<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH DAKOTA 5082/5083 45-0306084
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
</TABLE>
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-6062
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RONALD D. OFFUTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RDO EQUIPMENT CO.
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-6062
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
GARY M. NELSON, ESQ. WENDELL H. ADAIR, JR., P.C.
OPPENHEIMER WOLFF & DONNELLY MCDERMOTT, WILL & EMERY
3400 PLAZA VII, 45 SOUTH SEVENTH STREET 227 WEST MONROE STREET
MINNEAPOLIS, MINNESOTA 55402 CHICAGO, ILLINOIS 60606
(612) 344-9291 (312) 372-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this 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, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Class A Common Stock, $.01 par value........................................ $51,750,000 $15,682
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 2, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
Shares
[LOGO]
RDO Equipment Co.
Class A Common Stock
($.01 PAR VALUE)
--------------
ALL OF THE SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE ("CLASS A COMMON
STOCK"), OFFERED HEREBY (THE "OFFERING") ARE BEING ISSUED AND SOLD BY RDO
EQUIPMENT CO. (THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS BEEN NO
PUBLIC MARKET FOR THE CLASS A COMMON STOCK. IT IS ANTICIPATED THAT THE
INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. FOR
INFORMATION RELATING TO THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL OFFERING PRICE TO THE PUBLIC, SEE "UNDERWRITING."
APPLICATION HAS BEEN MADE TO APPROVE THE SHARES OF CLASS A COMMON
STOCK FOR LISTING ON THE NASDAQ STOCK MARKET'S NATIONAL
MARKET ("NNM") UNDER THE SYMBOL "RDOE".
THE COMPANY'S AUTHORIZED COMMON STOCK CONSISTS OF CLASS A COMMON STOCK AND CLASS
B COMMON STOCK, PAR VALUE $.01 PER SHARE ("CLASS B COMMON STOCK"). THE ECONOMIC
RIGHTS OF EACH CLASS OF COMMON STOCK ARE THE SAME, BUT THE VOTING RIGHTS
DIFFER. EACH SHARE OF CLASS A COMMON STOCK IS ENTITLED TO ONE VOTE PER SHARE
AND EACH SHARE OF CLASS B COMMON STOCK IS ENTITLED TO FOUR VOTES PER
SHARE. THE CLASS A COMMON STOCK IS FREELY TRANSFERABLE, BUT THE CLASS B
COMMON STOCK IS TRANSFERABLE ONLY TO CERTAIN TRANSFEREES. EACH SHARE OF
CLASS B COMMON STOCK IS CONVERTIBLE INTO ONE SHARE OF CLASS A COMMON
STOCK. UPON CON-SUMMATION OF THIS OFFERING, THE PRINCIPAL
STOCKHOLDER OF THE COMPANY WILL OWN 100% OF THE OUTSTANDING CLASS B
COMMON STOCK, WHICH WILL REPRESENT APPROXIMATELY % OF THE COMMON
STOCK OF THE COMPANY ( % IF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION IS EXERCISED IN FULL) AND APPROXIMATELY % OF THE
COMBINED VOTING POWER OF ALL CLASSES OF VOTING STOCK OF THE
COMPANY ( % IF THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
EXERCISED IN FULL). SEE "PRINCIPAL STOCKHOLDERS" AND
"DESCRIPTION OF CAPITAL STOCK".
--------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVEST MENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" ON PAGE 9
HEREIN.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
-------------- -------------- --------------
<S> <C> <C> <C>
PER SHARE................................... $ $ $
TOTAL(2).................................... $ $ $
</TABLE>
(1) BEFORE DEDUCTION OF EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(2) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE FOR 30 DAYS
FROM THE DATE OF THIS PROSPECTUS, TO PURCHASE A MAXIMUM OF
ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS OF SHARES. IF THE OPTION IS
EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC WILL BE $ ,
UNDERWRITING DISCOUNTS AND COMMISSIONS WILL BE $ , AND PROCEEDS TO
THE COMPANY WILL BE $ .
--------------
THE SHARES ARE OFFERED BY THE SEVERAL UNDERWRITERS WHEN, AS AND IF ISSUED BY
THE COMPANY, DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO THEIR
RIGHT TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE SHARES WILL
BE READY FOR DELIVERY ON OR ABOUT , 1996, AGAINST PAYMENT IN
IMMEDIATELY AVAILABLE FUNDS.
CS First Boston Dain Bosworth
Incorporated
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
[Outside gatefold: Photos depicting various types of industrial and agricultural
equipment]
[Inside gatefold: two maps, one depicting industrial store locations and Deere
areas of responsibility and the other depicting agricultural store locations,
and two inset photos, one depicting a John Deere harvester and the other a
Company service technician repairing industrial equipment]
--------------
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY
SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS CONSTITUTE
CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NNM OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10b-6, 10b-7, AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND COMBINED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED OR CONTAINED IN THE
COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN, ALL INFORMATION
IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION GRANTED BY THE COMPANY AND (II) REFLECTS CHANGES TO THE COMPANY'S CAPITAL
STRUCTURE EFFECTED PRIOR TO THE CONSUMMATION OF THIS OFFERING, INCLUDING THE
FOR ONE STOCK SPLIT IN CONNECTION WITH THE REINCORPORATION OF THE COMPANY IN
DELAWARE, EFFECTIVE , 1996. IN ADDITION, (I) REFERENCES TO THE NUMBER
AND LOCATION OF STORES ASSUMES THE COMPLETION OF THE PENDING ACQUISITIONS OF
INDUSTRIAL OPERATIONS IN EAST TEXAS AND AGRICULTURAL OPERATIONS IN WASHINGTON,
(II) REFERENCES TO THE COMPANY ON A PRO FORMA BASIS REFLECT ADJUSTMENTS TO GIVE
EFFECT TO THE COMPANY'S RECENT ACQUISITION OF INDUSTRIAL OPERATIONS IN CENTRAL
TEXAS AND PENDING EAST TEXAS AND WASHINGTON ACQUISITIONS, AS IF ALL SUCH
ACQUISITIONS HAD OCCURRED ON FEBRUARY 1, 1995 WITH RESPECT TO THE OPERATIONS,
AND ON JULY 31, 1996 WITH RESPECT TO THE BALANCE SHEET, AND (III) REFERENCES TO
THE COMPANY INCLUDE ITS WHOLLY-OWNED SUBSIDIARIES. SEE "REINCORPORATION" AND
"BUSINESS--GROWTH STRATEGY." THE CLASS A COMMON STOCK AND THE CLASS B COMMON
STOCK ARE SOMETIMES COLLECTIVELY REFERRED TO AS THE "COMMON STOCK."
THE COMPANY
RDO Equipment Co. (the "Company") owns and operates the largest networks of
John Deere industrial stores and agricultural stores in the United States.
Through its 35 stores, the Company sells, rents, and services industrial and
agricultural equipment, primarily supplied by Deere & Company and its
subsidiaries ("Deere" or "John Deere"). The Company's revenues have grown at a
compound annual rate of 33% over the past five years, from $71.2 million in
fiscal 1992 to $223.6 million in fiscal 1996.
INDUSTRIAL EQUIPMENT INDUSTRY. Management estimates that U.S. retail sales
of new industrial equipment in its target product market in calendar 1995
totaled approximately $7.4 billion. Deere is one of the leading suppliers of
industrial equipment in the United States for light to medium applications and
offers a broad array of products. Currently, Deere has approximately 110
industrial dealers which operate approximately 355 stores in the United States.
Each dealer within the Deere industrial system is assigned specific geographic
areas of responsibility within which it has the right to sell new Deere
products. Over the last five years, while the number of Deere industrial stores
has remained constant, the number of Deere industrial dealers has declined by
more than 30%. This dealer consolidation is being driven, in part, by an
increasing need for capital, owners' concerns about succession, and Deere's
support for consolidation of its dealers. The Company expects to benefit from
this consolidation trend by continuing its strategic acquisition of Deere
industrial dealerships.
AGRICULTURAL EQUIPMENT INDUSTRY. Management estimates that U.S. retail
sales of new agricultural equipment in its target product market in calendar
1995 totaled approximately $10.1 billion. Deere is the leading supplier of
agricultural equipment in the United States. Currently Deere has approximately
1,275 agricultural dealers which operate approximately 1,545 stores in the
United States. Agricultural dealers are not assigned exclusive territories, but
have authorized store locations. The Company believes that Deere agricultural
dealerships also face an increasing need for capital, owners' concerns about
succession, and Deere support for consolidation and, as a result, that a
consolidation of agriculture dealerships will occur. The Company expects that it
will have increasing opportunities to complete strategic acquisitions of Deere
agricultural dealerships as this consolidation trend develops.
GROWTH STRATEGY. The Company's growth strategy is to continue to expand and
improve its operations through a combination of (i) increasing market share
within its existing Deere areas of responsibility, (ii) capitalizing on the
consolidation trends among dealers by acquiring additional dealerships, (iii)
improving the operating performance of its store networks by implementing its
operating model, and (iv) continuing the business and geographic diversification
of its operations. Over the last five years, the Company has acquired 16 stores
from eight dealers, including eight stores which have been or are expected
3
<PAGE>
to be acquired in calendar 1996. The recently completed and pending acquisitions
establish new industrial operations in Texas and new agricultural operations in
Washington, which the Company believes will provide platforms for further
growth. In addition to its acquisitions, the Company also has opened four
industrial stores within its Deere areas of responsibility in the last five
years.
INDUSTRIAL DIVISION
The Company operates the largest network of Deere industrial stores,
representing approximately 6% of Deere's U.S. industrial equipment sales in
calendar 1995. The Industrial Division operates 24 stores located primarily in
areas with significant construction activity within the Company's designated
Deere areas of responsibility, including Dallas-Fort Worth, southern Los
Angeles, Minneapolis-St. Paul, Phoenix, and San Diego. Customers of the
Company's industrial stores include contractors, for both residential and
commercial construction, utility companies, and federal, state, and local
government agencies. Revenues of the Industrial Division increased from $30.5
million in fiscal 1992 to $139.0 million in fiscal 1996, representing a compound
annual growth rate of 46%. The growth in the Industrial Division's revenues are
due to same store sales increases and the acquisition of 14 stores over the last
five years. The increases in same store sales are attributable to the continued
implementation of the Company's operating model, particularly at acquired
stores, as well as a favorable construction environment. Recent industrial
acquisitions have been made in Arizona, California, and Texas due to the
favorable construction economies and year-round construction seasons in these
locations, as well as the Company's strategy to diversify geographically.
The Company's industrial stores offer a full range of new and used Deere
equipment, replacement parts, and fully-equipped service and repair facilities.
In addition, the Company sells industrial equipment supplied by other
manufacturers, which is complementary to the Deere lines, as well as used
industrial equipment taken as trade-ins. The Company believes that product
support, through its parts and service programs, has been and will be
increasingly important to the profitability of its industrial equipment
operations and its ability to attract and retain customers. In the Southwest
region, the Industrial Division has established a rental fleet of industrial
equipment, which the Company intends to continue to expand.
AGRICULTURAL DIVISION
The Company operates the largest network of Deere agricultural stores,
representing approximately 1% of Deere's U.S. agricultural equipment sales in
calendar 1995. The Agricultural Division operates 11 stores located in
Minnesota, North Dakota, South Dakota, and Washington. Revenues of the
Agricultural Division increased from $40.7 million in fiscal 1992 to $84.6
million in fiscal 1996, representing a compound annual growth rate of 20%. The
growth in the Agricultural Division revenues is almost entirely due to same
store sales increases. The increase in same store sales is attributable to the
continued implementation of the Company's operating model, as well as a
favorable agricultural economy.
