As filed with the Securities and Exchange Commission on April 15, 2011

Registration No. 333-155296

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 6

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Alon Brands, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Alon Brands, Inc.
7616 LBJ Freeway, 3rd Floor
Dallas, Texas 75251
(972) 367-3900

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

Kyle McKeen
President and Chief Executive Officer
Alon Brands, Inc.
7616 LBJ Freeway, 3rd Floor
Dallas, Texas 75251
(972) 367-3900
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the registration statement becomes effective.

 

 

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED APRIL 15, 2011

 

                 Shares

 

 

Alon Brands, Inc.

 

Common Stock

 

 

This is an initial public offering of shares of common stock of Alon Brands, Inc.

 

Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $      and $      per share. We intend to apply to list our common stock on the New York Stock Exchange under the symbol “ABO.”

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 12.

 

 

The underwriters have an option to purchase a maximum of           additional shares from the selling stockholder at the offering price less the underwriting discount, within 30 days from the date of this prospectus, to cover over-allotments of shares. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by the selling stockholder will be $      and the total proceeds to the selling stockholder, before expenses, will be $     . We will not receive any proceeds from the sale of shares by the selling stockholder.

 

Delivery of the shares of common stock will be made on or about           .

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

The date of this prospectus is          , 2011.

 

TABLE OF CONTENTS

 

 

 

 

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

 

 

Dealer Prospectus Delivery Obligation

 

Until          , 2011 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

Industry and Market Data

 

In this prospectus, we rely on and refer to information and statistics regarding our industry, the size of certain markets and our position within the sectors in which we compete. Some of the market and industry data contained in this prospectus are based on information from independent industry trade associations such as the Association for Convenience and Petroleum Retailing, or NACS, or other publicly available information, while other information is based on our good faith estimates, which are derived from our review of internal surveys, and our management’s knowledge and experience in the markets in which we operate. Our estimates have also been based on information obtained from our customers, suppliers and other contacts in the markets in which we operate.

 

 

We own and use the “Alon Brands,” “Skinny’s” and “Alon” names and logos as our trademarks. This prospectus also refers to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners.

 

 

Notice to Israeli Residents

 

This prospectus has not been approved by the Israeli Securities Authority. The securities are being offered to a limited number of sophisticated investors, in all cases under circumstances that will fall within the private placement or other exemptions set forth in the Israeli Securities Law 1968 or the Joint Investment Trust Law 1994. This prospectus may not be reproduced or used for any other purpose nor be furnished to any other person other than those to whom copies have been sent. Any prospective purchaser who purchases securities is purchasing such for its own benefit and account and not with the aim or intention of distributing or offering such interest to other parties. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy, in Israel, to any person to whom it is unlawful to make such offer or solicitation in the State of Israel. Nothing in this Prospectus should be considered as investment advice as defined in the Israeli Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law 1995.

 

PROSPECTUS SUMMARY

	•	Continuing shift of consumer food and general merchandise purchases away from traditional supermarkets to convenience stores and other alternative formats;
	•	Increasing size and complexity of the big box retail format (i.e., superstores), driving consumers to small box retailers, such as convenience stores, to meet their demand for speed and convenience in daily shopping needs;
	•	Changing consumer demographics and eating patterns resulting in more ready-to-eat food being purchased at convenience stores;
	•	Increasing significance of the advantages of scale given the highly fragmented nature of the industry; and
	•	Continuing opportunities to grow through acquisitions given industry fragmentation and continued divestitures of retail convenience stores by major oil companies.

	•	Consolidation among major petroleum product producers has resulted in fewer recognizable brands available to distributors and convenience store operators;
	•	A 46% reduction in the number of operating crude oil refineries over the last 28 years as well as a number of recent temporary facility closures, which has resulted in less access to product and increased the importance of obtaining a secure fuel supply source; and
	•	Increased scrutiny by oil companies and refiners in selecting distributors, with a preference for larger distributors capable of handling higher volumes, limiting smaller distributors’ access to product.

	•	the volatility of motor fuel prices, where significant changes in prices can materially and adversely affect our profitability in both our wholesale marketing and retail segments;
	•	our dependence on our parent company to supply substantially all of our motor fuel requirements under a fuel supply agreement, which contains minimum and maximum volume purchase terms and a change of control provision, each of which could limit or terminate altogether our ability to receive the favorable pricing terms and certainty of supply provided by that agreement;
	•	the importance of our 7-Eleven license agreement for branding and marketing initiatives, the loss of which could materially adversely affect our business;
	•	the highly competitive markets in which we compete for motor fuel distribution and retail merchandising;
	•	changes in consumer spending behavior or travel trends in our markets, as well as declines in general or local economic conditions, any of which could result in a decrease in our motor fuel and retail merchandise sales; and
	•	the costs of compliance with federal, state and local regulations, including environmental, economic, safety and other laws, policies and regulation that could increase our operating costs or result in declining sales.

Common stock offered by us		shares
Common stock offered by the selling stockholder if the underwriters exercise their over-allotment option to purchase additional shares of common stock in this offering in full		shares
Common stock to be outstanding immediately after this offering		shares
Use of proceeds		We estimate that our net proceeds from this offering, after deducting underwriting discounts, commissions and estimated offering expenses, will be approximately $      million.
		We intend to use these net proceeds:
		• to accelerate our growth strategy, including, without limitation, planned store remodels and the acquisition of additional retail locations; and
		• for general corporate purposes.
		We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholder if the underwriters exercise their over-allotment option to purchase shares of common stock from the selling stockholder in this offering. See “Use of Proceeds.”
Dividend policy		We intend to pay quarterly cash dividends on our common stock at an initial annual rate of $      per share commencing in the second quarter following the completion of this offering. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, legal requirements and other factors our board of directors deems relevant.
Risk factors		You should carefully read and consider the information set forth under “Risk Factors,” together with all of the other information set forth in this prospectus, before deciding to invest in shares of our common stock.
Proposed NYSE symbol		ABO
Directed Share Program		At our request, the underwriters have reserved up to     % of shares for sale at the initial public offering for our employees, directors, officers and other persons associated with us “See Underwriting”

		Year Ended December 31,
		2008				2009				2010
		(Dollars in thousands, except share and per share and percentage data)
Statement of Operations Data:
Revenues:
Motor fuel — retail		$	315,756			$	276,951			$	384,148
Merchandise — retail			253,295				261,920				274,264
Other, net — retail(1)			7,850				6,867				7,409
Total retail			576,901				545,738				665,821
Motor fuel — wholesale			663,126				263,679				382,276
Other, net — wholesale(2)			2,029				2,123				3,142
Total wholesale			665,155				265,802				385,418
Total revenues			1,242,056				811,540				1,051,239
Gross profit:
Motor fuel — retail			20,267				16,772				18,377
Merchandise — retail			71,607				75,629				82,248
Other, net — retail			7,850				6,867				7,409
Total retail			99,724				99,268				108,034
Motor fuel — wholesale			7,551				14,511				19,629
Other, net — wholesale			2,029				2,123				3,142
Total wholesale			9,580				16,634				22,771
Total gross profit			109,304				115,902				130,805
Operating and selling expenses:
Operating, selling and administrative(3)			97,105				95,291				98,112
Depreciation, amortization and accretion			13,704				13,592				13,550
Total operating and selling expenses			110,809				108,883				111,662
Operating income (loss)			(1,505	)			7,019				19,143
Interest expense			5,097				3,893				3,176
Rental, interest and other income			554				559				594
Gain (loss) on sale of assets			(317	)			—				286
Income (loss) before income tax expense (benefit)			(6,365	)			3,685				16,847
Income tax expense (benefit)(4)			(1,555	)			1,268				6,267
Net income (loss)		$	(4,810	)		$	2,417			$	10,580
Earnings per share(5):
Basic and diluted		$	(4,810	)		$	2,417			$	10,580
Weighted-average shares outstanding(5):
Basic and diluted			1,000				1,000				1,000
Pro forma earnings per share(5):
Basic and diluted										$
Pro forma weighted-average shares outstanding(5):
Basic and diluted
Other Financial Data:
EBITDA (unaudited)(6)		$	12,410			$	21,164			$	33,571
Net cash provided by (used in):
Operating activities			35,596				17,354				31,779
Investing activities			(3,519	)			(5,199	)			(5,434	)
Financing activities			(39,890	)			(12,741	)			(171	)
Capital expenditures(7)			3,888				5,199				6,029
Operating Data (unaudited):
Number of retail stores (end of period)			306				308				304
Number of motor fuel stores (end of period)			295				296				292
Retail fuel gallons sold			96,974				120,697				142,155
Average gasoline retail price (dollars per gallon sold)		$	3.26			$	2.29			$	2.70
Average per retail store(8):
Retail merchandise sales		$	827			$	856			$	896
Retail fuel gallons sold			328				410				483
Comparable merchandise store sales growth(9)			1.1	%			3.3	%			4.9	%
Retail merchandise gross margin(10)			30.4	%			30.7	%			31.8	%

