 10.25 NARRATIVE SUMMARY OFAMERICAN CONSUMERS, INC. -------------------------------------------- EXECUTIVE OFFICER BASE SALAIRES FOR FISCAL 2008 ----------------------------------------------- The following table sets forth the base salaries established for the fiscal year ending in May 2008 for those executive officers of American Consumers, Inc. (the "Company") who qualify as "named executive officers" pursuant to Item 402(a)(3) of Securities and Exchange Commission Regulation S-K. The Board of Directors of the Company, acting upon the recommendation of the Board's Compensation Committee, has elected to leave these base salaries unchanged from the base salaries for these officers for the Company's 2007 fiscal year.
NAME: TITLE: ANNUAL BASE SALARY: - ---------------------- -------------------------------- -------------------- Michael A. Richardson Chairman of the Board, President $ 88,400 and Chief Executive Officer Paul R. Cook Executive Vice President, 66,976 Treasurer and Chief Financial Officer
EX-10.26 11 ex10_26.txt EXHIBIT 10.26 EXHIBIT 10.26 NARRATIVE SUMMARY OF AMERICAN CONSUMERS, INC. --------------------------------------------- EXECUTIVE OFFICER CASH BONUS PLAN FOR FISCAL 2008 ------------------------------------------------- The following is a description of the Cash Bonus Plan applicable to the fiscal year ending in May 2008 for those executive officers of American Consumers, Inc. (the "Company") who qualify as "named executive officers" pursuant to Item 402(a)(3) of Securities and Exchange Commission Regulation S-K. The Board of Directors of the Company, acting upon the recommendation of the Board's Compensation Committee, has elected to leave these potential bonus percentages unchanged from the potential bonus percentages established for these officers for the Company's 2007 fiscal year. During fiscal 2008, the following named executive officers of the Company will be eligible to receive a discretionary cash bonus equal to the fixed percentage of the Company's net income before taxes for such year set forth below for each such officer:
POTENTIAL BONUS AS A NAME: TITLE: PERCENTAGE OF PRE-TAX INCOME: - ---------------------- ----------------------------------- ------------------------------ Michael A. Richardson Chairman of the Board, President 6% and Chief Executive Officer Paul R. Cook Executive Vice President, Treasurer 4% and Chief Financial Officer
The amount of any bonus ultimately paid will be determined in the discretion of the Compensation Committee. As reported in the Company's proxy statement for its 2007 Annual Meeting of Shareholders, such officers were paid bonuses in the following amounts with respect the Company's performance in fiscal 2007: Mr. Richardson - $7,219 and Mr. Cook - $4,813. EX-10.27 12 ex10_27.txt EXHIBIT 10.27 EXHIBIT 10.27 NARRATIVE SUMMARY OFAMERICAN CONSUMERS, INC. -------------------------------------------- DIRECTOR COMPENSATION ARRANGEMENTS ---------------------------------- The following is a description of the current director compensation arrangements for American Consumers, Inc. (the "Company"). The Board of Directors of the Company, acting upon the recommendation of the Board's Compensation Committee, has elected to leave these arrangements unchanged for the Company's fiscal year ending in May 2008 as compared to the Company's fiscal 2007 and prior years. During fiscal 2008, all Company directors (including both employee and non-employee directors) will receive cash payments of $300.00 per month for service as directors, plus reimbursement for reasonable expenses incurred in attending meetings of the Board of Directors and any Board committee on which a director serves. Directors who are members of the Audit Committee and the Compensation Committee of the Board of Directors do not receive any additional compensation for such committee service. EX-13 13 ex13.txt EXHIBIT 13 EXHIBIT 13
AMERICAN CONSUMERS, INC. FIVE-YEAR SUMMARY OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED --------------------------------------------------------------- JUNE 2 JUNE 3 MAY 28 MAY 29 MAY 31 2007 2006 2005 2004 2003 (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) ----------- ----------- ----------- ----------- ----------- NET SALES $ 33,783 $ 33,280 $ 32,101 $ 30,011 $ 29,625 ----------- ----------- ----------- ----------- ----------- COST AND EXPENSES: Cost of goods sold 25,766 25,234 24,431 22,819 22,524 Operating, general and administrative expenses 8,001 8,262 8,031 7,473 7,098 Interest expense 61 60 59 45 56 Other income, net (143) (109) (89) (90) (93) ----------- ----------- ----------- ----------- ----------- Total 33,685 33,447 32,432 30,247 29,585 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes 98 (167) (331) (236) 40 ----------- ----------- ----------- ----------- ----------- INCOME TAXES: Federal - - - - - State - - - - - ----------- ----------- ----------- ----------- ----------- Total - - - - - ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 98 $ (167) $ (331) $ (236) $ 40 =========== =========== =========== =========== =========== PER SHARE AMOUNTS: Net income (loss) $ .12 $ (.21) $ (.41) $ (.29) $ .05 =========== =========== =========== =========== =========== Cash dividends $ - $ - $ - $ - $ - =========== =========== =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 791 800 807 814 818 =========== =========== =========== =========== =========== TOTAL ASSETS $ 3,724 $ 3,512 $ 3,607 $ 4,090 $ 4,046 =========== =========== =========== =========== =========== LONG-TERM DEBT $ 212 $ 223 $ 426 $ 662 $ 514 =========== =========== =========== =========== ===========
- -------------------------------------------------------------------------------- Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein for a discussion of (i) the timing of new store openings and other factors which affect the comparability of the summary information presented above for each of the Company's past five fiscal years and (ii) material uncertainties which could cause the data set forth above to not necessarily be indicative of the Company's future financial condition or results of operations. - 3 - MARKET, DIVIDEND AND STOCK PERFORMANCE INFORMATION The Company's common stock is quoted on the Pink Sheets, and electronic quotation service for securities traded over-the-counter. The approximate number of record holders of the Company's common stock at June 2, 2007, was 782. The following table gives the range of high and low bid quotations and dividends for each quarterly period for the two most recent fiscal years.
Bid Prices Asked Prices Dividends - ------------------------------------------------------------------- High Low High Low Per Share -------- -------- -------- -------- --------- 2007 - ------------------------------------------------------------------- First Quarter $ 1.26 $ 1.26 $ 3.00 $ 2.25 None - ------------------------------------------------------------------- Second Quarter $ 1.35 $ 1.26 $ 2.25 $ 2.25 None - ------------------------------------------------------------------- Third Quarter $ 1.60 $ 1.12 $ 2.75 $ 2.00 None - ------------------------------------------------------------------- Fourth Quarter $ 1.75 $ 1.12 $ 2.00 $ 1.70 None - ------------------------------------------------------------------- 2006 - ------------------------------------------------------------------- First Quarter $ 1.20 $ 1.01 $ 3.00 $ 3.00 None - ------------------------------------------------------------------- Second Quarter $ 1.20 $ 1.20 $ 3.00 $ 3.00 None - ------------------------------------------------------------------- Third Quarter $ 1.26 $ 1.20 $ 3.00 $ 3.00 None - ------------------------------------------------------------------- Fourth Quarter $ 1.26 $ 1.26 $ 3.00 $ 3.00 None - -------------------------------------------------------------------
The information set forth in the above table is supplied through Pink Sheets LLC where available. There is no established public trading market for the Company's stock, and the information set forth above is based on a small number of isolated quotations and reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual trades. The market-makers as of June 2, 2007, are: Carr Securities Corporation (516) 944-8300 David A. Noyes & Co. (312) 606-4694 Domestic Securities, Inc. (732) 661-0300 Hill Thompson Magid & Co. (800) 631-3083 Hudson Securities, Inc. (201) 216-9100 Knight Equity Markets, LP (212) 336-8790 Monroe Securities, Inc. (800) 766-5560 The Vertical Group, Inc. (212) 918-1202 UBS Securities, LLC (203) 719-8710 - 4 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS --------------------- FISCAL YEAR ENDED ---------------------------------------- June 2, June 3, May 28, 2007 2006 2005 ------------ ------------ ------------ Sales $33,783,052 $33,279,928 $32,101,191 % Sales Increase 1.51% 3.67% 6.96% Gross Margin % 23.73% 24.18% 23.89% Operating, General and Administrative Expense: Amount $ 8,001,304 $ 8,262,133 $ 8,031,341 % of Sales 23.68% 24.83% 25.02% Net Income (Loss) $ 97,502 $ (167,379) $ (331,360)