As full-service suppliers to farmers, the Company's agricultural stores
offer a broad range of farm equipment and related products, with sales of new
Deere equipment the primary focus. The Company also sells agricultural equipment
supplied by other manufacturers which is complementary to the Deere lines, as
well as used agricultural equipment taken as trade-ins. In addition, the
agricultural stores offer lawn and grounds care equipment, primarily supplied by
Deere. As part of its strategy to provide a full complement of product support
services to its agricultural customers, the Company offers a broad range of
replacement parts and fully-equipped service and repair facilities at each
store.
4
<PAGE>
GROWTH STRATEGY
In order to capitalize on industry consolidation trends, expand its market
leadership position, and further develop its industrial and agricultural
equipment operations, the Company has developed its growth strategy, the key
elements of which are:
- INCREASING MARKET SHARE. The Company seeks to increase its market share
by enhancing customer service and generating customer loyalty. With a
larger installed base of equipment, the Company has the opportunity to
generate additional parts and service business, which currently accounts
for approximately 26% of the Company's total revenues and which has higher
profit margins than wholegoods sales.
- PURSUING ADDITIONAL ACQUISITIONS. Acquisitions have been and will
continue to be an important element of the Company's growth strategy,
particularly given the consolidation trends among equipment dealers. Over
the past five years, the Company has acquired 14 industrial stores and two
agricultural stores from eight dealers. Due to its leadership position in
the industry and its track record in completing and integrating
acquisitions, the Company believes that attractive acquisition candidates
will continue to become available to the Company. Completion of any
prospective acquisition of a Deere dealership requires Deere's consent.
See "Business--Recent and Pending Acquisitions" and "Risk Factors--Risks
Associated with Expansion."
- IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven
operating model designed to improve the performance and profitability of
each of its stores. Components of this operating model include (i)
pursuing aggressive marketing programs, (ii) allowing store employees to
focus on customers by managing administrative functions, training, and
purchasing at the corporate level, (iii) providing a full complement of
parts and state-of-the-art service functions, including a computerized
real-time inventory system and quick response, on-site repair service,
(iv) motivating store level management in accordance with corporate goals,
and (v) focusing on cost structures at the store level.
- CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the Company's
strategy has been to expand its networks of industrial and agricultural
stores into geographic areas that have a large base of construction or
agricultural activity and that provide the Company with opportunities to
continue to develop its store networks. The Company believes that its
business diversification into both industrial and agricultural store
operations has significantly increased its customer base, while also
mitigating the effects of industry-specific economic cycles. Similarly,
the Company's geographic diversification into regions outside the Midwest
helps to diminish the effects of seasonality, as well as local and
regional economic fluctuations. Typically, other Deere dealers operate
only industrial or agricultural dealerships, with a limited number of
stores concentrated in a specific geographic region.
RECENT AND PENDING ACQUISITIONS
The Company recently has acquired or entered into agreements to acquire six
industrial stores and two agricultural stores, thereby extending the Company's
store networks into Texas and Washington, which the Company believes will
provide platforms for future growth. The Company recently completed the purchase
of a Deere industrial dealership in Central Texas, with three stores located in
the Dallas-Fort Worth and Waco metropolitan areas which have a Deere area of
responsibility covering the 39 surrounding counties (the "Central Texas
Acquisition"). The Company also has agreed to acquire a Deere industrial
dealership in East Texas, with three stores located in Longview, Lufkin, and
Mount Pleasant, Texas which have a Deere area of responsibility adjoining the
Central Texas area of responsibility (the "East Texas Acquisition"). The Company
also has agreed to acquire a Deere agricultural dealership, with two stores
5
<PAGE>
located in Pasco and Sunnyside, Washington (the "Washington Acquisition").
Completion of any prospective acquisition of a Deere dealership requires Deere's
consent. See "Business--Recent and Pending Acquisitions" and "Risk
Factors--Risks Associated with Expansion."
The Company was incorporated in North Dakota on March 13, 1968 and
reincorporated in Delaware on , 1996. The Company's executive offices
are located at 2829 South University Drive, Fargo, North Dakota 58109. The
Company's phone number is (701) 237-6062.
THE OFFERING
<TABLE>
<S> <C> <C>
Class A Common Stock
offered...................... shares of Class A Common Stock
Common Stock to be outstanding
after this Offering
Class A Common Stock........ shares (1)
Class B Common Stock........ shares
---------
Total..................... shares
---------
---------
Use of Proceeds............... The net proceeds from this Offering will be used (i) to pay
the purchase price or repay indebtedness incurred to
finance recent or pending acquisitions in the aggregate
amount of approximately $12.3 million, (ii) to make an S
corporation distribution in the amount of approximately
$15.0 million to the Company's existing stockholders in
connection with termination of the Company's S corporation
status, and (iii) for general working capital and potential
acquisitions. See "Use of Proceeds," "S Corporation
Distributions," and "Certain Relationships and Related
Transactions."
Voting Rights................. The Class A Common Stock and Class B Common Stock vote
together as a single class on all matters, except as
otherwise required by law, with each share of Class A
Common Stock entitling its holder to one vote and each
share of Class B Common Stock entitling its holder to four
votes. All of the outstanding Class B Common Stock is held
by Ronald D. Offutt, the Company's Chairman, Chief
Executive Officer, and principal stockholder. Under certain
circumstances, Class B Common Stock automatically converts
into Class A Common Stock. See "Description of Capital
Stock-- Common Stock."
Proposed NNM symbol........... RDOE
</TABLE>
- ------------------------
(1) Excludes shares of Class A Common Stock reserved for issuance pursuant
to the Company's stock incentive plan of which shares will be subject
to options to be granted upon consummation of this Offering at an exercise
price equal to the initial public offering price. See "Management-- 1996
Stock Incentive Plan."
6
<PAGE>
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(in thousands, except store and per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
------------------------------------------------------------------------- --------------------
ACTUAL PRO FORMA ACTUAL
----------------------------------------------------- AS ADJUSTED --------------------
1992 1993 1994 1995 1996 1996 (1)(4) 1995 1996
--------- --------- --------- --------- --------- ------------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................ $ 71,226 $ 105,378 $ 144,112 $ 183,910 $ 223,557 $ 288,598 $ 109,747 $ 153,773
Cost of sales................... 56,422 83,548 116,369 148,111 180,839 232,109 89,119 125,841
--------- --------- --------- --------- --------- -------- --------- ---------
Gross profit.................... 14,804 21,830 27,743 35,799 42,718 56,489 20,628 27,932
Selling, general, and
administrative expense......... 11,929 16,737 20,577 24,893 31,655 41,852 14,860 18,523
--------- --------- --------- --------- --------- -------- --------- ---------
Operating income................ 2,875 5,093 7,166 10,906 11,063 14,637 5,768 9,409
Interest expense................ (1,299) (1,284) (1,670) (1,895) (3,817) (3,663) (1,590) (2,667)
Interest income................. 173 376 336 802 823 1,292 403 517
--------- --------- --------- --------- --------- -------- --------- ---------
Net income...................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 12,266 $ 4,581 $ 7,259
--------- --------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- --------- -------- --------- ---------
PRO FORMA INCOME STATEMENT DATA:
(UNAUDITED)
Income before taxes............. $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 12,266 $ 4,581 $ 7,259
Provision for income taxes(2)... 700 1,674 2,332 3,925 3,228 4,906 1,832 2,904
--------- --------- --------- --------- --------- -------- --------- ---------
Net income...................... $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 7,360 $ 2,749 $ 4,355
--------- --------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- --------- -------- --------- ---------
Net income per share............
Weighted average shares
outstanding....................
SELECTED OPERATING DATA:
Comparable store net sales
increase....................... -- 12% 32% 25% 11% -- 8% 39%
Stores open at beginning of
period......................... 15 17 21 22 22 22 22 26
Stores opened................. 1 0 0 0 2 2 1 1
Stores acquired............... 1 4 1 0 2 10 2 3
--------- --------- --------- --------- --------- -------- --------- ---------
Stores open at end of period.... 17 21 22 22 26 34 25 30
--------- --------- --------- --------- --------- -------- --------- ---------
--------- --------- --------- --------- --------- -------- --------- ---------
Capital expenditures............ $ 561 $ 681 $ 627 $ 1,028 $ 9,993 $ 10,673 $ 1,715 $ 680
Depreciation.................... 504 584 668 634 1,085 1,788 307 690
<CAPTION>
PRO FORMA
AS ADJUSTED
1996 (1)(4)
------------------
<S> <C>
INCOME STATEMENT DATA:
Revenues........................ $ 188,614
Cost of sales................... 153,388
--------
Gross profit.................... 35,226
Selling, general, and
administrative expense......... 23,391
--------
Operating income................ 11,835
Interest expense................ (2,675)
Interest income................. 800
--------
Net income...................... $ 9,660
--------
--------
PRO FORMA INCOME STATEMENT DATA:
(UNAUDITED)
Income before taxes............. $ 9,660
Provision for income taxes(2)... 3,984
--------
Net income...................... $ 5,676
--------
--------
Net income per share............
Weighted average shares
outstanding....................
SELECTED OPERATING DATA:
Comparable store net sales
increase....................... --
Stores open at beginning of
period......................... 26
Stores opened................. 1
Stores acquired............... 8
--------
Stores open at end of period.... 35
--------
--------
Capital expenditures............ $ 1,489
Depreciation.................... 910
</TABLE>
<TABLE>
<CAPTION>
AS OF
JULY 31,
1996
---------
ACTUAL
---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................................... $ 19,720
Inventories.............................................................................................. 129,008
Total assets............................................................................................. 177,202
Floor plan payables(5)................................................................................... 104,795
Total debt............................................................................................... 17,931
Stockholders' equity..................................................................................... 34,284
<CAPTION>
PRO FORMA
AS ADJUSTED (3)(4)
------------------
<S> <C>
BALANCE SHEET DATA:
Working capital.......................................................................................... $ 44,962
Inventories.............................................................................................. 146,129
Total assets............................................................................................. 198,131
Floor plan payables(5)................................................................................... 105,925
Total debt............................................................................................... 11,031
Stockholders' equity..................................................................................... 60,884
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
7
<PAGE>
NOTES TO SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(1) Reflects adjustment to give effect to the Central Texas Acquisition and the
pending East Texas and Washington Acquisitions as if such acquisitions had
occurred February 1, 1995. The pro forma information is not necessarily
indicative of the results that actually would have been achieved had such
transactions been consummated as of February 1, 1995, or that may be
achieved in the future. See Selected Combined and Pro Forma Financial and
Operating Data and Pro Forma Unaudited Financial Statements and the Notes
thereto.
(2) For all periods presented, the Company was an S corporation and was not
generally subject to corporate income taxes. The pro forma income tax
provision has been computed as if the Company were subject to corporate
income taxes for all periods presented based on the tax laws in effect
during the respective periods. See "S Corporation Distributions" and the
Combined Financial Statements and the Notes thereto.
(3) Adjusted to give effect to: (i) the Central Texas Acquisition and the
pending East Texas and Washington Acquisitions and (ii) the deferred tax
asset of approximately $400,000 resulting from the termination of the
Company's status as an S corporation.
(4) Adjusted to give effect to the sale of shares of Class A Common Stock
offered hereby at an assumed initial offering price of $ per share, and
the application of the net proceeds therefrom. See "Use of Proceeds," "S
Corporation Distributions," "Capitalization," Pro Forma Unaudited Financial
Statements and the Notes thereto, and the Combined Financial Statements and
the Notes thereto.