		Year Ended December 31,
		2008				2009				2010
		(Dollars in thousands, except share and per share and percentage data)
Retail fuel margin (cents per gallon)(11)			20.9	¢			13.9	¢			12.9	¢
Number of stores supplied through wholesale distributor network (end of period)(12)			475				343				341
Wholesale fuel gallons sold			339,099				274,101				318,935
Sold to our retail convenience stores			92,677				120,013				141,814
Sold to unrelated parties			246,422				154,088				177,121
Wholesale fuel margin unrelated parties (cents per gallon)			1.7	¢			4.8	¢			5.6	¢

		Historical					Pro Forma(14)
		As of					As of
		December 31, 2010					December 31, 2010
		(Dollars in thousands, except as noted)
Balance Sheet Data (unaudited):
Cash and cash equivalents		$	28,153				$	106,603
Working capital			20,225					113,225
Adjusted working capital(13)			(7,928	)				6,622
Total assets			212,448					290,898
Total liabilities			156,531					171,981
Total stockholder’s equity			55,917					118,917

(1)		Includes revenues from, lottery, money orders, money wire and ATM commissions, and other commissions earned on gift cards and ancillary services.
(2)		Includes payment card processing fees, broadband and equipment rents, and other marketing and trade agreement fees.
(3)		Includes allocated costs and expenses for administrative and shared services provided by Alon Energy to Alon Brands (2008 - $3,438, 2009 - $2,811, and 2010 - $2,479).
(4)		Reflects current and deferred taxes for the periods presented. See Note 2(r) and Note 16 to our audited combined financial statements included elsewhere in this prospectus for a detailed explanation of the components of income taxes.
(5)		Please see Note 2(x) to our audited combined financial statements for the year ended December 31, 2010 appearing elsewhere in this prospectus, for an explanation of the method used to calculate basic and diluted earnings per share and the number of shares used in the computation of the per share amounts for the periods presented. The pro forma earnings per share and weighted-average shares outstanding also give effect to the  -for-1 stock split of our common stock outstanding prior to this offering and the sale of           shares of common stock in this offering at the assumed public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus).
(6)		We define EBITDA as net income (loss) before net interest expense, income tax expense (benefit) and depreciation, amortization and accretion. We believe EBITDA is useful to investors in evaluating our operating performance because:
		• securities analysts and investors often use such calculations as a measure of financial performance and debt service capabilities;
		• it facilitates management’s ability to measure operating performance of our business on a consistent basis since it removes the impact of items not directly resulting from our retail and wholesale marketing operations; and
		• it is used by our management for internal planning purposes, including aspects of our consolidated operating budget, capital expenditures, as well as for segment and individual site operating targets.
		EBITDA is not a recognized term under accounting principles generally accepted in the United States of America (“US GAAP”) and does not purport to be an alternative to net income as a measure of operating performance. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or

		as a substitute for an analysis of our results as reported under US GAAP. Some of these limitations include:
		• it does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
		• it does not reflect changes in, or cash requirements for, working capital;
		• it does not reflect significant interest expense, or the cash requirements necessary to service interest or principal payments on our credit facilities;
		• it does not reflect payments made or future requirements for income taxes;
		• although depreciation, amortization and accretion are non-cash charges, the assets being depreciated and amortized may be replaced in the future, and EBITDA does not reflect cash requirements for such replacements; and
		• because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies.

		Year Ended December 31,
		2008				2009				2010
Net income (loss)		$	(4,810	)		$	2,417			$	10,580
Depreciation, amortization and accretion			13,704				13,592				13,550
Interest expense, net			5,071				3,887				3,174
Income tax expense (benefit)			(1,555	)			1,268				6,267
EBITDA		$	12,410			$	21,164			$	33,571

(7)		Excludes capital assets acquired in business acquisitions and includes expenditures for brand image enhancement.
(8)		Average retail merchandise sales and motor fuel gallons sold are based on total merchandise sales or motor fuel gallons sold divided by total store months.
(9)		Includes merchandise and in-store revenue identified in footnote (1) only for stores operated in both periods. Excludes motor fuel sales.
(10)		Retail merchandise gross margin represents the difference between (a) merchandise sales revenues and other retail sales and services revenues and (b) the delivered cost of merchandise purchases, net of rebates and commissions, expressed as a percentage of merchandise sales revenues. Retail merchandise gross margins, also referred to as in-store margins, are commonly used in the retail industry to measure in-store, or non-fuel, operating results.
(11)		Retail fuel margin represents the difference between motor fuel revenues and net cost of purchased fuel, including transportation costs and associated motor fuel taxes, expressed on a cents per gallon basis. Motor fuel margins are frequently used in the retail industry to measure operating results related to motor fuel sales.
(12)		Excludes convenience stores we own and operate and stores that sub-license our branded motor fuel.
(13)		Adjusted working capital is defined as total current assets, excluding cash and cash equivalents, less total current liabilities.
(14)		The pro forma balance sheet data as of December 31, 2010 reflects (i) payment of $14.6 million on affiliated accounts payable (ii) the corporate reorganization transactions, including           shares of common stock issued resulting from the transfer of assets and liabilities associated with the wholesale marketing segment and the  -for-1 stock split of our common stock outstanding prior to this offering, (iii) the 2011 loan transactions and (iv) the sale of           shares of common stock in this offering at the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions of $7.0 million.

 

An investment in our common stock involves various risks. Before making an investment in our common stock, you should carefully consider the following risks, as well as the other information contained in this prospectus. Any of the risk factors described below could materially adversely affect our business, prospects, financial condition, cash flows and results of operations. As a result, the trading price of our common stock could decline and you may lose part or all of your investment.

 

Risks Relating to Our Business

 

Historical prices for motor fuel have been volatile and significant changes in such prices in the future may materially adversely affect our business.

 

Over the past several years, crude oil prices have risen and fallen dramatically, resulting in unprecedented volatility in the wholesale and retail prices of motor fuels. Sustained high prices for motor fuel products can cause a decrease in gasoline demand which can negatively influence our motor fuel sales volumes, fuel margins and retail merchandise sales. Conversely, sharp declines in retail fuel prices can also reduce our retail margins per gallon if we sell inventory purchased at higher wholesale costs at lower retail prices. In addition, because our wholesale marketing segment sells motor fuels to distributors on credit, our credit risk increases as wholesale prices increase.

 

A significant amount of our retail segment’s sales are made with payment cards, which result in fees being charged to us. Payment card fees are made up of two components, a fixed fee per transaction and a variable processing fee that ranges from 1.0% to 4.0% of the total amount charged. As a result, higher retail prices of motor fuel cause us to recognize a higher expense associated with variable processing fees, which increases our expenses on a per gallon basis. Additionally, when fuel prices increase some customers purchase fewer gallons per visit. This causes the fixed amount of the transaction fee to be allocated across a smaller number of gallons, which further increases our overall payment card expenses on a per gallon basis.