Overview: - -------- American Consumers, Inc. (the "Company"), operates eight (8) self-service supermarkets within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee. All of our supermarkets are operated under the name "Shop-Rite," and are engaged in the retail sale of groceries including meats, fresh produce, dairy products, frozen foods, bakery products, tobacco products, and miscellaneous other non-food items. The Company completed the year with net income of $97,502 after struggling with operating losses for the last three years. Sales for the current year increased 1.51% over fiscal 2006. The sales increase for the current year was significantly less than that experienced during the prior two fiscal years, due in part to pricing adjustments implemented during the year to recover certain prior increases in our wholesale costs as well as to the absence of the new store openings and certain major sales promotions which significantly impacted the increases reported for the prior two years. Still, we were pleased to be able to grow the Company's sales for an eighth consecutive year despite the continuous challenges posed by the competition that we face from larger grocery retailers operating in the markets served by our stores. Management's ongoing efforts to control the Company's operating, general and administrative expenses helped us translate the increased sales into the Company's first net profit in four years, despite a slight reduction in our gross margin, as compared to a net loss of $167,379 for the fifty-three (53) week year ended June 3, 2006 and a net loss of $331,360 for the fifty-two (52) week fiscal year ended May 28, 2005. The Company's 23.73% gross margin for fiscal 2007 represents a decrease of 0.45% from fiscal 2006 and a decrease of 0.16% as compared to fiscal 2005. This reduction reflects the impact of our introduction of certain lower-priced generic merchandise this year, as well as certain targeted merchandise sales and other weekly advertised specials run to stimulate sales, coupled with the fact that competition prevented us from succeeding until the third quarter of fiscal 2007 in adjusting our retail prices to recover increases in our wholesale costs for certain items (principally certain private label merchandise) which occurred earlier in the year. The gross margin for fiscal 2006 of 24.18% was an important component in the reduction of the Company's net loss to $167,379 from the $331,360 net loss experienced in fiscal 2005. The gross margin improved because, whereas gross margin was negatively impacted during the second half of fiscal 2005 by the fact that our primary inventory supplier increased its wholesale markup from - 6 - 3.0% to 3.5% during the third quarter and competition prevented us from immediately passing the increase through to the retail level, management succeeded during fiscal 2006 in strategically adjusting the Company's retail pricing mix to recapture the remainder of this increase. Similarly, while we were not able to immediately adjust our prices to recover a fuel surcharge that the supplier implemented during the second quarter of fiscal 2006, ongoing adjustments to our pricing mix also offset this increase in our wholesale inventory costs by fiscal year end. Unfortunately, increases in several items of operating, general and administrative expenses, including a significant non-recurring theft loss experienced during the fourth quarter of fiscal 2006, more than offset the improved gross margin, resulting in the net loss for the year. The gross margin reduction that occurred in the second half of fiscal 2005, coupled with significant increases in operating, general and administrative expenses for the year, were the principal drivers of the $95,310 increase in net loss for fiscal 2005 versus 2004. Management actively monitors both the gross margin and the company's retail pricing structure in an attempt to maximize profitability. Management began working on the Company's gross margin during the quarter ended August 31, 2002, at which time the gross margin stood at 22.79% for the fiscal year ended June 1, 2002. While occasional improvements in gross profit have been seen in recent periods, such as the increase we achieved during fiscal 2006, it is difficult to maintain a trend of consistent improvement in the gross margin due to competitive conditions which often delay the Company's ability to pass through price increases experienced at the wholesale level. Accordingly, while management attempts to offset increases in its cost, such as our principal supplier's pricing increases discussed above, further improvements in the gross margin may not be achievable at this time, and further deterioration in the Company's gross margin is possible. Management believes that competitive pressures on the Company, which have led to the losses experienced in three out of the last four fiscal years, will continue to increase over time as a result of the increased presence of larger competitors operating in the Company's trade area. These competitors have greater financial resources than those of the Company, and may be able to obtain preferential treatment from suppliers in the form of advertising allowances, lower prices and other concessions not available to the Company. These factors allow our competitors to engage in aggressive pricing and promotional activities that the Company cannot match, putting us at a competitive disadvantage. Our gross margins may not be directly comparable to those of our larger competitors, since some of those companies may include the costs of their internal distribution networks in cost of goods sold - thus impacting the gross margin - while others reflect such costs elsewhere (such as in operating, general and administrative expenses). Unlike many of the larger grocery store chains with which we compete, the Company does not have an internal distribution network. Inventory is delivered directly to our individual store locations by our wholesale supplier, which recovers its distribution costs through the markup that it charges to the Company. Accordingly, our cost of goods sold as reflected in the Company's financial statements is comprised principally of our direct wholesale cost for the acquisition of such inventory, net of applicable rebates and allowances as discussed under "Inventories" in Note 1 of the accompanying financial statements. Management has been working to reduce operating, general and administrative expenses, both in absolute terms and as a percentage of the Company's sales. We achieved a measure of success on both of these fronts in fiscal 2007 as compared to the prior two fiscal years, although the two primary components of the $260,829 reduction in these expenses for fiscal 2007 may not be expected to recur in future periods. Relative to sales, operating, general and administrative - 7 - expenses decreased from 25.02% of sales in fiscal 2005 to 24.18% of sales in fiscal 2006 (despite increasing in absolute terms by $230,792 over the prior year) and to 23.68% of sales in fiscal 2007. The two principal components of the 2007 decrease, however, are the absence of the $98,750 charge for a loss due to employee theft that impacted the fourth quarter of fiscal 2006 and a decrease of $126,091 in depreciation expense for fiscal 2007 versus 2006. The 2006 theft loss was an unusual item and, given the age and fully depreciated status of a significant portion of our physical equipment, management expects annual depreciation charges to return to more historically consistent levels as the Company moves through anticipated replacement cycles for this equipment in future periods. Accordingly, we expect future periods to continue to reflect the overall increase in these expenses that has occurred with the addition of the Company's seventh and eighth grocery stores since April 28, 2001, as well as with ongoing increases in service charges related to our support for customer debit and credit card transactions and check cashing activities undertaken as a means of maintaining sales. Management continues to monitor these expenses and continues to evaluate the performance of each of our grocery store locations to determine their long-term value to the Company. A more detailed discussion of these expenses and related changes for the periods presented is set forth below. Interest expense has remained essentially flat over the last three fiscal years. The $602 increase in interest expense for fiscal 2007 compared to the prior year reflects the effects of a slight increase in our total indebtedness ($86,442 for the year) coupled with a slight increase in the weighted average interest rate applicable to our debt (from 7.37% to 8.22%) due to somewhat less significant increases in the prime rate than those which occurred last year. During fiscal 2006, interest expense increased by only $393 over fiscal 2005, in spite of a $203,627 reduction in our long-term debt, as the effects of this reduction were offset by a $93,012 increase in our short-term working capital financing and by an increase in the weighted average interest rate on our debt (from 6.11% to 7.37%) due to increases in the prime rate during the year. These slight increases in interest expense have been more than offset, however, by increases in interest income of $4,990 for fiscal 2007 versus 2006 and $6,845 for fiscal 2006 versus 2005. This differential reflects favorable repricings of our bank certificate of deposit which occurred during each of these years, as a result of an environment of generally rising interest rates on bank deposits during the periods presented. Sales: - ----- Sales for the 52-week fiscal year ended June 2, 2007 increased by 1.51% over the previous 53-week fiscal year. While this increase was significantly less than that experienced during the prior two fiscal years, adjusting to eliminate the effects of the extra week of operations during fiscal 2006 would have yielded an annual sales increase of 3.46% for fiscal 2007. Factors which management believes contributed to the overall sales increase for fiscal 2007 included our introduction of certain lower-priced generic merchandise this year, as well as certain targeted merchandise sales and other weekly advertised specials run to stimulate sales, coupled with the closing of a competitor located between two of our stores during the last quarter of fiscal 2006. We also believe that prevailing high gasoline prices during fiscal 2007 helped boost sales in general, as customers chose to prepare more meals at home to reduce their spending at restaurants and also chose to patronize grocery stores located closer to their homes. During fiscal 2007, four of our eight locations experienced store sales increases (ranging from 2.79% to 6.13%), while the other four stores experienced decreases ranging from 0.95% to 4.71%. Besides the additional week of operations that was included in the prior fiscal year, management attributes the declines - 8 - experienced at these locations to the impact of pricing adjustments implemented during the year to recover certain prior increases in our wholesale costs, as well as to reductions in our overall level of promotional activity during fiscal 2007. One store location also continues to be adversely impacted by ongoing issues related to the fact that another tenant moved out of the shopping center where it is located during fiscal 2006 and by generally unfavorable traffic pattern conditions at that location. Sales for the fiscal year ended June 3, 2006 increased by 3.67% over the previous year. Approximately 55% of this sales increase was due to the fact that our 2006 fiscal year contained 53 weeks, while fiscal 2005 was a 52-week year. Besides the extra week of operations, fiscal 2006 sales also were helped by a successful Super Bowl promotion and two significant snowfalls during the third quarter (which tend to generate short-term spikes in grocery sales as customers "stock up" on staple items), and by the success of a major promotion that we ran in celebration of the Company's 50th anniversary in May 2006. Seven of our eight locations experienced same-store sales increases (ranging from 1.0% to 11.4%) for fiscal 2006 as compared to fiscal 2005. Our remaining store, which experienced a 2.3% sales decrease for fiscal 2006, was negatively impacted by the fact that another tenant moved out of the shopping center where it is located during the year, as well as by generally unfavorable traffic pattern conditions at that location. This store also was the location of the theft loss that was detected during the 2006 year-end audit. Management is continually working to increase sales through the Company's advertising programs, product selection and overall mix of retail prices. This effort is hindered, however, by the effects of ongoing price competition from larger competitors with greater financial resources than the Company. The following table sets forth information for the last three fiscal years as to the amount of total sales contributed by each class of products which contributed a significant percentage of the total retail sales and revenues of the Company during such periods:
Fiscal 2007 Fiscal 2006 Fiscal 2005 Product Class (52 Weeks) (53 Weeks) (52 Weeks) -------------------------- ------------- ------------- ------------- Grocery and Non-Food Items $ 21,627,218 $ 21,183,034 $ 20,526,293 Meat and Deli 9,419,858 9,533,808 9,230,478 Produce 2,735,976 2,563,086 2,344,420
Gross Margin: - ------------- As discussed above, the Company's 23.73% gross margin for fiscal 2007 represents a decrease of 0.45% from fiscal 2006 and a decrease of 0.16% as compared to fiscal 2005. This reduction reflects the fact that competition prevented us from succeeding until the third quarter of fiscal 2007 in adjusting our retail prices to recover increases in our wholesale costs for certain items (principally certain private label merchandise) which occurred earlier in the year. The gross margin also was impacted by our introduction of certain lower-priced, lower-margin generic merchandise this year, as well as certain targeted merchandise sales and other weekly advertised specials run to stimulate sales. - 9 - The Company's gross margin of 24.18% for the year ended June 3, 2006 increased by .29% over fiscal year 2005, reversing a 0.08% reduction in gross margin that occurred in 2005 and representing a temporary increase of 0.21% over the gross margin of 23.97% realized in fiscal years 2004 and 2003. Management attributes this improvement in the gross margin to the Company's success in strategically adjusting retail prices during fiscal 2006 to offset both our primary supplier's increase in its wholesale markup from 3% to 3.5% during the third quarter of fiscal 2005 and a fuel surcharge implemented by the supplier in during the second quarter of fiscal 2006. While we always attempt to sustain such improvements in the gross margin by adjusting our retail prices to recover cost increases as they occur, the gross margin reduction experienced for fiscal 2007 demonstrates the extent to which competitive conditions often limit our ability to do so. Operating, General and Administrative Expenses: - -------------------------------------------------- The Company's ongoing operating, general and administrative expenses are comprised mainly of personnel salary and related payroll costs, utilities and telephone expenses, rent, insurance expense, advertising and promotion expense, general and office supplies expense, repairs and maintenance, depreciation expense, bank service charges and credit card fees, bad checks expense, professional fees, and other minor miscellaneous expenses. In accordance with EITF 02-16, advertising rebates received from suppliers are deducted from advertising expense within this category. The following table details the changes in these components of operating, general and administrative expenses for fiscal years 2007, 2006 and 2005:
% of 2007 % of 2006 % of 2005 Expense Item 2007 Amount Total 2006 Amount Total 2005 Amount Total - ----------------------------------------- ----------- --------- ------------ --------- ------------ --------- Payroll $ 3,964,576 49.6 $ 3,936,440 47.6 $ 3,932,634 49.0 Utilities and telephone expense 729,462 9.1 718,550 8.7 653,600 8.1 Rent 643,711 8.1 628,765 7.6 621,808 7.7 Insurance 618,679 7.7 627,826 7.6 674,109 8.4 Advertising and promotion 527,303 6.6 611,447 7.4 628,455 7.8 General and office supplies 371,429 4.6 367,303 4.5 327,785 4.1 Repairs and maintenance 360,472 4.5 359,460 4.4 349,754 4.4 Depreciation 153,159 1.9 279,250 3.4 303,820 3.8 Bank service charges and credit card fees 152,952 1.9 160,347 1.9 115,629 1.4 Bad checks 130,245 1.6 120,583 1.5 87,502 1.1 Professional fees 115,411 1.5 118,195 1.4 108,553 1.4 Theft loss - - 98,750 1.2 - - All other misc. 233,905 2.9 235,217 2.8 227,692 2.8 ----------- --------- ------------ --------- ------------ --------- TOTAL $ 8,001,304 100.0 $ 8,262,133 100.0 $ 8,031,341 100.0 =========== ========= ============ ========= ============ =========
- 10 - Overall, operating, general and administrative expenses decreased by $260,829 (or 3.16%) in fiscal 2007 as compared to 2006. Approximately 38% of this decrease is attributable to the absence in fiscal 2007 of the $98,750 charge for a loss due to employee theft that impacted the fourth quarter of fiscal 2006. Another 48% of the decrease is due to the $126,091 reduction in depreciation expense for fiscal 2007 versus 2006. As noted above, in light of the age and fully depreciated status of a significant portion of our physical equipment, annual depreciation charges may be expected to return to more historically consistent levels as the Company moves through anticipated replacement cycles for this equipment in future periods. The other major reduction contributing to the net decrease in operating, general and administrative expenses for fiscal 2007 was a $84,144 reduction in advertising and promotion expense, reflecting the fact that certain major promotions run by the Company during fiscal 2006 were not repeated in 2007. These reductions were partially offset by less significant increases in other categories such as payroll ($28,136 - largely due to an increase in bonuses awarded due to the net profit achieved by the Company for fiscal 2007), utilities and telephone expense ($10,912 - largely due to increased energy costs), rent ($14,946 - due to the renewal during fiscal 2007 of a lease at one store location at a higher base rent as well as to higher percentage rents based on the sales increases noted above) and general and office supplies ($4,126). A $9,662 increase in bad checks expense for fiscal 2007 was more than offset by the $23,592 increase in check cashing fees reflected below. Further, while bad checks expense increased overall by comparison to fiscal 2006, we made progress during the year in reversing what had been a trend (discussed in more detail below) of significant, ongoing increases in both bad checks expense and bank service charges and credit card fees. The dollar amount of bad checks being written off decreased for each of the first three quarters of fiscal 2007 (declining to $20,103 for the third quarter as compared to $35,428 during the second quarter and $43,873 for the first quarter), although $30,841 in bad checks expense booked in the fourth quarter of the year disrupted this favorable trend. The decreases during the first three quarters, as well as the $7,395 reduction in bank service charges and credit card fees for fiscal 2007 as compared to the prior year, reflect improved supervision of the check cashing process by individual store managers as a result of efforts by the Company to improve training and employee education on this topic, as well as improved cash management practices related to this effort and to the change in our lead banking relationship that occurred during the fourth quarter. Approximately 43% of the increase in operating, general and administrative expenses that occurred in fiscal 2006 was attributable to a net loss of $98,750 recognized as the result of an alleged employee theft of cash at one of our grocery stores that was detected during the year end audit of the Company's financial statements. The Company's practice of cashing payroll checks for customers at its grocery store locations contributed to the circumstances that led to this theft loss, and also contributed to the $44,718 increase in bank service charges and credit card fees and the $33,081 increase in bad checks expense that the Company experienced during fiscal 2006 as compared to the prior year. The increase in bank service charges is also partially attributable to increases in merchant fees paid by the Company in recent periods as more customers elect to pay for grocery purchases with debit and credit cards. Management believes that the practice of cashing customers' checks, while posing certain risks for the Company, is also vital to our competitive strategy for maintaining customer traffic and growing sales in the face of the increased competition from larger grocery retailers that we have experienced in recent years. We have installed a check verification system to reduce bad checks expense and, as reflected above, we also have improved employee education and training on this topic and implemented additional - 11 - measures during fiscal 2007 to improve our process for managing customer check cashing activities and reducing associated expenses while continuing to offer this service to our customers. Other significant increases in this category of expenses for fiscal 2006 included an increase of $64,950 in utilities and telephone expense during 2006, largely due to increasing energy costs which are beyond the Company's control, an increase of $39,518 in expenditures for supplies, primarily related to price increases experienced during the year for many of the routine supplies (particularly certain petroleum-based packaging materials) purchased by the Company, and an increase of $9,706 in repairs and maintenance related to the overall aging of the Company's equipment. These increases were partially offset by decreases during fiscal 2006 of $46,283 in insurance expense (due mainly to a decrease of approximately $40,000 in our worker's compensation premium for the year), $17,008 in advertising and promotion expense (reflecting the fact that we did not run certain programs that were primarily responsible for the $56,464 increase in fiscal 2005, but also offset by increases in the cost of other promotions) and $24,570 in depreciation (reflecting a significant reduction in our purchases of