(5) Includes interest bearing and non-interest bearing liabilities incurred in
connection with inventory financing. See Note 5 to the Combined Financial
Statements.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
DEPENDENCE UPON JOHN DEERE
The Company is an authorized dealer of John Deere industrial and
agricultural equipment and parts in its designated areas of responsibility and
store locations, and the Company's acquisition strategy contemplates the
acquisition of additional Deere areas of responsibility and store locations in
the future. During fiscal 1996, approximately 72% of the Company's new equipment
sales represented sales of new equipment supplied by Deere and a majority of the
Company's sales from parts and service also were directly related to Deere
equipment. The Company depends on Deere for floor plan financing to finance a
substantial portion of its inventory. As of July 31, 1996, Deere and its
subsidiaries were financing approximately $89.3 million of the Company's
inventory of Deere equipment. See "Business--Floor Plan Financing." In addition,
Deere provides a significant percentage of the financing used by the Company's
customers to purchase Deere equipment from the Company. See "Business--Customer
Financing Options." Deere also provides incentive programs and discount programs
from time to time which enable the Company to price its products more
competitively. In addition, Deere conducts promotional and marketing activities
on national, regional, and local levels. Due to the Company's dependence on
Deere, the Company believes that its success depends, in significant part, on
(i) the overall success of Deere, (ii) the availability and terms of floor plan
financing and customer financing from Deere, (iii) the incentive and discount
programs provided by Deere and its promotional and marketing efforts for its
industrial and agricultural products, (iv) the goodwill associated with John
Deere trademarks, (v) the introduction of new and innovative products by Deere,
(vi) the manufacture and delivery of competitively-priced, high quality
equipment and parts by Deere in quantities sufficient to meet the requirements
of the Company's customers on a timely basis, and (vii) the quality,
consistency, and management of the overall Deere dealership system. If Deere
does not provide, maintain, or improve any of the foregoing, there could be a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Dealership Agreements."
DEERE TERMINATION RIGHTS
Under the Deere Agreement, Deere has the right to terminate the Company's
dealer appointments immediately if Ronald D. Offutt, the Company's Chairman,
Chief Executive Officer, and principal stockholder, ceases to (i) own or control
in excess of 50% of the outstanding voting power or whatever greater percentage
is required to control corporate actions that require a stockholder vote, and
(ii) own at least 35% of the outstanding Common Stock. Upon consummation of this
Offering, Mr. Offutt will own or control approximately % ( % if the
over-allotment option is exercised in full) of the outstanding voting power of
the Company and will own approximately % ( % if the over-allotment option
is exercised in full) of the Common Stock. Deere also has a right of termination
in the event of Mr. Offutt's death; however, Deere cannot exercise this right of
termination if, at that time, (i) there is in place an ownership succession plan
approved by Deere, (ii) the Company and Deere have identified events which would
thereafter constitute changes of control of the Company entitling Deere to
terminate the dealer appointments, (iii) the Company and each of its stores are
under continuing management acceptable to Deere, (iv) there is no existing
breach and no grounds for termination exist with respect to any of the
agreements with Deere, including the ownership requirements, and (v) Deere in
its sole discretion has determined that each of the Company's areas of
responsibility and store locations justifies the continuation of the Deere
appointment for such area or location. In addition, Deere is entitled to
terminate the Company's dealer appointments on one year's notice if the
equity-to-assets ratio of the Company's Deere dealer operations is below 25% as
calculated by Deere based on the Company's fiscal year end audit, provided that
the Company has not cured such deficiency within 180 days of such fiscal year
end. Certain business operations and assets of the Company held in wholly-owned
subsidiaries, such as real estate and its irrigation and rental businesses, are
excluded from this calculation. In addition, without regard to any
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subsequent attempts to cure, upon one year's notice Deere may terminate dealer
appointments for which the Company fails to meet certain performance criteria
and market share objectives for each of its agricultural stores, including
developing and achieving Deere-approved business plans. The Company's industrial
operations also must maintain overall and core product market share and product
support standards at a level greater than the level corresponding to the 50th
percentile of all of Deere's United States industrial dealers and may be
terminated upon one year's prior written notice without regard to any subsequent
attempts to cure. Acquired operations that are performing below these levels at
the time the acquisition is completed have a three-year grace period to meet
these standards. As of the date of this Prospectus, Deere has advised the
Company that, after excluding recent acquisitions that fall into such grace
period, the Company's operations meet all of these performance criteria. In
addition, Deere can terminate the agricultural dealer appointments for cause or
if Deere determines that there is not sufficient market potential to support a
dealership in a particular location upon prior written notice to the Company of
180 days. The dealer appointments terminate immediately upon the commencement of
dissolution or liquidation of the Company or a sale of a substantial part of the
business, change in the location of a dealership without Deere's prior written
consent, the withdrawal of a major stockholder or a substantial reduction in
interest of a major stockholder, or a default under any security agreement with
Deere. The appointments also may be terminated upon the revocation or
discontinuance of any guaranty of Ronald D. Offutt or the Company to Deere,
unless replaced by a letter of credit acceptable to Deere. See "Business--
Personal Guaranty." Termination of certain or all of the dealer appointments
would have material adverse effect on the results of operations and financial
condition of the Company. See "Business--Dealership Agreements."
DEERE DEALERSHIP AGREEMENTS--OTHER PROVISIONS
The Company operates its Deere industrial and agricultural stores pursuant
to a master agreement with Deere (the "Deere Agreement") and pursuant to Deere's
customary industrial or agricultural dealership agreements for each of the
Company's industrial areas of responsibility and agricultural store locations.
These agreements impose a number of restrictions and obligations on the Company
with respect to its operations, including a prohibition on carrying industrial
products which are competitive with Deere products, and an obligation to
maintain suitable facilities, provide competent management, actively promote the
sale of Deere equipment in the Company's designated areas of responsibility,
fulfill the warranty obligations of Deere, provide service and maintain
sufficient parts inventory to service the needs of its customers, maintain
inventory in proportion to the sales potential in each area of responsibility,
maintain adequate working capital, and maintain stores only in authorized
locations. The Deere Agreement also provides that the Company cannot engage in
discussions to acquire other Deere dealerships without Deere's prior written
consent, which Deere may withhold in its sole discretion. In addition, Deere has
the right to have input into the selection of Company's management personnel,
including store managers. The prior consent of Deere is required for the opening
of any store within the Company's designated areas of responsibility and for the
acquisition of any other Deere dealership. There can be no assurance that any
such consent will be given by Deere. See "Business--Dealership Agreements." In
addition, the Company is prohibited from making acquisitions, initiating new
business activity, paying dividends, repurchasing its capital stock, or making
any other distributions to stockholders if the Company's equity to assets ratio
is below 30%, as calculated by Deere under the Deere Agreement, or if such ratio
would fall below 30% as a result of such action. The Company believes its
equity-to-assets ratio at the time of consummation of this Offering and at the
end of fiscal 1997 will be at least 30%.
The dealer appointments are not exclusive. Deere could appoint other dealers
in close proximity to the Company's existing stores. The areas of responsibility
assigned to the Company's industrial dealerships can be reduced by Deere upon
120 days prior written notice. In addition, the dealer agreements can be amended
at any time without the Company's consent, so long as the same amendment is made
to the dealer agreements of all other Deere dealers. Deere also has the right to
sell directly to federal, state, or and local governments as well as national
accounts. To the extent Deere appoints other dealers in the Company's markets,
reduces the areas of responsibility relating to the Company's industrial stores,
or
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amends the dealer agreements, the Company's results of operations and financial
condition could be adversely affected.
EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS; CYCLICALITY, SEASONALITY,
AND WEATHER
The Company's business, and particularly the sale of new equipment, is
dependent on a number of factors relating to general economic conditions,
including agricultural industry cycles, construction spending and industry
cycles, federal, state, and local government spending on highways and other
construction projects, new housing starts, interest rate fluctuations, economic
recessions, customer business cycles, and customer confidence in the economy.
Accordingly, the Company's financial condition and results of operations may be
materially and adversely affected by any general downward economic pressures, or
adverse cyclical trends. The ability to finance affordable purchases, of which
the interest rate charged is a significant component, is an important part of a
customer's decision to purchase equipment. Interest rate increases may make
equipment purchases less affordable for customers and, as a result, the
Company's net sales and profitability may decrease. To the extent the Company
cannot pass on to its customers its own increased costs of inventory financing
as a result of increased interest rates its net income also may decrease. As a
result of the foregoing, the Company's results of operations have in the past
and in the future are expected to continue to fluctuate from quarter to quarter
and year to year.
The Company generally experiences lower levels of equipment sales during the
period from November through April, impacting the first and fourth quarters of
each fiscal year, due to the crop growing season and winter weather conditions
in the Midwest. Typically, farmers purchase agricultural equipment immediately
prior to planting or harvesting crops, which occurs during the Company's second
and third quarter. As a result, sales of agricultural equipment generally are
lower in the first and fourth quarters. Winter weather in the Midwest also
limits construction to some degree and, therefore, also typically results in
lower sales of industrial equipment in the first and fourth quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's results of operations have been and are expected to be
affected by weather. Severe weather can adversely impact agricultural and
construction activity, resulting in decreased demand for the Company's products
and services and lost revenues. For example, the winter of 1995/1996 was
extremely cold, with numerous record low temperatures set in both December 1995
and January 1996. As a result, customers in the Midwest were not buying
wholegoods and equipment was not able to be moved to have normal servicing
performed. To the extent severe weather occurs, the Company's results of
operations and financial condition could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH EXPANSION
The Company believes a significant portion of its future growth will depend
on its ability to acquire additional dealerships. In pursuing its acquisition
strategy, the Company will face risks commonly encountered with growth through
acquisitions. These risks include incurring significantly higher than
anticipated capital expenditures and operating expenses, failing to assimilate
the operations and personnel of the acquired dealerships, disrupting the
Company's ongoing business, dissipating the Company's management resources,
failing to maintain uniform standards, controls, and policies, and impairing
relationships with employees and customers as a result of changes in management.
Fully integrating an acquired dealership into the Company's operations and
realization of the full benefit of the Company's strategies, operating model,
and systems may take several years. There can be no assurance that the Company
will be successful in overcoming these risks or any other problems encountered
with such acquisitions, including the Company's recent and pending acquisitions.
To the extent the Company does not successfully avoid or overcome the risks or
problems related to acquisitions, the Company's results of operations and
financial condition could be adversely affected. Future acquisitions also will
have a significant impact on the Company's financial position and capital needs,
and could cause substantial fluctuations in the Company's quarterly and yearly
results of operations. Acquisitions could include significant goodwill and
intangible assets, resulting in substantial amortization charges to the Company
that would reduce stated earnings. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Growth Strategy--Pursuing Additional Acquisitions."
Deere's consent is required for the acquisition of any Deere dealership, and
consequently, any prospective acquisition the Company negotiates will require
Deere to consent to the Company's becoming the Deere dealer for the acquired
store locations and, with industrial dealerships, for the subject area of
responsibility. Deere typically evaluates management, performance, and
capitalization of a prospective acquiror in determining whether to consent to
the sale of a Deere dealership. While the Company believes that its management,
operational history, acquisition history, and capitalization allow it to compete
effectively for the acquisition of additional areas of responsibility and
stores, there can be no assurance that Deere will allow ownership concentration
of Deere dealerships beyond a certain level. Although the Company believes that
Deere wants fewer, better capitalized dealers to achieve higher sales and better
customer service, there can be no assurance that Deere will approve any or all
future acquisitions proposed by the Company. See "Business--Dealership
Agreements."
MANAGEMENT OF GROWTH
The Company has grown significantly in recent years and is expected to
continue to grow through internal growth and acquisitions. Management has
expended, and expects to continue to expend, significant time and effort in
evaluating, completing, and integrating acquisitions and opening new stores.