 

We depend on our parent company to supply substantially all of our motor fuel. Any disruption in supply or any change in our relationship with our parent company could materially adversely affect our business.

 

We have entered into a new 20-year fuel supply agreement with our parent company to supply substantially all of the motor fuel. Accordingly, in the event that our motor fuel needs exceed the maximum contracted for volume, or our parent company is unable to fulfill its obligations under this agreement or otherwise fails to provide us with motor fuel, we may be unable to replace this supply through third parties or we may need to pay significantly greater costs for such motor fuel. For example, on February 18, 2008, our parent company experienced an extended outage following a major fire at its Big Spring refinery. In the event of another disruption in supply from our parent company, motor fuel supply from alternative sources may be unavailable or inadequate to meet our requirements, and our wholesale marketing segment and retail convenience stores may experience decreased sales volumes or increased procurement costs, which could materially adversely affect our business.

 

Our fuel supply agreement with our parent company contains minimum purchase requirements and a change of control provision that, if we fail to meet or comply with, may result in termination of the agreement or less favorable pricing arrangements, and either such event could materially adversely affect our business.

 

Our fuel supply agreement requires us to purchase minimum quantities of motor fuel each month. In the event that we fail to purchase such minimum motor fuel volume in any month, our parent company has the right to withdraw the favorable pricing arrangement under the agreement for that month’s purchases, which could result in a material increase in our motor fuel costs. Additionally, in the event that we fail to purchase the minimum monthly fuel quantity for three consecutive months, our parent company may terminate the fuel supply agreement.

In the event that our parent company ceases to own, directly or indirectly, a majority of our outstanding shares of common stock, our parent company has the option to terminate the fuel supply agreement. If our parent company were to terminate our fuel supply agreement, we may be unable to find adequate supply from third party suppliers and may be required to purchase our requirements at higher prices. After giving effect to this offering, our parent company will own approximately     % of our outstanding common stock (     % if the underwriters’ over-allotment option is exercised in full).

 

Any such increases in costs under our fuel supply agreement or the termination of that agreement could materially adversely affect our business.

 

Substantially all of our convenience stores conduct their operations under a license agreement with 7-Eleven, and the loss of this license or the diminution of 7-Eleven’s brand and marketing initiatives could materially adversely affect our business.

 

As of December 31, 2010, we operated 281 of our convenience stores under the 7-Eleven name pursuant to our perpetual license agreement with 7-Eleven, Inc. 7-Eleven may terminate the license if we default on our obligations under the agreement, including compliance with minimum operating standards required of all 7-Eleven stores. Termination of the license agreement would result in our convenience stores losing the use of the 7-Eleven brand name, the benefits accompanying 7-Eleven’s advertising and certain brand names and products used exclusively by 7-Eleven, including Slurpee^® and Big Gulp^® beverages and Big Bite^® hot dogs. Additionally, 7-Eleven provides our retail convenience stores with various promotional and marketing initiatives for our in-store merchandise offerings. Any diminution of the national brand image or decline in marketing support initiatives made available to us by 7-Eleven could materially adversely affect our retail segment. In order for our retail segment to use the 7-Eleven brand in markets not currently covered under our existing license agreement, we will need to amend the license agreement to provide us the right to use the 7-Eleven brand in these additional markets. Such an amendment may not be obtainable if existing franchisees or licensees are operating in those markets.

 

We sub-license the FINA brand from our parent company under our fuel supply agreement. Our parent company’s rights to the FINA brand are provided under a license agreement with Total S.A., and the loss of this license could materially adversely affect our business.

 

We sub-license the FINA brand from our parent company under our fuel supply agreement. Our parent company has the exclusive rights to use the FINA brand for motor fuels marketing in the States of Texas, Oklahoma, New Mexico, Arizona, Arkansas, Louisiana, Colorado and Utah under a license agreement with a subsidiary of Total S.A. The license agreement expires in August 2012 and is collateral under one of our parent company’s credit facilities. We own substantially all of the trade dress that accompanies the FINA brand and logo. The expiration of the license agreement with FINA would cause our retail and wholesale marketing segments to lose the use of the FINA brand name and logo, which would require us to change our signage and rebrand our motor fuel products, which changes would require significant capital expenditures by us. Also, even if we rebrand our motor fuel products, there can be no assurance that a new brand will effectively replace the FINA brand, and our business could be materially adversely affected.

 

The motor fuel marketing and supply industry is characterized by intense competition, and our failure to effectively compete could materially adversely affect our business.

 

The market for distribution of wholesale motor fuel is highly competitive. Some of our competitors have significantly greater resources and name recognition than we do. We rely on our pricing, brand offerings, ability to provide reliable supply, brand support and payment card processing services to maintain our competitive position. If we fail to maintain the quality of our services, customers could choose alternative sources, and our competitive position could be materially adversely affected. Furthermore, we compete against major oil companies with integrated marketing segments. Through their greater resources and access to crude oil, these companies may be better able to compete on the basis of price, which could materially adversely affect our fuel margins.

The convenience store industry is highly competitive and affected by new entrants. An increase in competition in the markets in which our stores operate could materially adversely affect our business.

 

The geographic areas in which we operate are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we sell in our convenience stores. We compete with other convenience stores, gasoline service stations, supermarket chains, discounters, wholesale clubs, drug stores, fast food operations and other retail outlets. Increasingly, national high-volume grocery and dry-goods retailers have entered the gasoline retailing business. These non-traditional motor fuel retailers have captured a significant share of the motor fuel market, and we expect their market share will continue to grow. Many of these competitors are substantially larger than we are. Because of their diversity, integration of operations and greater resources, these companies may be better able to withstand volatile market conditions or levels of low or no profitability in their retail business. In addition, these retailers may use promotional pricing or discounts, both at the pump and in the store, to encourage in-store merchandise sales.

 

Covenants in our retail subsidiaries’ debt instruments could limit our ability to undertake certain types of transactions.

 

The Second Amended and Restated Wells Fargo Credit Facility contains negative operating covenants and events of default that may limit our financial flexibility and ability to undertake certain types of transactions. For example, our retail subsidiaries are subject to negative covenants that restrict their activities, including restrictions on creating liens, engaging in mergers, consolidations, sales of assets and change-of-control transactions, incurring additional indebtedness, entering into certain lease obligations and making certain restricted payments. Should we desire to undertake a transaction that is limited by the negative covenants in our retail subsidiaries’ credit agreement, we may need to obtain the consent of those lenders or refinance the credit facility. Such refinancings may not be possible or may not be available on commercially acceptable terms, or at all.

 

We compete with other businesses in our market to attract and retain qualified employees. A failure to attract or retain such qualified employees could materially adversely affect our business.

 

Our continued success depends on our ability to attract and retain qualified personnel in all areas of our business. Convenience store operations require a substantial number of employees and generally experience high employee turnover. We compete with other businesses in our market to attract and retain qualified employees. A tight labor market, increased overtime and a higher full-time employee ratio may cause labor costs to increase. A shortage of qualified employees may require us to enhance wage and benefits packages in order to compete effectively in the hiring and retention of qualified employees, to hire more expensive temporary employees or to reduce store hours. No assurance can be given that our labor costs will not increase or that such increases can be recovered through increased prices charged to customers.

 

Our payment card processing services are subject to compliance with the extensive rules and regulations under the Payment Card Industry (PCI) Data Security Standard, and failure to comply with the applicable standards may subject us to substantial fines and penalties.