new equipment during fiscal 2006, as well as the fact that some of our older equipment is now fully depreciated). Looking forward to fiscal 2008, management is concerned about the impact that the pending increase in the Federal minimum wage will have on our ability to control the payroll costs that amount to nearly half of the Company's operating, general and administrative expenses, as well as the possible impact of future increases in energy costs. Finally, while professional fees decreased by $2,784 (or approximately 2.4%) in fiscal 2007 (due principally to discontinuing the services of an outside security firm that was contracted for one location during the prior year), these fees increased by $9,642 (or 8.9%) during fiscal 2006 and by $11,372 (or 11.7%) during fiscal 2005 as compared to the respective prior years, largely due to increased regulatory costs related to compliance with the Sarbanes-Oxley Act of 2002. As discussed in more detail under "Material Commitments and Contingencies" below, we expect to incur significant additional fees related to the Company's initial compliance with Section 404 of this Act, which deals with management's report on the Company's internal control over financial reporting, during fiscal 2008. Interest and Other Income: - ---------------------------- Other income (not including interest income) increased from $97,845 for the fiscal year ended June 3, 2006 to $126,822 for the fiscal year ended June 2, 2007, due principally to an increase implemented during the second quarter (in September 2006) in the fees charged to cash checks without a grocery purchase. This resulted in a $23,592 increase in check cashing fees for fiscal 2007 which, as noted above, more than offset the increase of $9,662 in bad check expense for the year. Returned check fees collected by the Company also increased significantly over fiscal 2006, due to the enhanced employee education efforts and enforcement of Company policies discussed above. The increase in other income also was aided by an increase in fees received for handling money orders, partially offset by a decrease in revenues related to Fed-Ex shipments, due to corresponding variations in the level of customer demand for these services during fiscal 2007. The $12,860 increase in other income (not including interest income) for fiscal 2006 versus the prior year was due principally to volume-driven increases in check cashing fees, partially offset by a significant reduction in the collection of returned check fees (reflecting temporary inconsistencies in the enforcement of Company policy in this area, which have been corrected - 12 - during 2007). Most of the remaining increase was attributable to volume-driven increases in funds received for handling money orders and revenue related to Fed-Ex shipments for fiscal 2006 as compared to fiscal 2005. The components of other income for the fiscal years ended June 2, 2007, June 3, 2006 and May 28, 2005 were as follows:
Description 2007 Amount 2006 Amount 2005 Amount ----------- ------------ ------------ ------------ Check cashing fees $ 90,347 $ 66,755 $ 52,133 Funds received for handling money orders 11,021 8,118 5,940 Vendor's compensation from the States of Alabama and Georgia for collecting and remitting sales taxes on a timely basis 14,584 14,516 14,153 Returned check fees 4,188 570 6,003 Revenue related to Fed-Ex shipments/other 6,682 7,886 6,756 ------------ ------------ ------------ TOTAL $ 126,822 $ 97,845 $ 84,985 ============ ============ ============
As noted above, interest income increased by $4,990 (to $15,868) for fiscal 2007 versus 2006 and by $6,845 (to $10,878) for fiscal 2006 versus 2005, reflecting increases in prevailing interest rates at each annual re-pricing of the Company's bank certificate of deposit during these periods. Income Taxes: - -------------- The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes," which requires that deferred income taxes be determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. Valuation allowances are used to reduce deferred tax assets to the amount considered likely to be realized. No amounts have been provided for current and deferred federal and state tax expense in the statements of income for any of the three fiscal years ended June 2, 2007, as a result of recurring net operating losses and the related valuation of the Company's net deferred tax assets. At June 2, 2007, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $593,000 and $701,000, respectively. The Company has established a valuation allowance, which effectively reduces the carrying value of its net deferred taxes to zero at June 2, 2007 and June 3, 2006. Unless the Company realizes sufficient taxable income in future periods to demonstrate that the likelihood of realization of the net deferred tax assets is reasonably assured under the accounting guidelines of SFAS No. 109, this valuation allowance will be continued in future periods. If not utilized, the carryforwards will expire at various dates through 2025. Inflation: - ---------- The Company continues to seek ways to cope with the threat of inflation. To the extent permitted by competition, increased costs of goods and services to the Company are reflected in increased - 13 - selling prices for the Company's goods. As discussed above, however, competitive conditions often delay our ability to pass through price increases experienced at the wholesale level. When the Company is forced to raise overall prices of its goods, the Company attempts to preserve its market share by competitive pricing strategies that emphasize weekly-advertised specials. FINANCIAL CONDITION ------------------- Liquidity and Capital Resources: - ----------------------------------- Changes in the Company's liquidity and capital resources during the periods presented resulted primarily from the following: During the fiscal year ended June 2, 2007, the Company generated $203,854 in cash flow from operating activities. This resulted primarily from our net income of $97,502 for the year plus the impact of non-cash depreciation charges in the amount of $153,159, partially offset by a net reduction of $47,281 in other operating assets and liabilities. The Company's cash and cash equivalents increased by $247,818 while its certificate of deposit decreased by $2,612 for fiscal 2007. Effective May 3, 2007, we entered into a new $980,000 credit facility with Gateway Bank & Trust, which replaced our former credit facilities with Northwest Georgia Bank. Between May 3, 2007 and June 2, 2007, we drew $609,650 under our new $800,000 line of credit with Gateway Bank & Trust (including $500,000 used to pay off our former line at Northwest Georgia Bank), resulting in a net increase in borrowings under our line of credit of $109,650 for fiscal 2007 and leaving $190,350 available for additional borrowings under the new line at fiscal year end. The new line of credit has a term of 12 months, pursuant to which the Company is required to make monthly interest only payments on the outstanding balance and to repay outstanding principal and accrued interest by May 2, 2008, with interest at an annual rate equal to the Wall Street Journal prime rate (subject to a minimum annual interest rate of 6.0%). The new line contains a borrowing base provision which limits the maximum outstanding indebtedness to forty percent (40%) of the value of the Company's inventory, as measured on a quarterly basis. The new credit facility also includes a 60-month term loan in the amount of $180,000, with interest at an annual rate equal to the Wall Street Journal prime rate (8.25% as of the execution date), subject to a minimum annual interest rate of 6.0%. The proceeds of the term loan were used to retire the remaining $134,789 balance on an existing term note payable to Northwest Georgia Bank incurred in December 2003 to finance the addition of the Company's eighth grocery store, with the remaining $45,211 utilized to pay closing costs and for working capital. We also incurred additional long-term debt in the amount of $17,426 during fiscal 2007 ($15,614 of which was outstanding at fiscal year end) in connection with the purchase of a used vehicle. In addition to funding our ordinary working capital requirements, the funds resulting from the activities described above were utilized to reduce the Company's long-term debt by a net amount of approximately $10,367 and its borrowings from affiliated parties by a net amount of $12,841 during the year, to redeem $11,039 in common stock, and to fund purchases of property and equipment of $34,151. These purchases of property and equipment included the replacement of one vehicle financed in the amount of $17,426 as well as $16,725 to replace a front door, a dumpster, a security camera system, an ice machine and a produce scale as well as adding shelving - 14 - at some locations. Please refer to "Material Commitments and Contingencies" below for a discussion of anticipated capital spending during fiscal 2008 and beyond. During the fiscal year ended June 3, 2006, the Company generated $275,309 in cash flow from operating activities, increased its draws under its line of credit with its lead bank by $100,000 and incurred additional long-term debt in the amount of $22,212 in connection with the purchase of a new vehicle. The Company's cash and cash equivalents increased by $35,895 and its certificate of deposit increased by $11,925 for fiscal 2006. In addition to funding our ordinary working capital requirements, these funds were utilized to reduce the Company's long-term debt by a net amount of approximately $203,627 and its borrowing from affiliated parties by $6,988 during the year, to redeem $7,082 in common stock, and to fund purchases of property and equipment of $115,880. These purchases of property and equipment included the replacement of two vehicles financed through payment of $17,678 in cash and manufacturer financing in the amount of $22,212 on one of the vehicles, plus the trade-in value received for the two older vehicles replaced, as well as $68,680 to replace certain refrigeration equipment at one store and some smaller equipment purchases and miscellaneous shelving upgrades and leasehold improvements. The ratio of current assets to current liabilities was 1.75 to 1 at the end of the latest fiscal year, June 2, 2007 compared to 1.66 to 1 at the end of the fiscal year ended June 3, 2006 and 1.74 to 1 at the end of the fiscal year ended May 28, 2005. Cash, cash equivalents and the certificate of deposit constituted 26.31% of the total current