There can be no assurance that the Company's systems, procedures, and controls
will be adequate to support the Company's operations as they expand. Any future
growth also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit, and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be identified and retained by the Company. If the Company is
unable to manage its growth efficiently and effectively, or is unable to attract
and retain additional qualified management, there could be a material adverse
effect on the Company's financial condition and results of operations.
AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL
The Company's ability to continue to grow through the acquisition of
additional Deere areas of responsibility and store locations or other businesses
will be dependent upon (i) the availability of suitable acquisition candidates
at an acceptable cost, (ii) receiving Deere approval of acquisitions as required
or appropriate, (iii) the Company's ability to compete effectively for available
acquisition candidates, and (iv) the availability of capital to complete the
acquisitions. Expansion of the Company through new store openings and internal
growth also will require significant capital expenditures. The Company intends
to finance acquisitions, new stores, and internal growth with cash generated
from operations, through the incurrence or assumption of indebtedness, and
through issuances of Class A Common Stock, Preferred Stock, other forms of
equity, or debt securities. Using cash to complete acquisitions and finance
internal growth could substantially limit the Company's financial flexibility,
using debt could result in financial covenants that limit the Company's
operating and financial flexibility, and using equity may result in significant
dilution of existing stockholders' interest in the Company. The use of cash,
debt, or equity to complete acquisitions and finance internal growth also could
be limited by provisions in the Deere Agreement, which gives Deere the right to
terminate the Company's dealer appointments if Mr. Offutt ceases to (i) own or
control in excess of 50% of the outstanding voting power, or whatever greater
percentage is required to control corporate actions requiring a stockholder
vote, and (ii) own at least 35% of the outstanding Common Stock, and which
requires that the Company meet the required equity-to-asset ratio upon
completion of each acquisition. The Deere Agreement also provides that the
Company cannot engage in discussions to acquire other Deere dealerships without
Deere's prior written consent, which Deere may withhold in its sole discretion.
See "Business--Dealership Agreements." In addition, there can be no assurance
that the Company will be able to obtain additional capital on acceptable terms.
If the Company is unable to obtain additional capital on acceptable terms, the
Company's acquisition activities and internal growth may be limited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources." In addition, there can be no
assurance that
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Deere will consent to any future acquisition. To the extent the Company is
limited in its ability to make acquisitions or to grow internally for any
reason, the Company's growth, financial condition, and results of operations
could be adversely affected.
SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS
The sale of industrial and agricultural equipment requires substantial
inventories of equipment and parts to be maintained at each store in order to
facilitate sales to customers on a timely basis. The Company generally purchases
its inventories of Deere equipment with the assistance of floor plan financing
programs through Deere. Inventories of products from other suppliers generally
are financed through a line of credit with Ag Capital Company ("Ag Capital"), a
cooperative lending institution which is controlled by Ronald D. Offutt, the
Company's Chairman, Chief Executive Officer, and principal stockholder, or
through floor financing programs offered by such suppliers. As the Company
grows, whether internally or through the acquisition of areas of responsibility
and store locations, its inventory requirements will increase and, as a result,
the Company's financing requirements also will increase. In the event that the
Company's available financing sources are not sufficient to satisfy its future
requirements, the Company would be required to obtain additional financing from
other sources. While the Company believes that it could obtain additional
financing or alternative financing if required, there can be no assurance that
such financing could be obtained on commercially reasonable terms. To the extent
such additional financing cannot be obtained on commercially reasonable terms,
the Company's growth and results of operations could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Business--Floor Plan Financing,"
and "Certain Relationships and Related Transactions."
COMPETITION
The Company anticipates that both its industrial and agricultural operations
will continue to face strong, and perhaps increasing, competition. The Company's
industrial stores compete with distributors of industrial equipment from
suppliers other than Deere such as Case Corporation ("Case"), Caterpillar Inc.
("Caterpillar"), and Komatsu Corporation ("Komatsu"). The Company's agricultural
stores compete with distributors of agricultural equipment from suppliers such
as Agco Corporation ("Agco"), Case, and New Holland, N.V., a subsidiary of Fiat
("New Holland"). Some of these competitors may be larger and have substantially
greater capital resources than the Company. The Company's stores also compete to
a degree with other Deere dealerships. Competition among distributors of
equipment can be intense and is primarily based on price, value, reputation,
quality, and design of the products offered by the dealer, the customer service
and equipment servicing provided by the dealer, and the accessibility of stores.
Although the Company believes that it is competitive in all of these categories,
there can be no assurance that the Company will remain competitive in general or
in any particular area in which the Company has operations. To the extent
Deere's competitors provide their distributors with more innovative and/or
higher quality products, better pricing or customer financing, or have more
effective marketing efforts, the Company's ability to compete and financial
condition and results of operations could be adversely affected. In addition, to
the extent Deere's products are not as competitive or in demand as those of
other suppliers, the Company's results of operations could be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company believes its success depends, in large part, upon the continued
services of Ronald D. Offutt, Chairman and Chief Executive Officer, Paul T.
Horn, President and Chief Operating Officer, and Allan F. Knoll, Chief Financial
Officer. The loss of any of these individuals could materially and adversely
affect the Company. Mr. Horn will be devoting his full-time with the Company and
Messrs. Offutt and Knoll will continue to spend approximately 25% of their time
on Company-related activities, with the balance of their time spent on
activities for R. D. Offutt Company ("Offutt Co.") and other entities wholly
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or substantially owned, controlled, and/or managed by Mr. Offutt (collectively,
the "Offutt Entities"). Messrs. Knoll and Horn also are stockholders and serve
as officers and directors of Offutt Co. and many of the Offutt Entities. See
"Management" and "Certain Relationships and Related Transactions."
CERTAIN TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS OF INTEREST
The Company has engaged in, and expects to continue to engage in, business
transactions with various Offutt Entities, including, among others, sales of
agricultural equipment and parts, leasing of real estate, corporate support
services, floor plan financing, and customer financing. The Company had sales of
equipment and related parts and services to the Offutt Entities in the aggregate
amounts of $1.9 million, $3.5 million, $5.5 million, and $4.5 million in fiscal
1994, 1995, 1996, and the six months ended July 31, 1996, respectively. Ag
Capital and another Offutt Entity provide the Company with financing for a
portion of its working capital needs, primarily inventory financing for
non-Deere equipment. Interest on such financings typically is at the prime rate
as it varies from time to time. Total interest paid to Offutt Entities for
inventory financing totalled $771,000, $627,000, $849,000, and $426,000 in
fiscal 1994, 1995, 1996, and the six months ended July 31, 1996, respectively.
The total amounts outstanding under these inventory financing arrangements at
July 31, 1996 was $11.9 million. In addition, the amount of customer financing
provided by Offutt Entities as of January 31, 1994, 1995, and 1996, and as of
July 31, 1996 was $12.2 million, $24.3 million, and $32.8 million, and $41.4
million, respectively. The Offutt Entities will continue to purchase equipment,
parts, and services from the Company and provide financing to the Company and
its customers following this Offering. The Company receives certain corporate
support services from various Offutt Entities, including office space for its
executive offices, use of conference and meeting facilities, use of an aircraft
for Company business, administration of the Company's 401(k) plan and other
employee benefits, and certain real estate management services. The Company has
historically paid for such services based on its pro rata usage compared to the
usage of other Offutt Entities or at a fixed charge. Charges for such services
totalled $48,000, $56,000, $77,000, and $35,000, in fiscal 1994, 1995, 1996, and
the six months ended July 31, 1996, respectively. Upon consummation of this
Offering, all such services will be provided to the Company pursuant to a
three-year Corporate Services Agreement and the cost of such services to the
Company will be on the same basis as in prior years. The Company believes that
all of these transactions were made on terms no less favorable to the Company
than could have been obtained from unaffiliated third parties. All future
transactions between the Company and any of the Offutt Entities or the Company's
officers, directors, principal stockholder, or their affiliates will be approved
both by a majority of all members of the Company's Board of Directors and by a
majority of the independent and disinterested outside directors, and will
continue to be on terms believed to be no less favorable to the Company than
could be obtained from unaffiliated third parties. Messrs. Offutt, Horn, and
Knoll also are stockholders and serve as officers and directors of various
Offutt Entities, which may present a conflict of interest when the Company
enters into transactions with an Offutt Entity. See "Certain Relationships and
Related Transactions."
CONTROL BY RONALD D. OFFUTT
The Company's outstanding voting capital stock consists of Class A Common
Stock and Class B Common Stock. Holders of Class A Common Stock are entitled to
one vote per share and holders of Class B Common Stock are entitled to four
votes per share. Upon consummation of this Offering, Ronald D. Offutt, the
Company's Chairman, Chief Executive Officer, and principal stockholder, will own
100% of the outstanding Class B Common Stock representing approximately % of
the outstanding voting power of the Common Stock (approximately % if the
Underwriters' over-allotment is exercised in full). Under the Deere Agreement,
Deere has the right to terminate the Company's dealer appointments if Mr. Offutt
ceases to (i) own or control in excess of 50% of the outstanding voting power,
or whatever greater percentage is required to control corporate actions that
require a stockholder vote, and (ii) own at least 35% of the outstanding Common
Stock. As a result of such voting control, Mr. Offutt will have the power to
control the Company, including the election of all of the directors of the
Company, the determination of matters requiring stockholder approval, and other
matters pertaining to corporate governance. Such voting
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concentration may have the effect of discouraging, delaying, or preventing a
change of control, including transactions in which the holders of Class A Common
Stock might otherwise receive a premium for their shares over the then-current
market price. See "Principal Stockholders" and "Description of Capital Stock."
PRODUCT LIABILITY RISK
Products sold or serviced by the Company may expose it to potential
liabilities for personal injury or property damage claims relating to the use of
such products. Although product liability claims historically have not had a
material adverse effect upon the Company, there can be no assurance that the
Company will not be subject to or incur any liability for such claims in the
future. While the Company maintains third-party product liability insurance
which it believes to be adequate, there can be no assurance that the Company
will not experience claims in excess of its insurance coverage, or claims which
are ultimately not covered by insurance or for which manufacturers do not
provide indemnity. There also can be no assurance that such insurance will
continue to be available on economically reasonable terms. An uninsured or
partially insured claim for which indemnification is not provided could have a
material adverse effect on the financial condition of the Company. Furthermore,
if any significant claims are made against the Company or against Deere or any
of the Company's other suppliers, the Company's business may be adversely
affected by any resulting negative publicity. See "Business--Product Liability
and Legal Proceedings."
GOVERNMENT REGULATION
The Company is subject to numerous federal, state, and local rules and
regulations, including regulations promulgated by the Environmental Protection
Agency and similar state agencies with respect to storing, shipping, disposing,
discharging, and manufacturing hazardous materials and hazardous and
non-hazardous waste. These activities are associated with the repair and
maintenance of equipment at the Company's facilities. Currently, none of the
Company's stores or operations exceed small quantity generation status. Although
the Company believes that its operations are in material compliance with current
laws and regulations, including environmental laws and regulations, there can be
no assurance that current regulatory requirements will not change, that
unforeseen environmental incidents will not occur, or that past contamination or
non-compliance with environmental laws will not be discovered on properties on
which the Company is or has been located. See "Business--Environmental Standards
and Government Regulations."
S CORPORATION STATUS; USE OF PROCEEDS
Beginning November 1, 1989 and continuing until the consummation of this
Offering, the Company has elected to be treated as an S corporation under the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a
result, the Company's stockholders have been directly subject to tax on the
income of the Company for federal, state and certain local income tax purposes.