 

A significant portion of our sales and those of our branded sub-licensee distributors are made with payment cards and processed by our wholesale marketing segment. We are subject to quarterly network security scans and annual on-site audits to ensure that we are protecting confidential customer information and bank card data in accordance with the applicable PCI standards, and continuing compliance with such standards may require us to devote substantial time and incur additional costs to ensure we maintain our ability to process payment card transactions. Additionally, in the event that the card associations or our sponsoring bank determine that the manner in which we process payment card transactions is not in compliance with existing rules and regulations, or if the card associations adopt new rules or regulations, we may be subject to substantial penalties and fines or forced to modify the manner in which we process payment card transactions, which may increase our overall costs.

Wholesale cost increases in tobacco products, including excise tax increases on cigarettes, or a reduction in the use of manufacturer rebates offered to retailers on tobacco products could materially adversely affect our business.

 

Sales of tobacco products account for a significant portion of our retail segment’s merchandise sales. Significant increases in wholesale costs of tobacco products and tax increases on cigarettes could materially adversely affect the demand for tobacco products. Cigarettes are subject to substantial and increasing excise taxes at both a state and federal level. As recent examples, the Texas legislature increased cigarette taxes by $1.00 per pack effective January 1, 2007, the U.S. Congress increased federal cigarette taxes by $0.62 per pack effective April 1, 2009, and the New Mexico legislature increased cigarette taxes by $0.75 per pack in March 2010. Further significant increases in cigarette-related taxes and fees have been proposed and are likely to continue to be proposed or enacted at the federal level. Increased excise taxes may result in declines in overall sales volume, as well as reduced gross profit margin due to lower consumption levels, a shift in consumer purchases from premium to non-premium or discount cigarettes or to other low-priced or low-taxed tobacco products, or to the import of cigarettes from territories, states or countries with lower, or no, excise taxes on such items. Moreover, regulations reducing display allowances for cigarettes may also reduce sales of cigarettes.

 

Currently, major manufacturers of tobacco products offer rebates to retailers. We include these rebates as a component of our gross margin from sales of tobacco products. In the event these rebates are no longer offered, or decreased, our costs of tobacco products will increase accordingly. In general, we attempt to pass price increases on to our customers; however, due to competitive pressures in our markets, we may not be able to do so. These factors could materially adversely affect our retail price of tobacco products, tobacco product unit volume and revenues, merchandise gross profit and overall customer traffic.

 

Future legislation and campaigns to discourage smoking could materially adversely affect our business.

 

Future legislation and national, state and local campaigns to discourage smoking have had, and may continue to have, a substantial effect on cigarette sales. Reduced demand for cigarettes could materially adversely affect sales of, and margins for, the cigarettes we sell.

 

Decreases in consumer spending resulting from changes in local economic conditions or travel in our markets could materially adversely affect our business.

 

In the convenience store industry, customer traffic is generally driven by consumer preferences and spending trends, growth in automobile and commercial truck traffic and trends in local economies, travel and weather. Changes in economic conditions generally or in markets in which we operate could materially adversely affect consumer spending patterns and travel in our markets.

 

The local economies where we have our convenience stores may be adversely affected by the recent broader general economic decline in the United States or if the current trend continues or gets worse. A weak economy could affect the purchasing patterns of consumers which could materially adversely affect our business.

 

Our business is subject to seasonal trends, which may cause our results of operations to fluctuate, affecting our cash flow.

 

We experience more demand for our merchandise, food and motor fuel during the late spring and summer months than during the fall and winter. Travel and recreation are typically higher in these months in the geographic areas in which we operate, increasing the demand for the products that we sell and distribute. Therefore, our volumes and related traffic are typically higher in the second and third quarters of our year. As a result, our results from operations may vary widely from period to period, affecting our cash flow.

Any devaluation of the Mexican peso, or imposition of restrictions on the access of citizens of Mexico to the United States, could adversely affect our business by reducing sales at our stores located near the U.S.-Mexico border.

 

Even though we do not accept the Mexican peso for purchases made at our convenience stores, a devaluation of the Mexican peso could negatively affect the exchange rate between the Mexican peso and the U.S. dollar, which would result in reduced purchasing power on the part of our customers who are citizens of Mexico. Approximately 28% of our convenience stores, which accounted for approximately 28% of our 2010 retail segment’s revenues, are located in El Paso, Texas, which is on the border with Mexico. In the event of a devaluation in the Mexican peso, revenues attributable to those stores could be reduced.

 

In recent years, there have been a variety of legislative proposals to limit immigration to the United States. If one or more proposals were to be adopted that had the effect of curtailing the ability of citizens of Mexico to cross the border into the United States, revenues of our convenience stores in E1 Paso could be reduced.

 

Our growth depends in part on our ability to identify profitable new retail convenience store acquisitions and to successfully integrate acquired sites and businesses in the future.

 

We may not be able to identify and successfully acquire new convenience stores, as discussed in our growth strategy, and any new stores we do acquire may be unprofitable. Additionally, acquiring sites and businesses in the future involves risks that could cause our actual growth or operating results to differ adversely from expectations. There are several factors that could affect our ability to successfully identify and integrate new acquisitions. These factors include:

 

 

We depend on one wholesaler for a significant portion of our convenience store merchandise, and a disruption in supply by our wholesaler or change in our relationship with it could materially adversely affect our business.

 

For the year ended December 31, 2010, we purchased approximately 48% of our general merchandise for our retail stores, including most tobacco products and grocery items, from a single wholesale grocer, McLane Company, Inc., or McLane. We currently have a supply agreement with McLane that expires in December 2011. A change of merchandise suppliers, including as a result of our inability to renew our contract with McLane on terms acceptable to us or at all, a disruption in supply or a significant change in our relationship with McLane could lead to an increase in our cost of goods sold or a reduction in the reliability of timely deliveries.

In addition, we receive merchandise rebates on certain items from McLane. If these merchandise rebates were discontinued, we may incur higher costs that we may not be able to pass on to our customers resulting in a reduction in sales volume and gross profit on these merchandise offerings.

 

We rely substantially on third-party providers of information technology in our retail operations, and any material failure, inadequacy, interruption or security failure of our technology systems could materially disrupt our retail operations and could materially adversely affect our business.

 

We rely substantially on information technology systems across our retail operations, including for management of point-of-sale processing in our stores, pump control, daily operations reporting, inventory management and various other processes and transactions. These technology systems are provided to and supported by third-party service providers. Our ability to effectively manage our retail business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, a dispute with or failure to perform by our third-party providers or a breach in security of these systems could materially disrupt our retail motor fuel and merchandise sales, and significant capital investments could be required to remediate the problem.

 

Compliance with or liability under the Petroleum Marketing Practices Act could materially adversely affect our business.

 

The Petroleum Marketing Practices Act, or PMPA, is a federal law that governs the relationship between a supplier and a distributor pursuant to which the supplier permits a distributor to use a trademark in connection with the sale or distribution of motor fuel. We are subject to the provisions of the PMPA because we sub-license the FINA brand to our distributors in connection with their distribution and sale of motor fuels. Under the PMPA, we may not terminate or fail to renew these distributor contracts unless certain enumerated preconditions or grounds for termination or nonrenewal are met and we comply with the prescribed notice requirements. The PMPA provides that our distributors may enforce its provisions through civil actions against us. If we terminate or fail to renew one or more of our distributor contracts without complying with the PMPA, those distributors may file lawsuits against us to compel continuation of their contracts or to recover damages from us. See “Business — Governmental Regulation and Environmental Matters.”

 

Compliance with and/or liability under state and federal environmental regulations, including those that require investigation and remediation activities, may require significant expenditures that could materially adversely affect our business.