assets at June 2, 2007 as compared to 21.17% at June 3, 2006 and 20.13% at May 28, 2005. As previously reported, the Company has increased its reliance on bank financing and working capital management (principally inventory reductions), and limitations on additional capital spending to maintain adequate liquidity to fund operations in connection with the operating losses experienced in recent years. The foregoing ratios, however, reflect the fact that our liquidity situation has improved over the past two years as a result of the $163,981 reduction in the net loss for fiscal 2006 as compared to fiscal 2005 and the income of $97,502 reported for fiscal 2007, coupled with a net reduction of approximately $14,000 in the Company's monthly debt service requirements through the retirement of long term debt over the past three fiscal years. As employment and inventory costs increase, management will attempt to compensate for the increases through operational efficiencies (including both efficient working capital management and seeking to reduce other expenses where possible), and through seeking to continue favorable arrangements with creditors. Historically, we have financed our working capital requirements principally through cash flow from operations. Short-term borrowings to finance inventory purchases are provided by the Company's $800,000 line of credit from its bank and through borrowings from related parties, as discussed below. The bank line of credit is secured by our certificate of deposit, as well as by a security interest in substantially all of our accounts receivable, inventory, machines and equipment, furniture and fixtures and by personal guarantees of Michael A. Richardson and Paul R. Cook, the Company's President and CEO and Executive Vice President and CFO, respectively. While we believe that these sources will continue to provide us with adequate liquidity to supply the Company's working capital needs, if we experience future operating losses at levels which are not substantially offset by depreciation and other non-cash charges, our operating cash flows could be adversely affected. If this happens, we could be required to seek additional financing through bank loans, or other sources, in order to meet our working capital needs. If we were required to seek such additional financing and were not able to obtain it, or were unable to do so on commercially reasonable terms, we could be required to reduce the Company's current level of operations in - 15 - order to lower our working capital requirements to a level that our present financing arrangements would support. Short-term borrowings as of the end of the past two fiscal years are presented below:
June 2, June 3, 2007 2006 -------- -------- Michael and Diana Richardson $ 12,832 $ 11,840 Matthew Richardson 1,458 15,291 Line of Credit 609,650 500,000 -------- -------- Total $623,940 $527,131 ======== ========
During fiscal 2007, we reduced the Company's borrowings from related parties by a net amount of $12,841 (reflecting payments of $14,000 net of $1,159 in additional interest accrued). The largest principal balances outstanding on such notes at any time during the Company's fiscal year 2007 were $12,831 and $15,291, respectively. As discussed in more detail above, we increased borrowings on our primary line of credit by a net amount of $109,650 during fiscal 2007 in connection with the refinancing of the line of credit with Gateway Bank & Trust during the fourth quarter. We paid a total of $41,555 in interest on the Company's outstanding borrowings under its bank lines of credit during fiscal 2007. The Company's line of credit with Gateway Bank & Trust bears interest at the prime rate as published in The Wall Street Journal, subject to a 6.0% floor. ----------------------- Notes to Michael and Diana Richardson and to Matthew Richardson are unsecured, payable on demand and bear interest at .25% below the base rate charged by Gateway Bank & Trust on the line of credit. Michael Richardson is Chairman of the Board and Chief Executive Officer of the Company. Diana Richardson is the wife of Michael Richardson, and Matthew Richardson is their son. Long-Term Debt: - ---------------- At June 2, 2007, long-term debt consisted of a note payable to Gateway Bank & Trust of $180,000 used to pay-off Northwest Georgia Bank on a note which financed, in December 2003, the addition of the Company's eighth grocery store. In addition, two vehicle notes were financed with an aggregate balance due at June 2, 2007 of $32,250. The components of the Company's long term debt as of the end of each of the fiscal years ended June 2, 2007 and June 3, 2006 are set forth in detail in Note 3 to the accompanying financial statements. The following is a schedule by years of the amount of maturities of all long-term debt subsequent to June 2, 2007:
Year Amount ---- ------- 2008 $40,206 2009 47,659 2010 40,427 2011 41,938 2012 42,020
- 16 - Material Commitments and Contingencies - ----------------------------------------- We presently estimate that capital expenditures for required replacements of equipment in the ordinary course during fiscal 2008 will be $50,000 or less, which we expect to fund from operating cash flows. Additionally, we have already acquired two vehicles in the first two months of fiscal 2008 at a cost of $35,435. If it becomes necessary to replace the Company's maintenance vehicle in fiscal 2008, the estimated cost of replacement will be approximately $35,000. The two vehicles already purchased are being financed through bank loans. Future vehicle replacements, to the extent not paid for in cash, are expected to be funded through either bank or manufacturing financing, whichever option will provide the Company with the most favorable terms. Additionally, management is currently obtaining cost estimates for the remodeling of one store which may be undertaken in mid to late fiscal 2008, but such estimates have not yet been received. Finally, while management is attempting to postpone future upgrades of our existing cash register and scanning equipment beyond fiscal 2008, pending changes that will add an additional digit to the bar codes on the inventory that we carry and requirements by the credit card industry will likely require such upgrades within the next year or within five fiscal years and, additionally, some of this equipment is subject to being replaced due to lack of availability of parts and wear. We cannot reliably estimate the cost of any such upgrades at the present time, but we will attempt to manage the number of units purchased and the timing of such purchases in a manner which both contains the Company's overall costs and allows us to finance these purchases on the most favorable terms that we are able to obtain. The Company has adopted a 401(k) plan that is administered by Capital Bank and Trust Company. Participation in the plan is available to all full-time employees. The Company's annual contributions to the plan are discretionary. The Company's contribution to the plan was $7,500 in each of fiscal years 2007, 2006 and 2005. The Sarbanes-Oxley Act of 2002 included provisions addressing audits, financial reporting and disclosure, conflicts of interest and corporate governance at public companies. As discussed above, the Company already has incurred increased professional fees during fiscal years 2005, 2006 and 2007 related to compliance with these provisions. Additionally, Section 404 of this Act deals with management's report on internal control over financial reporting and an annual attestation report on the effectiveness of such internal control by the Company's independent accountants, and will require much in the way of resources to plan, implement and document internal controls. Some of the resources will be in the form of management effort devoted to complying with the new rules, but we also expect in incur significant costs in the form of increased accounting and consulting fees. On December 15, 2006, the SEC issued an additional (and likely final) formal extension of the Section 404 compliance dates for non-accelerated filers such as the Company. Pursuant to this action, the Company now will be required to phase-in compliance with Section 404 as follows: we will have to begin providing an annual report by management assessing the effectiveness of our internal control over financial reporting with our annual report for fiscal 2008, and we will have to begin including an annual attestation report by our independent auditors addressing the effectiveness of such internal controls with our annual report for fiscal 2009. On June 20, 2007, the SEC issued additional regulatory releases containing interpretive guidance intended to assist management in conducting a top-down, risk-based evaluation of internal control over financial reporting, coupled with additional rule revisions and changes to the definitions of a "significant - 17 - deficiency" and "material weakness" in internal control over financial reporting, intended to ease the burden of Section 404 compliance for smaller public companies. On July 25, 2007, the SEC issued its final approval of the adoption by the Public Company Accounting Oversight Board (PCAOB) of a new Auditing Standard No. 5 to supersede its former Auditing Standard No. 2 (AS No. 2) in prescribing the standards which will govern the auditors' annual attestation reports on internal control over financial reporting, designed to focus the auditors' attention on those areas that pose the highest risk of material misstatement to the financial statements as opposed to requiring multiple procedures unnecessary to an effective audit of internal control (for which AS No. 2 had been widely criticized), again with the objective of easing the compliance burden for smaller companies. While these measures may ultimately reduce the Company's Section 404 compliance costs below what they otherwise would have been, we are not presently able to estimate the full extent of these costs. Further, our external auditors have brought to our attention a need to adopt increased security measures related to our financial accounting systems, increase the segregation of duties related to certain of our accounting and financial reporting processes and improve our cash controls and cash management procedures. During the course of our testing and preparations for compliance with Section 404, we may identify additional deficiencies. Accordingly, we expect our efforts to remediate such deficiencies in time to meet the deadlines imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404 to require a significant commitment of management resources and to result in significant additional expenses over the next two fiscal years. Critical Accounting Policies: - ------------------------------- Critical accounting policies are those policies that management believes are important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has determined valuation of its inventories as a critical accounting policy. Inventories are stated at the lower of average cost or market. Off-Balance sheet Arrangements: - --------------------------------- The Company has no significant off-balance sheet arrangements as of June 2, 2007. Related Party Transactions: - ----------------------------- Except as discussed under "Liquidity and Capital Resources" with regard to short-term borrowings from related parties, there were no material related party transactions during the fiscal year ended June 2, 2007. Contractual Obligations: - ------------------------- The following table represents the Company's outstanding contractual obligations at June 2, 2007 (in thousands): - 18 -