The Company will use approximately $15.0 million of the proceeds from this
Offering to make a distribution to its existing stockholders of substantially
all of the previously undistributed accumulated net income of the Company as of
January 31, 1996 with respect to which such stockholders previously paid taxes.
Upon consummation of this Offering, the Company will be taxed as a C corporation
and similar distributions will not be made to the purchasers of Class A Common
Stock in this Offering. Additionally, while the Company believes that it has met
the S corporation requirements and, as of the date of this Prospectus, the
Internal Revenue Service (the "IRS") has not challenged the Company's S
corporation status, if, for any reason, the Company were subsequently determined
by the IRS not to have met S corporation requirements, the Company could be
liable to pay federal corporate taxes on its income at the effective federal
corporate tax rate for all or a part of the period from November 1, 1989 through
the consummation of this Offering, plus interest and possibly penalties. See "S
Corporation Distributions" and "Certain Relationships and Related Transactions."
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ANTI-TAKEOVER MEASURES; POSSIBLE ISSUANCES OF PREFERRED STOCK
Under the Deere Agreement, Deere may terminate the Company's dealer
appointments if Mr. Offutt ceases to (i) own or control in excess of 50% of the
outstanding voting power, or whatever greater percentage is required to control
corporate actions that require a stockholder vote, and (ii) own at least 35% of
the outstanding Common Stock. Under the Deere Agreement, in the event of Ronald
D. Offutt's death Deere also will have the power to terminate the Company's
dealer appointments upon the occurrence of a "change of control". These
restrictions may effectively prevent a third party from acquiring a substantial
portion or a majority of the Company's outstanding capital stock without Deere's
consent. See "Business--Dealership Agreements." In addition, pursuant to the
Company's Certificate of Incorporation, the Board of Directors is authorized to
issue up to shares of Preferred Stock and fix the rights, preferences,
privileges, and restrictions, including voting rights, of such shares without
any further vote or action by the stockholders. The rights of the holders of
Class A Common Stock will be subject to, and may be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
While the Company has no present intention to issue shares of Preferred Stock,
any such issuance could make it more difficult for a third party to acquire a
majority of the outstanding voting power of the Company. Stockholders also do
not have the right to cumulative voting for the election of directors. The
ownership interest and voting control by Mr. Offutt, the requirements in the
Deere Agreement, the ability of the Board of Directors to issue shares of
Preferred Stock without further vote or action by the stockholders, and other
provisions in the Company's Certificate of Incorporation may discourage, delay,
or prevent a change of control of the Company without further action by the
stockholders, and, consequently, also could adversely affect the market price of
the Class A Common Stock. The Company also is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"),
which could have the effect of delaying or preventing a change of control of the
Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Class A Common Stock (including shares issued upon the
exercise of stock options) in the public market after consummation of this
Offering, or the perception that such sales could occur, could materially and
adversely affect the market price of the Class A Common Stock. Such sales also
might make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
would deem appropriate. Upon the consummation of this Offering, the Company will
have shares of Class A Common Stock outstanding, of which the shares
offered hereby will be tradeable without restriction unless they are purchased
by an affiliate of the Company. Shares of Common Stock outstanding prior to
consummation of this Offering will be "restricted securities" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"). These
"restricted securities" and any shares purchased by affiliates of the Company in
this Offering may be sold only if they are registered under the Securities Act
or pursuant to an applicable exemption from the registration requirements of the
Securities Act, including Rule 144. The Company and the holders of
shares of Common Stock have agreed not to sell, otherwise dispose of, or pledge
such shares for 180 days after the date of this Prospectus without the prior
written consent of CS First Boston Corporation. After expiration of the lock-up
agreements, an aggregate of shares will be available for sale in
the public market, subject in certain cases to volume and manner of sale
limitations. The remaining shares of Common Stock held by existing
stockholders will become eligible for public resale at various times over a
period of less than two years following the consummation of this Offering,
subject in some cases to volume and manner of sale limitations pursuant to Rule
144. In addition, the Company intends to file a registration statement under the
Securities Act to register an aggregate of shares of Class A Common
Stock reserved for issuance under the Company's 1996 Stock Incentive Plan (the
"Incentive Plan"). The Company intends to grant options to purchase
shares of Class A Common Stock prior to consummation of this Offering at an
exercise price equal to the initial public offering price. The issuance of such
shares could result in the dilution of the voting power of the shares of Class A
Common Stock purchased in this Offering and could have a dilutive effect on
earnings per share.
16
<PAGE>
See "Management--1996 Stock Incentive Plan," "Description of Capital Stock,"
"Shares Eligible for Future Sale," and "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock existed.
Although the Company has applied to have the Class A Common Stock approved for
listing on the NNM, there can be no assurance that an active trading market will
develop or be sustained following this Offering. The initial public offering
price of the Class A Common Stock offered hereby will be determined through
negotiations between the Company and representatives of the Underwriters. See
"Underwriting." The market price for the Class A Common Stock may be volatile
and subject to fluctuations resulting from news announcements concerning the
Company, quarterly operating results, the markets for industrial or agricultural
equipment, announcements by Deere or other suppliers of equipment to the Company
or by competitive manufacturers, analyst recommendations, general securities
market conditions, and other factors. The stock market in general, and the
market for shares of small capitalization stocks in particular, have experienced
significant price and volume fluctuations that often have been unrelated to the
operating performance of particular companies. These market fluctuations may
adversely affect the market price of the Class A Common Stock and the negotiated
initial public offering price may not be indicative of future market prices of
the Class A Common Stock.
DILUTION
Purchasers of shares of the Class A Common Stock offered hereby (at an
assumed initial public offering price of $ per share) will experience
immediate and substantial dilution of the net tangible book value of the Class A
Common Stock in the amount of $ per share from the initial public offering
price. The net tangible book value per share of the Class A Common Stock
represents the amount of the Company's tangible assets less liabilities divided
by the number of shares of Common Stock outstanding. See "Dilution."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class
A Common Stock offered hereby (at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and offering expenses) are estimated to be approximately $41.2
million ($47.4 million if the Underwriters' over-allotment option is exercised
in full).
The Company plans to use a portion of the net proceeds in this Offering to
pay the purchase price and repay indebtedness incurred in connection with
recently completed or pending acquisitions, in the aggregate amount of
approximately $12.3 million, including (i) a promissory note in the amount of
$8.4 million, payable by the Company to Ag Capital, which bears interest at the
prime rate (8.25% as of September 30, 1996) and matures on January 31, 1997,
incurred in connection with the Central Texas Acquisition, (ii) a promissory
note in the amount of $1.7 million, payable by the Company to Ag Capital, which
will bear interest at the prime rate and will mature January 31, 1997, incurred
in connection with the Washington Acquisition, and (iii) $2.2 million to
complete the East Texas Acquisition. See "Certain Relationships and Related
Transactions." The Company also plans to use a portion of the net proceeds of
this Offering to pay an aggregate distribution of approximately $15.0 million to
the existing stockholders of the Company, which represents a previously declared
dividend to such stockholders of substantially all of the previously
undistributed, accumulated net income of the Company as of January 31, 1996. See
"S Corporation Distributions."
The Company plans to use the balance of the net proceeds of approximately
$13.9 million ($20.1 million if the Underwriter's over-allotment option is
exercised in full) for general corporate purposes, including working capital and
potential acquisitions. Pending such uses, the balance of the net proceeds will
be used to reduce borrowings under the Company's lines of credit, including its
floor plan financing with Deere, which bears interest at the prime rate (8.25%
as of September 30, 1996).
S CORPORATION DISTRIBUTIONS
The Company has elected to be taxed as an S corporation since November 1,
1989 and its S corporation election will continue until the consummation of this
Offering. Consequently, the stockholders of the Company have been paying the
federal income taxes on the Company's taxable income directly for all periods
during which the Company has been an S corporation and will continue paying or
accruing such tax liability while the Company remains an S corporation.
Historically, a portion of the net income of the Company has been distributed to
the stockholders, primarily to enable them to pay the tax liability incurred in
connection with the Company's taxable income. Dividends declared and paid for
the fiscal years ended January 31, 1994, 1995, 1996, and during the six-month
period ended July 31, 1996 aggregated approximately $2.3 million, $3.8 million,
$4.3 million, and $1.8 million, respectively, and dividends declared but unpaid
as of July 31, 1996 were $5.5 million. This amount, plus all net income for the
third fiscal quarter of 1997, which is estimated to be approximately $ ,
is expected to be distributed to the existing stockholders prior to the
consummation of this Offering. Purchasers of Class A Common Stock in this
Offering will not receive any of these distributions.
Simultaneously with the consummation of this Offering, the Company will pay
to its existing stockholders from the net proceeds of this Offering an
additional aggregate distribution of approximately $15.0 million, which
represents a previously declared dividend to such stockholders of substantially
all of the previously undistributed, accumulated net income of the Company as of
January 31, 1996 with respect to which such stockholders have previously paid
taxes. This distribution, which will coincide with the termination of the
Company's S corporation election, will allow the existing stockholders of the
Company to receive this accumulated net income without having to pay additional
taxes on such amounts. Purchasers of Class A Common Stock in this Offering will
not receive any of these distributions. The Company intends to enter into a tax
agreement with its current stockholders prior to the consummation of this
Offering. This agreement will provide that, to the extent such undistributed
taxable income of the Company, as subsequently established in connection with
the filing of the Company's tax return for the Company's short S corporation tax
year, is less than these dividends, such stockholders will make a payment equal
to such
18
<PAGE>
difference to the Company, and if such undistributed taxable income is greater
than these dividends, the Company will make an additional distribution equal to
such difference to such stockholders. This agreement will also provide that the
Company will indemnify its current stockholders against additional income taxes
resulting from adjustments made (as a result of a final determination made by a
competent tax authority) to the taxable income reported by the Company as an S
corporation for periods prior to the Offering, but only to the extent those
adjustments provide a tax benefit to the Company.
Because the Company has used a fiscal year rather than a calendar year for
its taxable year during its existence as an S corporation, the Company has made
required payments to the IRS under Section 444 of the Internal Revenue Code. As
of July 31, 1996, the payments held on deposit totalled approximately $820,000,
which amount will be refunded to the Company.
The Company has elected to allocate its taxable income on the basis of
closing its books effective the end of business on the day before the
termination of its S corporation status. Upon termination of its S corporation
status, the Company will become subject to income taxation and, in connection
therewith, the Company will record an asset of approximately $400,000 for
deferred income taxes on its balance sheet. See Note 8 to the Combined Financial
Statements.
REINCORPORATION
The Company, originally incorporated in North Dakota in 1968, was
reincorporated in Delaware effective as of , 1996. Concurrently
with the reincorporation, the Company also completed a for one stock split so
that each existing stockholder other than Mr. Offutt received shares of Class
A Common Stock, and Mr. Offutt received shares of Class B Common Stock, of
the new Delaware corporation for each share of the North Dakota corporation.
DIVIDEND POLICY
Following the consummation of this Offering, the Company's Board of
Directors intends to retain the earnings of the Company, if any, to support the
Company's operations and to finance expansion, and it does not intend to pay
cash dividends on the Common Stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors and will depend on the Company's financial condition, results
of operations, capital requirements, dividend restrictions under its agreements
with Deere, and such other factors as the Board of Directors may deem relevant.
No dividends may be declared or paid on any share of either class of Common
Stock, unless such dividend, at the same rate per share, is simultaneously
declared or paid on each share of the other class of Common Stock.