 

Our business is subject to various federal, state and local environmental laws and regulations, including those relating to underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to hazardous materials, the remediation of contaminated soils and groundwater and the health and safety of our employees. For example, we store motor fuel in underground storage tanks at our retail locations and are required to make financial expenditures to comply with federal, state and local regulations governing the operation and closure of such tanks and the remediation of any leaks therefrom. In addition, the federal Clean Air Act and similar state laws regulate emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims and capital expenditures for equipment upgrades, as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations. Such costs could materially adversely affect our business. Furthermore, new laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments, including legislative, regulatory and other legal developments in various phases of discussion or implementation that may limit greenhouse gas emissions or increase fuel economy standards, could require us to make additional capital expenditures, incur additional liabilities or negatively affect the demand for motor fuel. See “Business — Governmental Regulation and Environmental Matters.”

Certain environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), impose strict, and under certain circumstances, joint and several, liability on current and former owners and operators of properties for the costs of investigation, removal or remediation of contamination and also impose liability for any related damages to natural resources, without regard to fault. In addition, under CERCLA and similar state laws, as persons who arrange for the transportation, treatment or disposal of hazardous materials, we also may be subject to similar liability at sites where such hazardous materials come to be located. We may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous materials at, from or in the vicinity of our current or former properties or off-site waste disposal sites. The costs associated with the investigation and remediation of contamination, as well as any associated third-party claims, could be substantial and could have a material adverse effect on our business and results of operations. In addition, the presence or failure to remediate identified or unidentified contamination at our properties could potentially materially adversely affect our ability to sell or rent such property or to borrow money using such property as collateral.

 

The dangers inherent in the storage and transportation of motor fuel could cause disruptions and could expose us to potentially significant losses, costs or liabilities.

 

We store motor fuel in underground storage tanks at our retail locations and provide or arrange for transportation for distribution to our retail locations. Our operations are subject to significant hazards and risks inherent in handling, transporting and storing motor fuel. These hazards and risks include, but are not limited to, fires, explosions, traffic accidents, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or cleanup obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others.

 

Our motor fuel operations are subject to inherent risk, and insurance, if available, may not adequately cover any such exposure, which could materially adversely affect our business.

 

We sell motor fuel to our wholesale customers and operate retail outlets that sell refined petroleum products. The presence of flammable and combustible products at our facilities provides the potential for fires and explosions that could destroy both property and human life. These products also have the potential to cause environmental damage if improperly handled or released. It is not always possible to obtain insurance on commercially reasonable terms against all operational risks, especially environmental risks, and there is no assurance that insurance will be available or adequate in the future. In addition, as a result of factors affecting insurance providers, insurance premiums with respect to renewed insurance policies may increase significantly compared to what we currently pay.

 

Pending or future consumer or other litigation could materially adversely affect our business.

 

We are periodically party to individual personal injury claims, claims of fuel being contaminated or off-specification, product liability claims and other legal actions in the ordinary course of our business. If any such action or actions shall ultimately be determined adversely to us in a material way, our business could be materially adversely affected. Additionally, we are occasionally exposed to industry-wide or class-action claims arising from the products we carry or industry-specific business practices. For example, various petroleum marketing retailers, distributors and refiners are currently defending class-action claims alleging that the sale of unadjusted volumes of fuel at temperatures in excess of 60 degrees Fahrenheit violates various state consumer protection laws due to the expansion of the fuel with the increase of fuel temperatures. While industry-specific or class action litigation of this type is less frequent in occurrence than claims of individuals, the cost of defense and ultimate disposition could be significant.

Litigation and publicity concerning food quality, health and other related issues could result in significant liabilities or litigation costs and cause consumers to avoid our convenience stores, which could materially adversely affect our business.

 

Convenience store businesses and other foodservice operators can be adversely affected by litigation and complaints from customers or government agencies resulting from food quality, illness or other health or environmental concerns or operating issues stemming from one or more locations. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from purchasing gasoline, merchandise or foodservice at one or more of our convenience stores. We could also incur significant liabilities if a lawsuit or claim results in a decision against us or substantial litigation costs regardless of results and may divert time and money away from our operations and hurt our performance.

 

If a food-borne illness or other food safety issue occurs at one of our convenience stores, we may receive negative publicity, be required to temporarily cease foodservice at that location or become subject to litigation. The occurrence of food-borne illnesses or food safety issues regarding one or more ingredients in our food products could materially adversely affect the price and availability of the affected ingredients.

 

Failure to comply with state laws regulating the sale of alcohol and cigarettes may result in the loss of necessary licenses and the imposition of fines, penalties or forfeitures on us.

 

State laws regulate the sale of alcohol and cigarettes. A violation or change of these laws could materially adversely affect our business because state and local regulatory agencies have the power to approve, revoke, suspend or deny applications for, and renewals of, permits and licenses relating to the sale of these products or to seek other remedies.

 

Failure to comply with state and federal regulations may result in penalties or costs that could materially adversely affect our business.

 

Our business is subject to various state and federal regulations including, but not limited to, employment laws and regulations, minimum wage requirements, overtime requirements, working condition requirements, citizenship requirements and other laws and regulations. Any appreciable increase in the statutory minimum wage rate or overtime pay, adoption of mandated health benefits or changes to immigration laws and citizenship requirements would likely result in an increase in our labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums or regulations, could materially adversely affect our business. State or federal lawmakers or regulators may also enact new laws or regulations applicable to us that could materially adversely affect our business.

 

If we lose any of our key personnel, our ability to manage and grow our business could be materially adversely affected.

 

Our future performance depends to a significant degree upon the continued contributions of our senior management team which includes Messrs. McKeen, Lipman, Potter and Dobrient. We have entered into an employment agreement with Mr. McKeen and Lipman and, subsequent to this offering, we expect to enter into employment agreements with the other members of our senior management team. We do not currently maintain key man life insurance with respect to any member of our senior management team. The loss or unavailability to us of any member of our senior management team could significantly harm us. We face competition for these professionals from our competitors, our wholesale customers and other companies operating in our industry. To the extent the services of members of our senior management team would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our company and to develop our products and technology. We cannot assure you we would be able to locate or employ such qualified personnel on acceptable terms, or at all.

We depend on cash flows generated by our subsidiaries, and a failure to receive distributions from our subsidiaries may mean we are unable to meet our financial obligations.

 

We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Our ability to pay cash dividends to stockholders in the future, if any, is dependent on the generation of cash flows by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Each of our subsidiaries is a distinct legal entity. Under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries, and our subsidiaries may not be able to, or be permitted to, make distributions to us.

 

It may be difficult to serve process on or enforce a United States judgment against certain of our directors.

 

A number of our directors reside in Israel. In addition, a substantial portion of the assets of these directors are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in United States courts against these persons in any action, including actions based upon the civil liability provisions of United States federal or state securities laws. Furthermore, there is substantial doubt that the courts of the State of Israel would enter judgments in original actions brought in those courts predicated on United States federal or state securities laws.

 

Risks Relating to Our Ownership by Alon Energy

 

Alon Energy controls the direction of our business, and the concentrated ownership of our common stock and certain governance arrangements will prevent you and other stockholders from influencing significant decisions.

 

After the completion of this offering, our parent, a subsidiary of Alon Energy, will own     % of the outstanding shares of our common stock (     % if the underwriters exercise their over-allotment option in full). As long as our parent owns a majority of our common stock, Alon Energy will be able to control any corporate action requiring a stockholder vote irrespective of the vote of, and without prior notice to, any other stockholder. As a result, Alon Energy will have the ability to control significant corporate activities, including:

 

 

This voting control or influence may discourage transactions involving a change of control of our company, including transactions in which you as a holder of our common stock might otherwise receive a premium for your shares. Furthermore, Alon Energy generally has the right at any time to sell common stock owned by our parent or to sell a controlling interest in us to a third party after the expiration of the 180-day lock-up period, in either case without your approval and without providing for a purchase of your shares. See “Shares Eligible for Future Sale.”

 

Even if our parent’s ownership interest is reduced to less than a majority of the outstanding shares of our common stock, so long as our parent remains our largest shareholder, Alon Energy will have the ability to substantially influence these significant corporate activities.