LESS THAN 1 CONTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS - ----------------------- ----------------------------------------------------------- Debt Obligations Excluding Interest $ 836 $ 664 $ 88 $ 84 $ 0 Operating Lease Obligations (1) 1,846 542 677 486 141 Other Obligations 0 0 0 0 0 ------ ------------ ---------- ---------- -------------- TOTAL CONTRACTUAL CASH OBLIGATIONS $2,682 $ 1,206 $ 765 $ 570 $ 141 ====== ============ ========== ========== ==============
(1) These obligations relate primarily to leases of the Company's various store locations. Forward-Looking Statements - --------------------------- Information provided by the Company, including written and oral statements made by its representatives, may contain "forward looking information" as defined in Section 21E of the Securities Exchange Act of 1934, as amended. All statements that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's business, the effects of future competition, future capital expenditures and the Company's business strategy, are forward-looking statements. In reviewing such information it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking statements. This forward looking information is based on various factors and was derived utilizing numerous assumptions. Many of these factors previously have been identified in filings or statements made on behalf of the Company, including filings with the Securities and Exchange Commission on Forms 10-Q, 10-K and 8-K. Important assumptions and other important facts that could cause results to differ materially from those set forth in the forward-looking statements include the following (in addition to those matters discussed in the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 2, 2007): changes in the general economy or in the economy of Company's primary markets, the effects of ongoing price competition from competitors (some of which have greater financial resources than those of the Company), changes in consumer spending, the nature and extent of continued consolidation in the grocery store industry, changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to any litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, stability of product costs, supply or quality control problems with the Company's vendors, and other issues and uncertainties detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: - ----------------------------------------------------------------- The Company does not engage in derivative transactions, nor does it hold or issue financial instruments for trading or other speculative purposes. The Company is exposed to market risk related to changes in interest rates primarily as a result of its borrowing activities. The effective interest rate on the Company's borrowings under its Line of Credit Agreements and under its outstanding notes varies with the prime rate. The Company does not maintain any interest rate hedging arrangements. Based on the Company's outstanding indebtedness at June 2, 2007 a one percent (1.0%) increase in the prime interest rate would increase interest expense applicable to our variable rate debt (and reduce our income) by approximately $8,000 annually. Conversely, a one percent (1.0%) decrease in the prime interest rate would decrease interest expense applicable to our variable rate debt (and increase our net income) by approximately $8,000 annually. - 19 - Report of Independent Registered Public Accounting Firm ------------------------------------------------------- To the Board of Directors and Stockholders American Consumers, Inc. Fort Oglethorpe, Georgia We have audited the accompanying balance sheets of American Consumers, Inc. as of June 2, 2007 and June 3, 2006, and the related statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended June 2, 2007. 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 financial statements referred to above present fairly, in all material respects, the financial position of American Consumers, Inc. as of June 2, 2007 and June 3, 2006, and the results of its operations and its cash flows for each of the three years in the period ended June 2, 2007, in conformity with U.S. generally accepted accounting principles. /S/ HAZLETT, LEWIS & BIETER, PLLC Chattanooga, Tennessee July 19, 2007 - 20 -
AMERICAN CONSUMERS, INC. STATEMENTS OF INCOME For the Fiscal Years Ended June 2, 2007, June 3, 2006 and May 28, 2005 - -------------------------------------------------------------------------------- 2007 2006 2005 (52 Weeks) (53 Weeks) (52 Weeks) ------------ ------------ ------------ NET SALES $33,783,052 $33,279,928 $32,101,191 COST OF GOODS SOLD 25,766,340 25,233,903 24,430,627 ------------ ------------ ------------ Gross profit 8,016,712 8,046,025 7,670,564 OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES 8,001,304 8,262,133 8,031,341 ------------ ------------ ------------ Operating income (loss) 15,408 (216,108) (360,777) ------------ ------------ ------------ OTHER INCOME (EXPENSE) Interest income 15,868 10,878 4,033 Interest expense (60,596) (59,994) (59,601) Other income 126,822 97,845 84,985 ------------ ------------ ------------ 82,094 48,729 29,417 ------------ ------------ ------------ Income (loss) before income taxes 97,502 (167,379) (331,360) FEDERAL AND STATE INCOME TAXES - - - ------------ ------------ ------------ NET INCOME (LOSS) $ 97,502 $ (167,379) $ (331,360) ============ ============ ============ INCOME (LOSS) PER SHARE $ .12 $ (.21) $ (.41) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 790,521 800,304 806,586 ============ ============ ============
The Notes to Financial Statements are an integral part of these statements. - 21 -
AMERICAN CONSUMERS, INC. BALANCE SHEETS June 2, 2007 and June 3, 2006 - ------------------------------------------------------------------------------------ 2007 2006 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 582,472 $ 334,654 Certificate of deposit 312,161 314,773 Accounts receivable 233,057 170,316 Inventories 2,118,189 2,124,431 Prepaid expenses 154,213 123,545 ------------ ------------ Total current assets 3,400,092 3,067,719 ------------ ------------ PROPERTY AND EQUIPMENT - at cost Leasehold improvements 300,800 295,057 Furniture, fixtures and equipment 3,298,923 3,300,542 ------------ ------------ 3,599,723 3,595,599 Less accumulated depreciation (3,275,328) (3,151,622) ------------ ------------ 324,395 443,977 ------------ ------------ $ 3,724,487 $ 3,511,696 ============ ============
The Notes to Financial Statements are an integral part of these statements. - 22 -
- ---------------------------------------------------------------------------------- 2007 2006 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 904,396 $ 867,663 Short-term borrowings 623,940 527,131 Current maturities of long-term debt 40,206 78,120 Accrued sales tax 152,893 156,442 Other 224,683 217,981 ------------ ------------ Total current liabilities 1,946,118 1,847,337 ------------ ------------ LONG-TERM DEBT 172,044 144,497 ------------ ------------ STOCKHOLDERS' EQUITY Nonvoting preferred stock - authorized 5,000,000 shares of no par value; no shares issued - - Nonvoting common stock - $.10 par value; authorized 5,000,000 shares; no shares issued - - Common stock - $.10 par value; authorized 5,000,000 shares; shares issued of 785,866 in 2007 and 796,905 in 2006 78,587 79,691 Additional paid-in capital 655,350 664,556 Retained earnings 872,388 775,615 ------------ ------------ 1,606,325 1,519,862 ------------ ------------ $ 3,724,487 $ 3,511,696 ============ ============
- 23 -
AMERICAN CONSUMERS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Fiscal Years Ended June 2, 2007, June 3, 2006 and May 28, 2005 - ------------------------------------------------------------------------------------------ Shares of Additional Common Common Paid-in Retained Stock Stock Capital Earnings Total ---------- -------- ------------ ----------- ----------- Balance, May 29, 2004 813,410 $81,341 $ 678,320 $1,275,445 $2,035,106 Net loss for year - - - (331,360) (331,360) Redemption of common stock (9,423) (942) (7,858) (623) (9,423) ---------- -------- ------------ ----------- ----------- Balance, May 28, 2005 803,987 80,399 670,462 943,462 1,694,323 Net loss for year - - - (167,379) (167,379) Redemption of common stock (7,082) (708) (5,906) (468) (7,082) ---------- -------- ------------ ----------- ----------- Balance, June 3, 2006 796,905 79,691 664,556 775,615 1,519,862 Net income for year - - - 97,502 97,502 Redemption of common stock (11,039) (1,104) (9,206) (729) (11,039) ---------- -------- ------------ ----------- ----------- Balance, June 2, 2007 785,866 $78,587 $ 655,350 $ 872,388 $1,606,325 ========== ======== ============ =========== ===========
The Notes to Financial Statements are an integral part of these statements. - 24 -