Under the Deere Agreement, the Company is prohibited from paying any
dividends, effecting any capital stock repurchase, or making any other
distributions to stockholders if the equity-to-assets ratio of the Company's
Deere dealer operations is below 30% as calculated by Deere or would be below
such percentage as a result of such dividend, repurchase, or distribution. For
purposes of making this calculation, certain business operations and assets of
the Company held in wholly-owned subsidiaries, such as its real estate and its
irrigation and rental businesses, are excluded.
Because the Company has been and will be an S corporation until the
consummation of this Offering, a portion of the net income of the Company has
been distributed from time to time to its existing stockholders as a dividend
primarily to cover the taxes payable by such stockholders with respect to the
Company's taxable income. In addition, dividends declared but unpaid as of July
31, 1996 were $5.5 million. This amount, plus all net income for the third
fiscal quarter of 1997, which is estimated to be approximately $ , is
expected to be distributed to the existing stockholders prior to consummation of
this Offering. An additional distribution of approximately $15.0 million will be
paid to the existing stockholders simultaneously with the consummation of this
Offering, representing substantially all of the previously undistributed,
accumulated net income of the Company as of January 31, 1996 with respect to
which individual stockholders have already paid taxes. Purchasers of shares of
Class A Common Stock in this Offering will not receive any of these
distributions. See "S Corporation Distributions."
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of July 31,
1996 was $34.7 million or $ per share, after giving pro forma effect to the
Central Texas Acquisition, the East Texas Acquisition, and the Washington
Acquisition, and the for one stock split in connection with the
reincorporation of the Company.
Net tangible book value dilution per share represents the difference between
the amount per share paid by purchasers of shares of Class A Common Stock in
this Offering and the pro forma net tangible book value per share of the Common
Stock (both Class A and Class B) immediately after consummation of this
Offering. After giving effect to the sale of shares of Class A
Common Stock in this Offering at an assumed offering price of $ per share
and the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of July 31, 1996 would have been $ ,
or $ per share. See "Use of Proceeds" and "S Corporation Distributions." This
represents an immediate increase in net tangible book value of $ per share to
existing stockholders of the Company and an immediate dilution in net tangible
book value of $ per share to purchasers of Class A Common Stock in this
Offering, as illustrated in the following table:
<TABLE>
<S> <C>
Initial public offering price per share of Class A Common Stock...
Pro forma net tangible book value per share before this
Offering......................................................
Increase per share attributable to new investors................
Pro forma net tangible book value per share after this Offering...
Dilution per share to new investors(1)............................
</TABLE>
- ------------------------
(1) Excludes shares of Class A Common Stock reserved for issuance under the
Incentive Plan, of which approximately shares will be subject to
options to be granted prior to consummation of this Offering at an exercise
price equal to the initial public offering price. See "Management--1996
Stock Incentive Plan."
The following table summarizes, on a pro forma basis as of July 31, 1996,
the difference between the existing stockholders and the purchasers of shares of
Class A Common Stock in this Offering (at an assumed offering price of $ per
share) with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid therefor to the Company, and the average
price per share paid by the existing stockholders and by purchasers of shares of
Class A Common Stock in this Offering:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------ ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................. $ $
New investors............................ $
----- ----- ----- -----
Total(2)............................. 100.0% $ 100.0%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- ------------------------
(1) Includes both Class A and Class B Common Stock purchased by existing
stockholders. See "Principal Stockholders" for information on ownership by
the existing stockholders, directors, and executive officers.
(2) Excludes shares of Class A Common Stock reserved for issuance under the
Incentive Plan, of which approximately shares will be subject to
options to be granted prior to consummation of this Offering at an exercise
price equal to the initial public offering price. See "Management--1996
Stock Incentive Plan."
20
<PAGE>
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of
the Company as of July 31, 1996, and as adjusted to give effect to the sale of
shares of Class A Common Stock offered hereby and the application of the net
proceeds therefrom as described under "Use of Proceeds," which includes an S
corporation distribution to the existing stockholders. See "S Corporation
Distributions." The capitalization table excludes $104.8 million of floor plan
payables ($119.8 million on a pro forma basis), a portion of which is interest
bearing. Such payables are used to finance the Company's inventory purchases.
The difference between actual and pro forma floor plan financing represents
additional floor plan financing related to the East Texas and Washington
Acquisitions. See Note 5 to the Combined Financial Statements.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED
--------------- -------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Notes payable and long-term debt(1):
Banks and others........................... $ 8,271 $ 8,271 $ 8,271
Affiliates................................. 9,660(3) 9,660 1,260
Acquisition debt........................... -- 5,400 1,500
--------------- -------------- -------------
Total debt............................... 17,931 23,331 11,031
--------------- -------------- -------------
Less short-term notes and current maturities
of long-term debt........................... (12,062) (15,962) (3,662)
--------------- -------------- -------------
Net long-term debt....................... 5,869 7,369 7,369
--------------- -------------- -------------
Stockholders' equity:
Preferred stock, no par value, shares
authorized; none outstanding............. -- -- --
Common stock............................... 188 188 --
Class A Common Stock $.01 par value,
shares authorized; shares issued and
outstanding, actual and pro forma;
shares issued and outstanding, as
adjusted................................. -- --
Class B Common Stock, $.01 par value,
shares authorized; shares issued and
outstanding, actual and pro forma;
shares issued and outstanding, as
adjusted................................. -- --
Additional paid-in capital................. 16,180 16,180
Retained earnings.......................... 17,916 18,316
--------------- -------------- -------------
Total stockholders' equity............. 34,284 34,684 60,884
--------------- -------------- -------------
Total capitalization................... $ 40,153 $ 43,003 $ 68,253
--------------- -------------- -------------
--------------- -------------- -------------
</TABLE>
- ------------------------
(1) See Note 6 to the Combined Financial Statements for information regarding
outstanding notes payable and long-term debt.
(2) Adjusted to give effect to: (i) the Central Texas Acquisition and the
pending East Texas and Washington Acquisitions and (ii) the deferred tax
asset of approximately $400,000 resulting from the termination of the
Company's status as an S corporation.
(3) Includes the $8.4 million note issued to Ag Capital in connection with the
consummation of the Central Texas Acquisition.
21
<PAGE>
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
The following Selected Combined and Pro Forma Financial and Operating Data
relating to the Company has been taken or derived from the Combined Financial
Statements and other records of the Company. The selected financial data for the
fiscal year ended January 31, 1996 has been derived from combined financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data for each of the four years in the
period ended January 31, 1995 has been derived from combined financial
statements which have been audited by Eide Helmeke PLLP, independent public
accountants. The selected financial data for the six months ended July 31, 1995
and 1996 have been derived from unaudited interim financial statements, for
those periods, which have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments
which are necessary for a fair statement of the results of the interim period,
and all such adjustments are of a normal recurring nature. The financial and
operating data presented below may not be comparable between periods in all
material respects or indicative of the Company's future financial position or
results of operations due primarily to acquisitions which occurred during the
periods presented, or subsequent thereto, including the Central Texas
Acquisition, the East Texas Acquisition, and the Washington Acquisition. The
selected financial and operating data for the six months ended July 31, 1996 are
not necessarily indicative of the results to be expected for the fiscal year
ending January 31, 1997. The pro forma financial statements are provided for
informational purposes only and should not be construed to be indicative of the
Company's results of operations had the acquisitions been consummated on the
dates assumed and do not project the Company's results of operations for any
future period. The Selected Combined and Pro Forma Financial and Operating Data
should be read in conjunction with the Company's Historical and Pro Forma
Combined Financial Statements and related notes and other financial information
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
22
<PAGE>
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
----------------------------------------------------------------------------- --------------------
ACTUAL PRO FORMA ACTUAL
----------------------------------------------------- PRO FORMA AS ADJUSTED --------------------
1992 1993 1994 1995 1996 1996(1) 1996(1)(4) 1995 1996
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales.... $ 49,097 $ 73,516 $ 106,600 $ 135,704 $ 164,054 $ 210,160 $ 210,160 $ 80,891 $ 116,861
Parts and service... 22,129 31,862 37,512 48,206 58,998 77,933 77,933 28,856 35,710
Rental.............. -- -- -- -- 505 505 505 -- 1,202
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Total revenues.... 71,226 105,378 144,112 183,910 223,557 288,598 288,598 109,747 153,773
Cost of sales......... 56,422 83,548 116,369 148,111 180,839 232,109 232,109 89,119 125,841
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Gross profit.......... 14,804 21,830 27,743 35,799 42,718 56,489 56,489 20,628 27,932
Selling, general, and
administrative
expense.............. 11,929 16,737 20,577 24,893 31,655 41,852 41,852 14,860 18,523
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Operating income...... 2,875 5,093 7,166 10,906 11,063 14,637 14,637 5,768 9,409
Interest expense...... (1,299) (1,284) (1,670) (1,895) (3,817) (5,824) (3,663) (1,590) (2,667)
Interest income....... 173 376 336 802 823 1,292 1,292 403 517
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Net income............ $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 10,105 $ 12,266 $ 4,581 $ 7,259
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
PRO FORMA INCOME
STATEMENT DATA:
(UNAUDITED)
Income before taxes... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 10,105 $ 12,266 $ 4,581 $ 7,259
Federal and state
income taxes(2)...... 700 1,674 2,332 3,925 3,228 4,042 4,906 1,832 2,904
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Net income............ $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 6,063 $ 7,360 $ 2,749 $ 4,355
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Net income per
share................
Weighted average
shares outstanding...
SELECTED OPERATING
DATA:
Comparable store net
sale increase........ -- 12% 32% 25% 11% -- -- 8% 39%
Stores open at
beginning of
period............... 15 17 21 22 22 22 22 22 26
Stores opened....... 1 0 0 0 2 2 2 1 1
Stores acquired..... 1 4 1 0 2 10 10 2 3
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Stores open at end of
period............... 17 21 22 22 26 34 34 25 30
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- --------- ----------- --------- ---------
Capital
expenditures......... $ 561 $ 681 $ 627 $ 1,028 $ 9,993 $ 10,673 $ 10,673 $ 1,715 $ 680
Depreciation.......... 504 584 668 634 1,085 1,788 1,788 307 690
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
1996(1) 1996(1)(4)
--------- -----------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales.... $ 143,380 $ 143,380
Parts and service... 44,032 44,032
Rental.............. 1,202 1,202
--------- -----------
Total revenues.... 188,614 188,614
Cost of sales......... 153,388 153,388
--------- -----------
Gross profit.......... 35,226 35,226
Selling, general, and
administrative
expense.............. 23,391 23,391
--------- -----------
Operating income...... 11,835 11,835
Interest expense...... (3,755) (2,675)
Interest income....... 800 800
--------- -----------
Net income............ $ 8,880 $ 9,660
--------- -----------
--------- -----------
PRO FORMA INCOME
STATEMENT DATA:
(UNAUDITED)
Income before taxes... $ 8,880 $ 9,660
Federal and state
income taxes(2)...... 3,552 3,984
--------- -----------
Net income............ $ 5,328 $ 5,676
--------- -----------
--------- -----------
Net income per
share................
Weighted average
shares outstanding...