We have provided an unconditional guarantee of payment under Alon USA, LP’s revolving credit agreement and have agreed to pledge certain receivables generated by our wholesale marketing segment to secure borrowings under such agreement, and any default on the obligations of Alon USA, LP may allow the lenders under such agreement to foreclose on our receivables and require us to pay Alon USA, LP’s outstanding borrowings or other obligations, which could materially adversely affect our business.

 

Our parent corporation is a party to an Amended Revolving Credit Agreement, dated as of June 22, 2006, as amended to the date hereof (the “Parent IDB Revolving Credit Agreement”), by and among our parent, its subsidiary guarantors thereunder (including Alon Brands and Alon Marketing, LLC, or Alon Marketing), Israel Discount Bank of New York, as administrative and collateral agent thereunder, and the other lenders parties thereto, providing for revolving credit borrowings and letters of credit available to our parent up to the lesser of the credit limit of $240 million or the amount of the borrowing base calculated under the agreement. Additionally, the accounts receivable generated by our wholesale marketing segment will be pledged as collateral under the Parent IDB Revolving Credit Agreement.

 

In the event that our parent fails to make payments due under the Parent IDB Revolving Credit Agreement, the lenders under that agreement may demand that we pay all such amounts immediately. Additionally, those lenders may take action to foreclose on our outstanding receivables generated by our wholesale marketing segment that are pledged under that facility and take payment directly from our distributors for motor fuels sold to them. Although we may have certain rights and remedies against our parent for reimbursement for some or all of such amounts, we have agreed to waive or delay the assertion of such remedies until the lenders under the Parent IDB Revolving Credit Agreement have been paid in full, and it is unlikely in such event that our parent would have the resources to fulfill any such obligations to us. In such event, we may incur significant obligations to the lenders under that agreement that we are unable to pay timely, if at all, which would have a material adverse affect on our business, results of operations and liquidity. We have not and do not expect to receive any proceeds from the borrowings of our parent under the Parent IDB Revolving Credit Agreement.

 

In addition, the receivables that we have pledged to the lenders under the Parent IDB Revolving Credit Agreement are not available for us to use to secure other financing sources for our business in the future, including any working capital revolving credit or similar facility. If we are unable to generate sufficient cash from our operations to fund our working capital needs, the inability to use those receivables to secure additional financing could have a material adverse affect on our results of operations and liquidity in the future.

 

The historical and pro forma financial information as a business segment of Alon Energy included in this prospectus may not be representative of our results as an independent public company.

 

The historical and pro forma financial information we have included in this prospectus may not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the historical periods presented. The historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by Alon Energy, including tax, accounting, treasury, legal and human resources services. We have not adjusted our historical or pro forma financial information to reflect all of the significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly-traded, stand-alone company, subject to the reporting and other requirements of the SEC and NYSE. Therefore, our historical and pro forma financial information may not be indicative of our results of operations, financial position or cash flows in the future.

Our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a stand-alone company after the expiration of our transitional services agreements with Alon Energy.

 

As a subsidiary of Alon Energy, we have relied on administrative and other resources of Alon Energy to operate our business. In connection with this offering, we will enter into various service agreements to retain the ability for specified periods to use these Alon Energy resources. See “Certain Relationships and Related Party Transactions.” These services may not be provided at the same level as when we were a subsidiary of Alon Energy, and we may not be able to obtain the same benefits that we received prior to this offering. These services may not be sufficient to meet our needs, and after our agreements with Alon Energy expire, we may not be able to replace these services or obtain these services at prices and on terms as favorable as we currently have with Alon Energy. We will need to create our own administrative and other support systems or contract with third parties to replace Alon Energy’s systems. In addition, we have received informal support from Alon Energy, which may not be addressed in the agreements we will enter into with Alon Energy. The level of this informal support may diminish as we become a more independent company. Any failure or significant downtime in our own administrative systems or in Alon Energy’s administrative systems during the transitional period could result in unexpected costs, materially adversely affect our results or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.

 

We may not be able to favorably resolve potential disputes with Alon Energy that may arise with respect to our past and ongoing relationships.

 

Disputes may arise between Alon Energy and us in a number of areas relating to our ongoing relationships, including:

 

 

We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

 

The agreements we will enter into with Alon Energy may be amended upon agreement between the parties. While we are controlled by Alon Energy, we may not have the leverage to negotiate amendments to these agreements on terms as favorable to us as those we would negotiate with an unaffiliated third party.

 

Some of our directors and executive officers own common stock of Alon Energy and Alon Israel and, in some cases, their other subsidiaries, and options or other instruments, the value of which is related to the value of stock of Alon Energy or Alon Israel, as applicable, and, in some cases, their other subsidiaries, and hold management positions with Alon Energy and Alon Israel, which could cause conflicts of interests that result in our not acting on opportunities we otherwise may have.

 

Some of our directors and executive officers own Alon Energy and Alon Israel common stock and options or other instruments the value of which is related to the value of common stock of Alon Energy or Alon Israel, as applicable, and, in some cases, their other subsidiaries. In addition, some of our directors are executive officers and directors of Alon Energy and Alon Israel. The direct and indirect interests of our directors and officers in common stock of Alon Energy and Alon Israel and their other subsidiaries and the presence of executive officers or directors of Alon Energy and Alon Israel on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and Alon Energy or Alon Israel

that could have different implications for Alon Energy or Alon Israel than they do for us. Our board of directors intends to consider any transactions or potential conflicts of interest with Alon Energy and Alon Israel on a case by case basis and in a manner consistent with its fiduciary obligations under applicable Delaware law. However, we cannot assure you that the agreements we enter into with Alon Energy and Alon Israel will adequately address potential conflicts of interest or that potential conflicts of interest will be resolved in our favor or that we will be able to take advantage of corporate opportunities presented to individuals who are officers or directors of both us and Alon Energy or Alon Israel. As a result, we may be precluded from pursuing certain growth opportunities.

 

We will be a “controlled company” within the meaning of the NYSE rules, and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.

 

After the completion of this offering, Alon USA, LP will own more than 50% of the total voting power of our common shares and we will be a “controlled company” under the NYSE corporate governance standards. As a controlled company, we will not be required to comply with certain NYSE corporate governance requirements, including the requirements:

 

 

As a result, you will not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

 

Risks Related to this Offering

 

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity.

 

Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the NYSE or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price for the shares of our common stock will be determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the open market following this offering.

 

If our stock price decreases after this offering, you could lose a significant part or all of your investment. The market price of our common stock may be influenced by many factors, some of which are beyond our control, including those decisions described under “— Risks Relating to Our Business” and the following:

 

 

 

As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price. In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated to, and disproportionate to, the operating performance of publicly-traded companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

 

We will face new challenges, increased costs and administrative responsibilities as an independent public company.

 

As a public company with listed equity securities, we will need to comply with additional laws, regulations and requirements, certain provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC and the Public Company Accounting Oversight Board (“PCAOB”) and NYSE requirements. Complying with these laws, regulations and requirements will occupy a significant amount of the time of our board of directors and management and will increase our costs and expenses.

 

We will need to:

 

 

If we do not implement such measures in a timely manner or with adequate compliance, we might fail to comply with these additional rules and regulations, which in turn could subject us to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could harm our reputation and investor confidence in the accuracy and completeness of our financial reports, which could materially adversely affect our stock price.

 

In addition, we also expect that being a public company subject to these rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit and compensation committees, and qualified executive officers.

We will be required to report the effectiveness of the internal controls over financial reporting of our business in our annual report on Form 10-K for the year ended December 31, 2012. As a result, we will need to improve our internal controls in connection with this offering in order to timely meet our reporting requirements as a public company. The failure to effectively improve our internal controls through hiring of qualified personnel and other remediation efforts may result in a failure to timely file our public reports or a finding of a material weakness in our internal controls, either of which could result in lower investor confidence and have an adverse effect on the market price of our common stock.