AMERICAN CONSUMERS, INC. STATEMENTS OF CASH FLOWS For the Fiscal Years Ended June 2, 2007, June 3, 2006 and May 28, 2005 - ----------------------------------------------------------------------------------------------------- 2007 2006 2005 (52 Weeks) (53 Weeks) (52 Weeks) ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 97,502 $ (167,379) $ (331,360) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 153,159 279,250 303,820 Loss on sale of property and equipment 474 4,143 130 Change in operating assets and liabilities: Accounts receivable (62,741) (57,618) 24,765 Inventories 6,242 82,658 156,884 Prepaid expenses (30,668) (55,890) (2,286) Accounts payable and accrued liabilities 39,886 190,145 (1,193) ----------- ----------- ----------- Net cash provided by operating activities 203,854 275,309 150,760 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of certificate of deposit (312,161) (314,773) (302,848) Proceeds from maturity of certificate of deposit 314,773 302,848 323,488 Purchase of property and equipment (34,151) (115,880) (56,588) Proceeds from disposal of property and equipment 100 6,088 - ----------- ----------- ----------- Net cash used in investing activities (31,439) (121,717) (35,948) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in short-term borrowings 96,809 93,012 94,069 Proceeds from long-term debt 195,613 22,212 - Principal payments on long-term debt (205,980) (225,839) (235,834) Redemption of common stock (11,039) (7,082) (9,423) ----------- ----------- ----------- Net cash provided by (used in) financing activities 75,403 (117,697) (151,188) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 247,818 35,895 (36,376) CASH AND CASH EQUIVALENTS, beginning of year 334,654 298,759 335,135 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 582,472 $ 334,654 $ 298,759 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 750 $ 4,810 $ 6,354 Interest 63,952 59,463 53,037 =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements. - 25 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1. Nature of Business and Summary of Significant Accounting Policies Nature of business: The Company is engaged in a single line of business, the operation of a chain of retail grocery stores. The stores are located in Georgia, Tennessee, and Alabama and operate under the name of Shop-Rite Supermarket. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash and cash equivalents: For purposes of reporting cash flows, the Company considers all highly-liquid debt instruments with an original maturity of three months or less to be cash equivalents. Accounts receivable: The Company extends unsecured credit for 30-day terms to selected customers in the ordinary course of business, but mitigates the associated credit risk by carefully screening applicants and actively pursuing past due accounts. An allowance for doubtful accounts has not been established since management is of the opinion that all accounts receivable at year-end are fully collectible. Inventories: Inventories are stated at the lower of average cost or market. The Company receives funds for a variety of merchandising activities from vendors whose products the Company buys for resale in its stores. These incentives and allowances include volume or purchased based incentives, advertising allowances, and promotional discounts. The purpose of these incentives and allowances is generally to aid in the reduction of the costs incurred by the Company for stocking, advertising, promoting and selling the vendor's products. Due to system constraints and the nature of certain allowances, these allowances are applied as a reduction of inventory costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the initial purchase is sold. Amounts that represent a reimbursement of specific identifiable incremental costs, such as advertising, are recorded as a reduction to the related expense in the period that the related expense is incurred. - 26 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1. Nature of Business and Summary of Significant Accounting Policies (continued) Property and equipment: Expenditures for property and equipment are charged to asset accounts at cost. Depreciation is provided on the straight-line and declining-balance methods at rates based upon the estimated useful lives of the various classes of depreciable property. Repairs and maintenance are expensed as incurred. Depreciation expense included in the statements of income was $153,159, $279,250, and $303,820 in 2007, 2006 and 2005, respectively. Revenue recognition: The financial statements of the Company are prepared under the accrual method of accounting. The Company recognizes income on the sale of all grocery and non-food merchandise at the point-of-sale. Advertising costs: Advertising costs are charged to operations when incurred. Advertising costs charged to operations were $527,303, $611,447, and $628,455 in 2007, 2006, and 2005, respectively. Deferred income taxes: The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires that deferred income taxes be determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. Valuation allowances are used to reduce deferred tax assets to the amount considered likely to be realized. Recent accounting pronouncements: In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for Conditional Asset Retirement Obligations - an Interpretation of FASB Statement No. 143." FIN No. 47 clarifies that the term "conditional asset retirement obligation" as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN No. 47 became effective for the Company on June 3, 2006, and did not have a material effect on the Company's financial statements. - 27 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 1. Nature of Business and Summary of Significant Accounting Policies (continued) Recent accounting pronouncements: (continued) In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109." FIN No. 48 clarifies the accounting for uncertainty in tax positions. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 becomes effective for the Company's fiscal year beginning June 3, 2007, and is not expected to have a material effect on the Company's financial statements. In June 2006, the FASB ratified Emerging Issues Task Force (EITF) issue No. 06-03, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)." EITF No. 06-03 allows taxes assessed by various governmental authorities that are directly imposed on revenue-producing transactions between a seller and a customer, such as sales and some excise taxes, to be presented on either a gross or net basis. If such taxes are significant, the accounting policy should be disclosed as well as the amount of taxes included in revenue if presented on a gross basis. The Company records sales net of applicable sales taxes. Therefore, the adoption of EITF No. 06-03 had no effect on the presentation of the Company's financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurement. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 will become effective for the Company's fiscal year beginning June 1, 2008. The Company is currently evaluating the effect of adopting SFAS No. 157. In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115." SFAS No. 159 permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected should be recognized into net earnings at each subsequent reporting date. SFAS No. 159 will become effective for the Company's fiscal year beginning June 1, 2008. The Company is currently evaluating the effect of adopting SFAS No. 159. - 28 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 2. Short-Term Borrowings At June 3, 2006, the Company had a $500,000 line of credit with a bank with a maturity date of June 27, 2007. The Company entered into an $800,000 line of credit with a different bank on May 3, 2007. This agreement matures on May 2, 2008. Proceeds from the new line of credit were used to pay off and close the $500,000 line of credit. The interest rate on amounts outstanding under both line of credit agreements was based on prime, subject to a 6.00% floor. The line-of-credit is secured by the Company's certificate of deposit, as well as by a security interest in substantially all of its accounts receivable, inventory, machines and equipment, furniture and fixtures and by personal guarantees of Michael A. Richardson and Paul R. Cook, the Company's President and CEO and Executive Vice President and CFO, respectively. At June 2, 2007 and June 3, 2006, the Company had short-term borrowings consisting of unsecured notes payable to Michael and Diana Richardson, principal shareholders of the Company, and to their son, Matthew Richardson. These notes provide for interest at .25% below the bank's base rate and are payable on demand. A summary of short-term borrowings for the fiscal years ended June 2, 2007 and June 3, 2006, is as follows:
2007 2006 --------- --------- Line-of-credit agreements $609,650 $500,000 Loans payable to shareholders 14,290 27,131 --------- --------- Total outstanding $623,940 $527,131 ========= ========= Weighted average interest rate at year end 8.24% 7.99% --------- --------- Weighted average interest rate during year 8.23% 7.29% --------- --------- Maximum amount outstanding during year $637,773 $534,921 ========= ========= Average amount outstanding during year $516,131 $490,429 ========= =========
- 29 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 3. Long-Term Debt
Long-term debt consists of the following notes payable at June 2, 2007 and June 3, 2006: 2007 2006 -------- -------- Note payable to Northwest Georgia Bank; principal and interest due in monthly installments of $11,381, through September 2006; interest at prime rate; collateralized by equipment, accounts receivable, inventory, and personal guarantees of the Company's President and Executive Vice President $ - $ 5,941 Note payable to Northwest Georgia Bank; principal and interest due in monthly installments of $6,781, through December 2008; interest at prime rate with 6.00% floor; collateralized by equipment, inventory, and personal guarantees of the Company's President and Executive Vice President - 196,020 Note payable to Gateway Bank & Trust; principal and interest due in monthly installments of $3,684, through April 2012; interest at prime rate with 6.00% floor; collateralized by equipment, inventory, and personal guarantees of the Company's President and Executive Vice President 180,000 - Vehicle installment loan; due in monthly installments of $433, through December 2010; collateralized by an automobile 16,636 20,656 Vehicle installment loan; due in monthly installments of $524, through January 2010; collateralized by an automobile 15,614 - -------- -------- 212,250 222,617 Less current maturities 40,206 78,120 -------- -------- Total long-term debt $172,044 $144,497 ======== ========
- 30 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 3. Long-Term Debt (continued) The aggregate maturities or principal payments required on long-term debt for years subsequent to June 2, 2007, are as follows:
Year Amount ---- ------- 2008 $40,206 2009 47,659 2010 40,427 2011 41,938 2012 42,020