SELECTED OPERATING
DATA:
Comparable store net
sale increase........ -- --
Stores open at
beginning of
period............... 26 26
Stores opened....... 1 1
Stores acquired..... 8 8
--------- -----------
Stores open at end of
period............... 35 35
--------- -----------
--------- -----------
Capital
expenditures......... $ 1,489 $ 1,489
Depreciation.......... 910 910
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
----------------------------------------
AS OF JANUARY 31, PRO FORMA
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(3) ADJUSTED(3)(4)
--------- --------- --------- --------- --------- --------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 9,846 $ 15,284 $ 21,285 $ 26,700 $ 26,596 $ 19,720 $ 18,762 $ 44,962
Inventories............. 40,175 55,582 63,626 77,204 115,616 129,008 146,129 146,129
Total assets............ 46,129 68,660 81,849 98,315 148,093 177,202 198,131 198,131
Floor plan
payables(5)............ 28,067 45,149 45,465 53,581 91,614 104,795 119,825 105,925
Total debt.............. 6,283 7,105 3,565 3,277 10,638 17,931 23,331 11,031
Stockholders' equity.... 7,006 11,105 24,503 30,467 34,284 34,284 34,684 60,884
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
23
<PAGE>
NOTES TO SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(1) Reflects adjustment to give effect to the Central Texas Acquisition and the
pending East Texas and Washington Acquisitions as if such acquisitions had
occurred February 1, 1995. The pro forma information is not necessarily
indicative of the results that actually would have been achieved had such
acquisitions been consummated as of February 1, 1995 or that may be achieved
in the future. See Pro Forma Unaudited Financial Statements and the Notes
thereto.
(2) For all periods presented, the Company was an S corporation and generally
was not subject to corporate income taxes. The pro forma income tax
provision has been computed as if the Company were subject to corporate
income taxes for all periods presented based on the tax laws in effect
during the respective periods. See "S Corporation Distributions" and the
Combined Financial Statements and the Notes thereto.
(3) Adjusted to give effect to (i) the Central Texas Acquisition and the pending
East Texas and Washington Acquisitions and (ii) the deferred tax asset of
approximately $400,000 resulting from the termination of the Company's
status as an S corporation.
(4) Adjusted to give effect to the sale of shares of Class A Common
Stock offered hereby at an assumed initial offering price of $ per
share and the application of the net proceeds therefrom. See "S Corporation
Distributions," "Use of Proceeds," "Capitalization," Pro Forma Unaudited
Financial Statements and the Notes thereto, and Combined Financial
Statements and the Notes thereto.
(5) Includes interest bearing and non-interest bearing liabilities incurred in
connection with inventory financing. See the Combined Financial Statements
and the Notes thereto.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company owns and operates industrial and agricultural equipment stores
located in Arizona, California, Minnesota, North Dakota, South Dakota, and Texas
and has entered into agreements to acquire additional stores in Texas and
Washington. The Company sells, services, and rents industrial and agricultural
equipment to customers primarily operating in the construction and agricultural
industries, as well as to units of state, local, and federal government and
utility companies. The Company's major supplier of new equipment and parts is
Deere.
A significant portion of the Company's growth in recent years has been due
to the acquisition of several industrial and agricultural dealerships. The
results of operations of the following acquisitions have been included with the
Company's results of operations only for the periods specified:
- In February 1995, the Company purchased the assets and assumed certain
liabilities of a Deere industrial dealership in Southern California which
consisted of two full-service industrial stores located in San Diego and
Riverside, California with a Deere area of responsibility contiguous with
the Company's area of responsibility in Arizona, resulting in operating
efficiencies. The results of operations of the acquired business are
included in the Company's results of operations beginning in February
1995.
- Effective July 1, 1996, the Company completed the Central Texas
Acquisition, and acquired certain assets and assumed certain liabilities
including three full-service Deere industrial stores located in
Dallas-Fort Worth and Waco, Texas with a related Deere area of
responsibility. The purchase price was approximately $8.4 million, which
was financed through a short-term note, with an interest rate at the prime
rate (which was 8.25% as of July 31, 1996) due January 31, 1997, payable
to Ag Capital, which will be repaid out of the proceeds of this Offering.
See "Certain Relationships and Related Transactions." The acquisition was
accounted for under the purchase method of accounting and the results of
operations of the Central Texas stores are included in the Company's
results of operations beginning in July 1996.
The results of operations of the following pending acquisitions have not yet
been included in the Company's financial results:
- In August 1996, the Company agreed to purchase certain assets and assume
certain liabilities in connection with the Washington Acquisition,
including two Deere agricultural stores in Pasco and Sunnyside,
Washington. The purchase price for the net assets will be approximately
$2.7 million, and will be partially financed by a $1.0 million note
payable to the seller, with the remainder financed by a note payable to Ag
Capital, a portion of which will be repaid out of the proceeds of this
Offering. This acquisition is expected to be completed in October 1996 and
will be accounted for under the purchase method of accounting.
- In August 1996, the Company agreed to purchase certain assets and assume
certain liabilities in connection with the East Texas Acquisition,
including three full-service Deere industrial stores located in Longview,
Lufkin, and Mount Pleasant, Texas with the related area of responsibility.
The purchase price will be approximately $2.7 million and will be
partially financed by a $500,000 note payable to the seller, with the
remainder financed by a note payable to Ag Capital, a portion of which
will be repaid out of the proceeds of this Offering. See "Certain
Relationships and Related Transactions." Following this acquisition, the
Company will have an additional Deere area of responsibility in Texas
contiguous with the area acquired in Central Texas. This acquisition is
expected to be completed in December 1996 and will be accounted for under
the purchase method of accounting.
25
<PAGE>
For pro forma financial information regarding the potential effects of these
acquisitions, see the Pro Forma Unaudited Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
The Company generates its revenues from sales of new and used equipment
(wholegoods), sales of parts and service, and the rental of equipment. In
addition to sales of new and used equipment, wholegoods sales include equipment
purchased under rent-to-purchase agreements. Generally, under such agreements,
the customer is given a period of up to six months to exercise the option to
purchase the rented equipment and is allowed to apply a portion of the rental
payments to the purchase price. This equipment is included in the Company's
inventory until the option is exercised and the equipment is purchased. Rental
includes only rental income derived from the Company's dedicated rental fleet
and does not include rental payments made on rent-to-purchase equipment.
The Company's highest gross margins have historically been generated from
its parts and service revenues. One of the Company's operating strategies is to
increase the demand for parts and service by establishing, and then increasing,
the base of wholegoods held by its customers. Due to product warranty time
frames and usage patterns by customers, there generally is a time lag between
wholegoods sales and the generation of significant parts and service revenues
from such sales. As a result of this time lag, increases in parts and service
revenues do not necessarily coincide with increases in wholegoods sales. In
addition, due to differences in gross margins between wholegoods sales and parts
and service revenues, gross margin percentages may decline as the Company builds
wholegoods market share.
The Company generally experiences lower levels of total revenues during the
period from November through April, impacting the first and fourth quarters of
each fiscal year, due to the crop growing season and winter weather conditions
in the Midwest. Typically, farmers purchase agricultural equipment immediately
prior to planting or harvesting crops, which occurs during the Company's second
and third fiscal quarters. As a result, sales of agricultural equipment
generally are lower in the Company's first and fourth fiscal quarters. Winter
weather in the Midwest also limits construction and, therefore, also typically
results in lower sales of industrial equipment in the first and fourth fiscal
quarters.
The Company requires cash primarily for financing its inventory of
wholegoods and replacement parts, acquisitions of additional dealerships, and
capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operating activities,
floor plan financing, and borrowings under credit agreements with Deere, Deere
Credit Services, Inc. ("Deere Credit"), Ag Capital, and commercial banks. Floor
plan financing from Deere and Deere Credit represents the primary source of
financing for wholegoods inventories, particularly for equipment supplied by
Deere. All lenders receive a security interest in the inventory financed. Deere
and Deere Credit offer floor plan financing to Deere dealers for extended
periods and with varying interest-free periods, depending on the type of
equipment, to enable dealers to carry representative inventories of equipment
and to encourage the purchase of goods by dealers in advance of seasonal retail
demand. Down payments are not required and interest may not be charged for a
substantial part of the period for which inventories are financed. Variable
market rates of interest based on the prime rate are charged on balances
outstanding after any interest-free periods, which are currently six to eight
months for agricultural equipment and one to five months for industrial
equipment. Deere also provides financing to dealers on used equipment accepted
in trade and approved equipment from other manufacturers. See "Business--Floor
Plan Financing" and "Certain Relationships and Related Transactions."
The Company believes that it has generally benefitted from favorable
economic conditions during recent years, including, with respect to the
agricultural division, favorable grain prices which have resulted in a strong
farming economy, and with respect to its industrial division, favorable
construction markets. Price increases by suppliers of the Company's products
have not historically had a significant impact on the Company's results of
operations.
Prior to this Offering, the Company has been an S corporation and not
subject to tax on its net income. The Company's S election will terminate upon
consummation of this Offering. The pro forma
26
<PAGE>
provision for taxes and net income reflect the impact of the tax provision as if
the Company were subject to income taxes (at an assumed rate of 40%) for the
periods presented.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical
results of operations for fiscal 1994, 1995, 1996, and the six months ended July
31, 1995 and 1996, without giving effect to pro forma results of operations for
the California operations acquired in February 1995, the Central Texas
Acquisition, or the pending Washington and East Texas Acquisitions, except as
expressly indicated.
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS
JANUARY 31, ENDED JULY 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Wholegoods sales.................................... 74.0% 73.8% 73.4% 73.8% 76.0%
Parts and service................................... 26.0% 26.2% 26.4% 26.2% 23.2%
Rental.............................................. --% --% 0.2% --% 0.8%
--------- --------- --------- --------- ---------
Total revenues........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross profit.......................................... 19.2% 19.5% 19.1% 18.8% 18.1%
Selling, general, and administrative expense.......... 14.2% 13.4% 14.0% 13.5% 12.0%
--------- --------- --------- --------- ---------
Operating income...................................... 5.0% 6.1% 5.1% 5.4% 6.1%
Interest expense, net................................. 1.0% 0.7% 1.4% 1.4% 1.4%
Pro forma provision for taxes(1)...................... 1.5% 2.2% 1.5% 1.5% 1.9%
--------- --------- --------- --------- ---------
Pro forma net income(1)............................... 2.5% 3.2% 2.2% 2.5% 2.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Pro forma provision for taxes and pro forma net income reflect the impact of
the tax provision as if the Company were a C corporation subject to income
taxes during these periods.
SIX MONTHS ENDED JULY 31, 1996 COMPARED TO SIX MONTHS ENDED JULY 31, 1995
REVENUES
Revenues increased approximately $44.0 million, or 40.1%, from $109.7
million for the first six months of fiscal 1996 to $153.8 million for the first
six months of fiscal 1997. Industrial operations contributed approximately $28.8
million of this increase, with revenues increasing 43.7% to $94.7 million. The
increase in industrial revenues was due in part to a change in the discount
program offered by Deere on governmental sales. During fiscal 1996, Deere
significantly reduced the discounts it offered for sales to the government
sector. As a result, the Company's pricing on governmental sales was less
competitive and it lost market share and sales in fiscal 1996. In fiscal 1997,
Deere reversed the adjustments it had made to the discounts, resulting in the
Company being able to be more competitive and increase sales. Also adding to the
increase in industrial revenues was a substantial increase in market share and
an increase in product support, resulting from the continued implementation of
the Company's operating model. In addition, $2.7 million of the increase in
revenues from industrial operations resulted from the inclusion of one month of
operations of the Central Texas operations, the acquisition of which was
effective July 1, 1996. The May 1995 opening of an industrial store in Prescott,
Arizona, the addition of an undercarriage service facility at its industrial
store in Riverside, California, and the November 1995 addition of a dedicated
industrial equipment rental fleet in the Southwest region also contributed to
the increase in total revenues.
27
<PAGE>
Agricultural operations contributed the remaining increase in revenues of
approximately $15.3 million, with revenues increasing 34.9% to $59.1 million. In
general, the increase in total revenues was the result of some shift in business
from the fourth quarter of the previous fiscal year due to the cold weather and
farmer uncertainty about the U.S. farm program. In addition, the perception that
the outlook for the agricultural economy was the best it had been in years
generated increased activity in all segments of the Company's agricultural
operations.