 

Section 404 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC promulgated thereunder require our annual reports to contain a report of management’s assessment of the effectiveness of internal controls over financial reporting and an attestation report of our independent registered public accounting firm, including its opinion on the effectiveness of our internal control over financial reporting. These reports will be required to be included in our annual reports on Form 10-K commencing with our annual report on Form 10-K for the year ended December 31, 2012. The evaluation of our systems and the documentation of such systems that we will need to comply with Section 404 will be both costly and time-consuming. We cannot estimate at this time how long this process will take nor how much additional expense we will incur in completing the process necessary to comply with Section 404. We will need to improve our internal controls in connection with this offering in order to timely meet our reporting requirements as a public company. As we prepare for the completion of this offering, we are in the process of addressing these issues by hiring additional personnel with the necessary expertise. However, these and other remediation efforts may not enable us to avoid significant deficiencies or material weaknesses in our internal controls over financial reporting in the future. If we are unable to conclude that our internal control over financial reporting is effective as of the end of 2012 (or if our auditors are unable to opine that our internal control over financial reporting is effective), we could lose investor confidence in the accuracy and completeness of our financial reports, which could, in turn, have an adverse effect on our stock price.

 

You will incur immediate and substantial dilution as a result of this offering.

 

The initial public offering price per share of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after the offering. As a result, you will pay a price per share that substantially exceeds the tangible book value of our assets after subtracting our liabilities. Based on the issuance and sale of          million shares of common stock by us at an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus), you will incur immediate dilution of approximately $      in the net tangible book value per share if you purchase shares in this offering. See “Dilution.”

 

Shares eligible for future sale could materially adversely affect our common stock price.

 

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our certificate of incorporation, we are authorized to issue up to 100,000,000 shares of common stock, of which           shares of common stock will be outstanding following this offering. Of these shares, the shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act by persons other than “affiliates,” as that term is defined in Rule 144 under the Securities Act.

 

We, our officers and directors and Alon USA, LP have agreed, subject to certain exceptions, not to sell or transfer, directly or indirectly, any shares of our common stock for a minimum period of 180 days from the date of this prospectus, subject to certain extensions, without the prior consent of          . However, after the lock-up period expires, Alon USA, LP will be able to register the common stock it owns under the Securities Act pursuant to a registration rights agreement with us. Furthermore, although there is no present intention to do so,           may, in its sole discretion and without notice, release all or any portion of the shares subject to these lock-up agreements. See “Underwriting.”

Following completion of this offering, we intend to register an aggregate number of shares of our common stock that are reserved for issuance upon the exercise of options granted or reserved for grant under our equity incentive plan. Stockholders will be able to sell these shares in the public market upon issuance, subject to restrictions under the securities laws, any applicable lock-up agreements, any stock option vesting requirements or the lapsing of restrictions on restricted stock.

 

Also, in the future we may issue securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.

 

We cannot predict the size of future issuances of our common stock or the effect, if any, that future sales and issuances of shares of our common stock would have on the market price of our common stock. See “Shares Eligible for Future Sale.”

 

Provisions of our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law may impede or discourage a takeover, which could materially adversely affect the value of our common stock.

 

Provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of discouraging a change of control of our company or deterring tender offers for our common stock. The anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. Additionally, provisions of our amended and restated certificate of incorporation and amended and restated bylaws will impose various procedural and other requirements, which could make it more difficult for stockholders to effect some corporate actions. For example, our amended and restated certificate of incorporation will authorize our board to determine the rights, preferences and privileges and restrictions of unissued shares of preferred stock without any vote or action by our stockholders. Thus, our board will be able to authorize and issue shares of preferred stock with voting or conversion rights that could materially adversely affect the voting or other rights of holders of our common stock. Moreover, stockholders will not be permitted to call a special meeting or to require the board of directors to call a special meeting or to take action by written consent. These rights and provisions may have the effect of delaying or deterring a change of control of our company and may limit the price that investors might be willing to pay in the future for shares of our common stock. See “Description of Capital Stock.”

 

Our board of directors and management have broad discretion in using the proceeds from this offering, which may not be used in ways that improve our results of operation or increase our market value. Investors will rely on the judgment of our board of directors and management regarding the application of the net proceeds of this offering.

 

We intend to use the net proceeds of this offering:

 

 

However, our board of directors and management will have broad discretion in applying the net proceeds we will receive in this offering and may spend the net proceeds for corporate purposes that do not necessarily improve our results of operation or enhance the value of common stock or allocate the net proceeds in a manner with which you do not agree. As part of your investment decision, you will not be able to access or direct how we apply these net proceeds. See “Use of Proceeds”.

 

There is no assurance that we will declare dividends or have the available cash to make dividend payments.

 

Although we will have a policy of paying dividends on our common stock, there can be no assurance that funds will be available for this purpose in the future. The declaration and payment of dividends will be subject to the sole discretion of our board of directors, will not be cumulative and will depend upon our profitability,

financial condition, capital needs, future prospects and other factors deemed relevant by our board of directors at the time.

 

If we are, or become, a U.S. real property holding corporation, special tax rules may apply to a sale, exchange or other disposition of common stock by non-U.S. holders, and those holders may be less inclined to invest in our stock as they may be subject to U.S. federal income tax in certain situations.

 

We have not determined whether or not we currently are a “U.S. real property holding corporation,” or a USRPHC for U.S. federal income tax purposes. A non-U.S. holder will be subject to U.S. federal income tax with respect to gains recognized on the sale, exchange or other disposition of our common stock if we are, or were, a USRPHC, at any time during the shorter of the five-year period ending on the date of the sale or other disposition and the period such non-U.S. holder held our common stock (such applicable shorter period, the “lookback period”). In general, we would be a USRPHC if the fair market value of our “U.S. real property interests,” as such term is defined for U.S. federal income tax purposes, equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests and our other assets used or held for use in our trade or business. However, because the determination of whether we are a USRPHC is fact-specific and depends on the composition of our assets and other factors, some of which may be beyond our control (including, for example, fluctuations in the value of our assets), it is difficult to determine or predict whether we are or will become a USRPHC. If we are or become a USRPHC, so long as our common stock is regularly traded on an established securities market (such as the NYSE), only a non-U.S. holder who, actually or constructively, holds or held during the lookback period more than 5% of our common stock will be subject to U.S. federal income tax on the disposition of our common stock.

 

We have entered into a tax matters agreement with Alon Energy pursuant to which we may be required to indemnify Alon Energy for certain tax liabilities.

 

Prior to the completion of this offering, we and Alon Energy will enter into a tax matters agreement to allocate the responsibility of Alon Energy and its subsidiaries, on the one hand, and we and our subsidiaries, on the other, for the payment of taxes resulting from filings prior to the separation of tax returns on a combined, consolidated or unitary basis. Under the tax matters agreement, we will be obligated to indemnify Alon Energy for certain tax liabilities resulting from an adjustment under a final resolution of tax matters or an adjustment under Section 482 of the Internal Revenue Code of 1986, as amended or similar authority under applicable tax law. See “Certain Relationships and Related Party Transactions — Transactions with Management and Others — Relationship with Alon Energy — Tax Matters Agreement.”

 

This prospectus includes forward-looking statements in addition to historical information. These forward-looking statements are included throughout this prospectus, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and “Corporate Reorganization Transactions” and relate to matters such as our industries, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “will,” “future” and similar terms and phrases to identify forward-looking statements in this prospectus.

 

Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.

 

Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:

 

 

Many of these factors are described in greater detail under “Risk Factors.” Potential investors are urged to consider these factors and the other factors described under “Risk Factors” carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included herein are made only as of the date of this prospectus, and we undertake no obligation to update any information contained in this prospectus or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this prospectus, except as may be required by any applicable securities laws.