Note 4. Lease Commitments The Company leases the facilities in which its retail grocery operations are located under noncancelable operating leases that expire at various dates through April 2014. Substantially all of the leases include renewal options. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 2, 2007:
Fiscal Minimum Year Ending Rentals ----------- ---------- 2008 $ 542,380 2009 395,590 2010 281,408 2011 255,170 2012 231,253 Thereafter 140,685 ---------- Total $1,846,486 ==========
Rental expense for the fiscal years ended June 2, 2007, June 3, 2006, and May 28, 2005, is as follows:
2007 2006 2005 -------- -------- -------- Minimum rentals $627,399 $611,417 $609,105 Contingent rentals based on sales 14,604 17,348 12,703 -------- -------- -------- Total $642,003 $628,765 $621,808 ======== ======== ========
- 31 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 5. Federal and State Income Taxes No amounts have been provided for current and deferred federal and state tax expense in the statements of income for any of the three years ended June 2, 2007, as a result of recurring net operating losses and the related full valuation allowance on the Company's net deferred tax assets. A reconciliation of income tax expense computed by applying the U.S. Federal statutory rates to income before income taxes and actual income tax expense is as follows:
2007 2006 2005 --------- --------- --------- Federal income tax expense (benefit) computed at the statutory rates $ 14,700 $(25,100) $(49,700) State income tax, net of federal income tax expense (benefit) 5,400 (9,300) (18,000) Change in deferred tax asset valuation allowance (20,100) 34,400 67,700 --------- --------- --------- Total income tax expense (benefit) $ - $ - $ - ========= ========= =========
The tax effects of significant temporary differences that comprise deferred tax assets and liabilities at June 2, 2007 and June 3, 2006, are as follows:
2007 2006 ---------- ---------- Deferred tax assets: Net operating loss carryforward $(128,000) $(148,900) Other (12,200) (22,500) Deferred tax liabilities: Depreciable basis of property and equipment 4,600 15,700 Deferred tax asset valuation allowance 135,600 155,700 ---------- ---------- $ - $ - ========== ==========
At June 2, 2007, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $593,000 and $701,000, respectively. The Company has established a full valuation allowance, which effectively reduces the carrying value of its net deferred taxes to zero at June 2, 2007 and June 3, 2006. Unless the Company realizes sufficient taxable income in future periods to demonstrate that the likelihood of realization of the net deferred tax assets is reasonably assured under the accounting guidelines of SFAS No. 109, this valuation allowance will be continued in future periods. If not utilized, the carryforwards will expire at various dates through 2025. - 32 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 6. Employee Benefit Plan The Company has adopted a 401(k) employee benefit plan covering substantially all employees who have met minimum service and age requirements. The service and age requirements were waived for the initial plan participants to encourage participation. The Company's annual contribution is discretionary. The Company's contribution to the plan was $7,500 in 2007, 2006 and 2005. Note 7. Concentration of Credit Risk and Major Supplier The Company maintains a certificate of deposit and other deposit accounts at financial institutions in amounts that exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. The total of deposits that exceeded the FDIC insurance limit was $639,345 at June 2, 2007. The Company believes that maintaining deposits in these financial institutions does not represent a significant credit risk and that the Company benefits from favorable banking relationships as a result of maintaining deposits with these institutions. Approximately 81 percent of the Company's purchased merchandise for the year ended June 2, 2007, was procured from the Company's main supplier. Note 8. Related Party Transactions As described in greater detail in Note 2 above, the Company finances a portion of its working capital requirements through borrowings consisting of two unsecured notes, payable to Michael and Diana Richardson, principal shareholders of the Company, and to their son, Matthew Richardson. These notes bear interest at a rate per annum .25% below the base rate of interest charged on the Company's borrowings from its lead bank and are payable on demand. Note 9. Segment Reporting SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" provides for the identification of reportable segments on the basis of discrete business units and their financial information to the extent such units are reviewed by an entity's chief decision maker (which can be an individual or group of management persons). The Statement permits aggregation or combination of segments that have similar characteristics. In the Company's operations, each store is viewed by management as being a separately identifiable business or segment from the perspective of monitoring performance and allocation of financial resources. Although the stores operate independently and are managed and monitored separately, each is substantially similar in terms of business focus, type of customers, products and services. Accordingly, the Company's financial statements reflect the presentation of segment information on an aggregated basis in one reportable segment. - 33 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 10. Fair Value of Financial Instruments The carrying values of cash and cash equivalents, the certificate of deposit, accounts receivable, short-term borrowings, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments. Based on the borrowing rates available to the Company for long-term debt with similar terms and average maturities, the carrying amounts approximate the fair value of such financial instruments. - 34 - AMERICAN CONSUMERS, INC. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Note 11. Quarterly Data (unaudited)
Years Ended ------------------------------------------------------------------------------------------------------- June 2, 2007 June 3, 2006 -------------------------------------------------- --------------------------------------------------- Thirteen Thirteen Thirteen Thirteen Fourteen Thirteen Thirteen Thirteen Weeks Weeks Weeks Weeks Weeks Weeks Weeks Weeks Ended Ended Ended Ended Ended Ended Ended Ended 6/2/2007 3/3/2007 12/2/2006 9/2/2006 6/3/2006 2/25/2006 11/26/2005 8/27/2005 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- Net sales $8,554,004 $8,446,070 $8,392,267 $8,390,711 $9,060,496 $8,176,572 $ 8,047,771 $7,995,089 Cost of goods sold 6,562,864 6,408,085 6,417,697 6,377,694 6,892,914 6,201,916 6,098,898 6,040,175 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- Gross profit 1,991,140 2,037,985 1,974,570 2,013,017 2,167,582 1,974,656 1,948,873 1,954,914 Operating, general and administrative expenses 1,991,231 2,006,513 1,995,765 2,007,795 2,260,671 2,032,786 1,998,887 1,969,789 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- Operating income (loss) (91) 31,472 (21,195) 5,222 (93,089) (58,130) (50,014) (14,875) Other income 38,293 35,357 39,062 29,978 30,067 23,457 31,023 24,176 Interest expense (16,576) (14,531) (14,636) (14,853) (17,127) (15,414) (14,251) (13,202) ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- Income (loss) before income taxes 21,626 52,298 3,231 20,347 (80,149) (50,087) (33,242) (3,901) Income taxes - - - - - - - - ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- Net income (loss) $ 21,626 $ 52,298 $ 3,231 $ 20,347 $ (80,149) $ (50,087) $ (33,242) $ (3,901) =========== =========== =========== =========== =========== =========== ============ =========== Earnings (loss) per common share: $ 0.02 $ 0.07 $ 0.00 $ 0.03 $ (0.10) $ (0.06) $ (0.04) $ (0.01) =========== =========== =========== =========== =========== =========== ============ ===========
- 35 - EX-23 14 ex23.txt EXHIBIT 23 EXHIBIT 23 [LETTERHEAD OF HAZLETT, LEWIS & BIETER, PLLC] CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Annual Report of American Consumers, Inc. (Form 10-K), of our report, dated July 19, 2007, with respect to the financial statements of American Consumers, Inc. included in the Annual Report to security holders for the fiscal year ended June 2, 2007. /S/ HAZLETT, LEWIS & BIETER, PLLC Chattanooga, Tennessee August 27, 2007 EX-31.1 15 ex31_1.txt EXHIBIT 31.1 EXHIBIT 31.1 C.E.O. CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A) I, Michael A. Richardson, certify that: 1. I have reviewed this Annual Report on Form 10-K of American Consumers, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 31, 2007 /s/ Michael A. Richardson - ------------------------------ Michael A. Richardson Chairman and Chief Executive Officer EX-31.2 16 ex31_2.txt EXHIBIT 31.2 EXHIBIT 31.2 C.F.O. CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A) I, Paul R. Cook, certify that: 1. I have reviewed this Annual Report on Form 10-K of American Consumers, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 31, 2007 /s/ Paul R. Cook - ------------------------------ Paul R. Cook Executive Vice President and Treasurer (Chief Financial Officer) EX-32.1 17 ex32_1.txt EXHIBIT 32.1 EXHIBIT 32.1 C.E.O. CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13A-14(B) AND 15D-14(B) In connection with the Annual Report of American Consumers, Inc. (the "Company") on Form 10-K for the period ending June 2, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Sec. 1350 (as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002) that he is the Chief Executive Officer of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report. /s/ Michael A. Richardson - ------------------------------ Michael A. Richardson Chairman and Chief Executive Officer American Consumers, Inc. Date: August 31, 2007 EX-32.2 18 ex32_2.txt EXHIBIT 32.2 EXHIBIT 32.2 C.F.O. CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13A-14(B) AND 15D-14(B) In connection with the Annual Report of American Consumers, Inc. (the "Company") on Form 10-K for the period ending June 2, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Sec. 1350 (as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002) that he is the Chief Financial Officer of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report. /s/ Paul R. Cook - ------------------------------ Paul R. Cook Executive Vice President and Treasurer (Chief Financial Officer) American Consumers, Inc. Date: August 31, 2007 -----END PRIVACY-ENHANCED MESSAGE-----