 

Based on an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus), we estimate that the proceeds we will receive from the sale of common stock in this offering will be approximately $      million, after deducting underwriting discounts and commissions and estimated offering expenses. We will not receive any proceeds from the sale of shares of common stock offered by the selling stockholder if the underwriters exercise their over-allotment option to purchase shares of common stock from the selling stockholder in this offering.

 

We intend to use the net proceeds:

 

 

As of the date of this prospectus, the expected use of net proceeds of this offering represents our current intentions based upon our present plans and business conditions. We cannot predict with all certainty all of the particular uses for the net proceeds of this offering or the amount that we will actually spend on the uses set forth above. The amount and timing of actual expenditures may vary significantly depending on a number of factors, such as the amount of cash used by our operations and capital expenditures. Accordingly, our board of directors and management will have significant flexibility in applying the net proceeds, and investors will be relying on the judgment of our management and board of directors regarding the application of the net proceeds of this offering.

 

A $1.00 increase (decrease) in the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) the net proceeds to us from this offering by $     , assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

 

We intend to pay quarterly cash dividends on our common stock at an initial annual rate of $      per share, commencing in the           quarter of 2011. However, the declaration and payment of future dividends to holders of our common stock is at the discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, legal requirements, prior payments of preferred stock dividends, if any, and other factors our board of directors deems relevant.

 

In March 2011, we paid a special cash distribution of $30.0 million to Alon USA, LP, our parent company. Investors who purchase shares of our common stock in this offering will not receive this distribution in respect of any shares they purchase in this offering.

 

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2010 on an actual basis, on a pro forma basis to give effect to the corporate reorganization transactions, including           shares of common stock issued to our parent company as a result of the transfer of assets and liabilities associated with the wholesale marketing segment, the  -for-1 stock split of our common stock outstanding prior to this offering, and the 2011 loan transactions, and on a pro forma basis to give further effect to the sale by us of          shares of our common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus). You should read this table in conjunction with “Use of Proceeds,” “Selected Historical Combined Financial and Operating Data,” “Unaudited Pro Forma Condensed Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Corporate Reorganization Transactions” and our audited and unaudited combined financial statements and related notes included elsewhere in this prospectus.

 

 

 

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholder’s equity and total capitalization by $     , assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering will exceed the net tangible book value per share of common stock after this offering. If you invest in our common stock, your investment will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. We calculate net tangible book value per share by calculating our total assets less intangible assets and total liabilities, and dividing it by the number of outstanding shares of common stock.

 

As of December 31, 2010, our net tangible book value was approximately $(33.0) million, or approximately $      per share of common stock, after giving pro forma effect to the corporate reorganization transactions, including the  -for-1 stock split of our common stock outstanding prior to this offering, and the 2011 loan transactions. After giving effect to the sale of           shares of common stock in this offering at an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) and after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of December 31, 2010, which we refer to as our pro forma net tangible book value, would have been approximately $55.1 million, or $      per share. This represents an immediate increase in net tangible book value of $      per share to our existing stockholders and an immediate dilution of $      per share to purchasers of common stock in this offering. The following table illustrates this dilution on a per share basis:

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) our net tangible book value after this offering by $      per share and the dilution in net tangible book value to new investors in this offering by $      per share.

 

The following table summarizes as of December 31, 2010, as adjusted to give effect to the corporate reorganization transactions, the 2011 loan transactions and this offering, the differences between the number of shares of common stock purchased from us, the aggregate cash consideration paid to us and the average price per share paid by existing stockholders and new investors purchasing shares of common stock in this offering. The calculation below is based on an offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us (after giving effect to the payment made to parent in connection with this offering):

 

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover of this prospectus) would increase (decrease) total consideration paid by new investors in this offering and by all investors by $      million, and would increase (decrease) the average price per share paid by new investors by $     , assuming the number of shares of common stock offered by us, as set forth on the cover of this prospectus, remains the same.

 

The following table sets forth our selected historical combined financial and operating data as of and for the periods indicated below. The selected historical combined financial data for the years ended December 31, 2008, 2009, and 2010 and the selected historical combined balance sheet data as of December 31, 2009 and 2010, have been derived from our audited combined financial statements, which are included elsewhere in this prospectus.

 

The selected historical combined financial data for the years ended and as of December 31, 2006 and 2007 and the selected historical combined balance sheet data as of December 31, 2006, 2007 and 2008 have been derived from our audited combined financial statements, which are not included in this prospectus.

 

In June 2007 we acquired Skinny’s, Inc., or Skinny’s, a privately-held company that operated 102 stores in Central and West Texas. The operations of Skinny’s have been included in our combined statements of operations since the acquisition date.

 

In July 2006 we purchased 40 retail stores from Good Time Stores, Inc., or Good Times, in El Paso, Texas. The operations of these stores have been included in our combined statements of operations since the purchase date.

 

During the periods covered by our historical financial data, most of our business was accounted for as an operating segment of Alon Energy. Our combined financial statements include allocations of certain corporate functions provided to us by Alon Energy, including general corporate expenses. Allocation estimates are made at the beginning of the year and applied consistently throughout the year unless there is a significant change in the allocation base. The estimates are based on management’s estimate of overall resources that we utilize. Certain other costs incurred by Alon Energy for our direct benefit, such as rent, salaries and benefits, also have been included in our financial statements and are reflected under operating, selling and administrative expense. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Description of Revenues and Expenses — Costs Associated with Corporate Services Agreement.” However, our financial statements do not purport to represent and may not necessarily reflect what our financial position, cash flows and results of operations actually would have been if we had operated as a stand-alone company during the periods presented. Accordingly, our historical financial data also do not purport to represent and may not be indicative of our cash flows and results of operations for any future period or our financial position at any future date.

The following selected historical combined financial and operating data should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited combined financial statements and related notes included elsewhere in this prospectus.

 

 

 

 

 

EBITDA is not a recognized financial measure under US GAAP and does not purport to be an alternative to net income as a measure of operating performance. EBITDA has limitations as an analytical tool, and

you should not consider it in isolation or as a substitute for an analysis of our results as reported under US GAAP. Some of these limitations include:

 

 

The following table presents a reconciliation of net income (loss) to EBITDA:

 

 

 

The following pro forma condensed combined financial data as of December 31, 2010 are based upon our historical combined financial statements included elsewhere in this prospectus, adjusted to give pro forma effect to certain transactions. The pro forma condensed combined balance sheet data as of December 31, 2010 give effect to the corporate reorganization transactions, including           shares of common stock issued to our parent company as a result of the transfer of assets and liabilities associated with the wholesale marketing segment, the  -for-1 stock split of our common stock outstanding prior to this offering, the 2011 loan transactions and this offering as if they had each occurred as of December 31, 2010.

 

The pro forma adjustments in the column labeled Corporate Reorganization Transactions and 2011 Loan Transactions Adjustments give effect to (i) the corporate reorganization transactions we expect to consummate with Alon Energy immediately prior to the consummation of this offering and (ii) the 2011 loan transactions consummated in February 2011. Following completion of the corporate reorganization, the retail and wholesale marketing segments will both be conducted by subsidiaries of Alon Brands. See “Corporate Reorganization Transactions.”

 

The pro forma condensed combined financial data is included for informational purposes only and does not purport to represent what our financial position would actually have been had the transactions referenced above occurred on the date indicated. In addition, the pro forma adjustments described herein are based on available information and upon assumptions that our management believes are reasonable. The pro forma financial data also do not purport to represent and may not be indicative of our financial position at any future date.

 

The following pro forma condensed combined financial data should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Selected Historical Combined Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Corporate Reorganization Transactions,” “Certain Relationships and Related Party Transactions” and our audited and unaudited combined financial statements and related notes included elsewhere in this prospectus.

ALON BRANDS, INC.

 

PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2010