Wholegoods sales increased approximately $36.0 million, or 44.5%, from $80.9
million for the first six months of fiscal 1996 to $116.9 million for the first
six months of fiscal 1997. Industrial operations contributed approximately $22.8
million of this increase, with sales increasing 48.3% to $70.0 million.
Agricultural operations contributed the remaining increase of approximately
$13.2 million, with sales increasing 39.2% to $46.9 million. The increase in
wholegoods sales for both the Industrial and Agricultural Divisions was due to
the factors discussed in the preceding paragraph. Wholegoods sales also
increased as a result of the Company's marketing strategy, which focuses on
increased market share, customer relationship training of its sales force, and
the utilization of software to track and manage sales calls. See
"Business--Sales and Marketing." Management also focused on increasing inventory
to provide stores with a wider selection of wholegoods inventory and to build
the base of equipment. To a lesser extent, wholegoods sales increased due to the
opening of three industrial stores and one month of sales from the Central Texas
operations.
Parts and service revenue increased approximately $6.9 million, or 22.9%,
from $28.8 million for the first six months of fiscal 1996 to $35.7 million for
the first six months of fiscal 1997 primarily as a result of the acquisitions
and the increase in the base of wholegoods owned by its customers. Parts and
service revenue did not grow at the same rate as wholegoods sales, partially due
to the time lag factor discussed above and partially due to service capacity
constraints, both in facilities and personnel. The Company has added, and
continues to add, new service bay facilities and service personnel in its stores
to expand its service capacity. The May 1995 opening of the undercarriage
service facility at the industrial store in Riverside, California contributed
approximately $400,000 of parts and service revenue in the first six months of
fiscal 1996 compared to $1.1 million in the first six months of fiscal 1997.
Rental revenue of $1.2 million was generated in the first six months of
fiscal 1997 as the result of the commencement of industrial equipment rental
operations in the Southwest region in November 1995.
GROSS PROFIT
Gross profit increased approximately $7.3 million, or 35.4%, from $20.6
million for the first six months of fiscal 1996 to $27.9 million for the first
six months of fiscal 1997. Gross profit as a percentage of total revenues
decreased from 18.8% for the first six months of fiscal 1996 to 18.1% for the
first six months of fiscal 1997. The primary cause of this decrease was a shift
in revenue mix between wholegoods sales and parts and service revenue, resulting
from wholegoods sales growth outpacing parts and services revenue growth as
discussed above. As noted above, the Company's highest gross margins are derived
from its parts and service revenue. Also adding to the decrease was a marketing
strategy designed to increase market share at the Southwest industrial stores by
competing more aggressively on price on selected wholegoods. The decline in
gross profit as a percentage of total revenues also was caused in part by a
change in the mix of the type of wholegoods sales, with a larger portion of
governmental sales in the first six months of fiscal 1997 as a result of a more
aggressive Deere governmental discount program. Wholegoods sold to the
government sector typically have lower gross margins.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expense as a percentage of total
revenues decreased from 13.5% for the first six months of fiscal 1996 to 12.0%
for the first six months of fiscal 1997, due primarily to relatively stable
fixed costs compared to a larger base of total revenues. Total selling, general,
and administrative expense increased approximately $3.7 million, from $14.8
million for the first six months of
28
<PAGE>
fiscal 1996 to $18.5 million for the first six months of fiscal 1997, primarily
due to increases in variable expenses, such as commissions and bonus incentives
incurred in connection with generating higher total revenues and net income.
INTEREST EXPENSE
Interest expense increased approximately $1.1 million, or 68.7%, from $1.6
million for the first six months of fiscal 1996 to $2.7 million for the first
six months of fiscal 1997. The increase was due primarily to the increased
levels of floor plan financing associated with higher inventory levels. An
increase in the prime rate, the financing of the industrial equipment rental
fleet discussed above, and a change in Deere floor plan payment terms for the
industrial operations, which shortened the interest-free period on certain
purchases of industrial equipment, also contributed to the increase.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was
consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income increased approximately $1.7 million, or 63.0%, from
$2.7 million for the first six months of fiscal 1996 to $4.4 million for the
first six months of fiscal 1997.
FISCAL YEAR ENDED JANUARY 31, 1996 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1995
REVENUES
Revenues increased approximately $39.7 million, or 21.6%, from $183.9
million for fiscal 1995 to $223.6 million for fiscal 1996. Industrial operations
contributed approximately $28.4 million of this increase with revenues
increasing 25.7% to $139.0 million. Approximately $16.9 million of the increase
in industrial revenues was due to the Company's February 1995 acquisition of the
California operations. Approximately $2.0 million of the industrial revenue
increase was due to the Prescott, Arizona store, which opened in May 1995.
Excluding the California and Prescott operations, same store industrial revenues
increased approximately $9.4 million, or 8.5%, from $110.6 million in fiscal
1995 to $120.0 million in fiscal 1996. The same store industrial revenues
increased at a lower rate than in prior years due in part to a change in the
discount program offered by Deere on sales to the government sector. During
fiscal 1996, Deere significantly reduced the discounts it offered on such sales.
As a result, the Company's pricing on governmental sales was less competitive
and it experienced reductions in market share and sales to the government
sector. The Company was able to replace a portion of these governmental sales
with other sales, but not to the extent necessary to achieve its expected growth
rate in same store sales. It should be noted that in fiscal 1997, Deere reversed
the adjustments it had made to the governmental program and increased the
discounts back to their historic levels. Also impacting total revenues in fiscal
1996 were weather factors in the Midwest. The winter of 1995/1996 was extremely
cold, with numerous record low temperatures set in both December 1995 and
January 1996. As a result, customers in the Midwest were not buying wholegoods
and equipment was not able to be moved to have normal servicing performed. To
the extent severe weather occurs, the Company's results of operations and
financial condition could be adversely affected.
Agricultural operations contributed the remaining increase in revenues of
approximately $11.3 million, with agricultural revenues increasing 15.4% to
$84.6 million. All of the increase in agricultural revenues was due to same
store sales increases, primarily as a result of the successful implementation of
the Company's strategy to increase its market share. The rate of increase in
same store sales for the agricultural division was not as high as prior years
due to the same weather factors that impacted industrial sales and farmer
uncertainty about the U.S. farm program being debated in Congress. During fiscal
1995 and 1996, all of the Company's agricultural stores were located in the
Midwest. Through the first three
29
<PAGE>
quarters of fiscal 1996, total agricultural revenues had increased 22.0% over
the same period of fiscal 1995. The cold weather in the fourth quarter of 1996
was the primary factor for a 10.5% decrease in revenues from the same quarter in
fiscal 1995.
Wholegoods sales increased approximately $28.3 million, or 20.9%, from
$135.7 million in fiscal 1995 to $164.0 million in fiscal 1996. Industrial
operations contributed approximately $17.8 million of this increase, with sales
increasing 21.8% to $99.4 million. Of this increase, $9.2 million was due to the
acquisition of the California operations, and $1.7 million was due to the
opening of the Prescott store. Excluding the California and Prescott operations,
same store sales of industrial wholegoods increased approximately $6.9 million,
or 8.5%, to $88.5 million. Agricultural operations contributed the remaining
increase in wholegoods sales of approximately $10.5 million, with sales
increasing 19.4% to $64.6 million. All of the increase in agricultural
wholegoods sales was due to same store sales increases. The Industrial Division
was affected by the Deere discount program change and the weather factors
discussed above, which slowed the rate of same store sales increases, while the
reduction in the rate of same store sales increases for the Agricultural
Division was due to the weather factors noted above. Wholegoods sales have
increased in recent years as a result of the Company's marketing strategy, which
focuses on increased market share, customer relationship training of its sales
force, and the utilization of software to track and manage sales calls. See
"Business--Sales and Marketing."
Parts and service revenue increased approximately $10.7 million, or 22.4%,
from $48.2 million in fiscal 1995 to $59.0 million in fiscal 1996. Approximately
$7.6 million of the increase was due to the acquisition of the California
operations and $292,000 was due to the newly-opened Prescott store. Excluding
the California and Prescott operations, same store parts and service revenue
increased approximately $2.9 million, or 6.0%, to $51.1 million in fiscal 1996.
Parts and service growth did not keep pace with the rates of increase in prior
years due in part to the weather factors discussed above. In addition, parts and
service revenue growth did not keep pace with the growth in wholegoods sales due
to service capacity constraints, both in facilities and personnel. The Company
has added, and continues to add, service bay facilities and personnel to its
stores to expand its service capacity.
The Company commenced rental operations in the fourth quarter of fiscal 1996
by implementing a fleet of industrial rental equipment in the Southwest region.
Rental revenue was $505,000 in fiscal 1996.
GROSS PROFIT
Gross profit increased approximately $6.9 million, or 19.3%, from $35.8
million in fiscal 1995 to $42.7 million in fiscal 1996. Gross profit as a
percentage of total revenues decreased slightly from 19.5% in fiscal 1995 to
19.1% in fiscal 1996. Lower gross margins resulted in large part from reduced
Deere governmental discounts on industrial equipment. In an effort to offset the
reduction in the volume of sales to the governmental sector, the Company pursued
an aggressive pricing policy with respect to other sales. In addition, the
Company had a marketing strategy designed to increase market share at
newly-acquired industrial stores by competing more aggressively on price for
selected wholegoods in those markets.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
As a percentage of total revenues, selling, general, and administrative
expense increased from 13.4% in fiscal 1995 to 14.0% in fiscal 1996. Total
selling, general, and administrative expense increased by approximately $6.7
million, or 27.2%, from fiscal 1995 to fiscal 1996. This increase was primarily
due to expenses incurred by the newly-acquired stores in California, which have
higher compensation and occupancy costs relative to the Company's other
industrial stores. Approximately $4.1 million of the increase was due to
expenses associated with the California and Prescott operations. Excluding these
operations, selling, general, and administrative expense increased approximately
$2.6 million, or 10.4%, primarily due to increases in variable expenses such as
commissions and incentive bonuses incurred in connection with generating higher
total revenues.
30
<PAGE>
INTEREST EXPENSE
Interest expense increased approximately $1.9 million, or 100.0%, from $1.9
million in fiscal 1995 to $3.8 million in fiscal 1996. Approximately $400,000 of
the increase was associated with inventory financing for the California and
Prescott operations. Approximately $75,000 of the increase was associated with
the financing of the Company's rental fleet. The remaining $1.4 million increase
was a result of increased levels of floor plan financing incurred as a result of
higher inventory levels, a change in Deere floor plan payment terms, which
shortened the interest-free period on certain purchases of industrial equipment,
and an increase in the weighted average interest rate on interest bearing floor
plan financing from 7.25% in fiscal 1995 to 8.83% in fiscal 1996.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was
consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income decreased by approximately $1.1 million, or 18.6%, from
$5.9 million in fiscal 1995 to $4.8 million in 1996.
FISCAL YEAR ENDED JANUARY 31, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1994
REVENUES
The results for fiscal 1995 exceeded management's expectations based on the
Company's historical trends. Revenues increased approximately $39.8 million, or
27.6%, from $144.1 million in fiscal 1994 to $183.9 million in fiscal 1995.
Industrial operations contributed approximately $23.8 million of this increase,
with total revenues increasing 27.5% to $110.5 million. Approximately $4.1
million of the increase in industrial revenues was due to a full year of revenue
from the industrial store located in Rapid City, South Dakota, which was
acquired in September 1993. Excluding the impact of the Rapid City location,
same store industrial sales increased 23.2% to $105.3 million. Sales increased
at virtually all locations, resulting from a generally favorable construction
market. Also contributing to the increase was a significant multiple unit sale.
Agricultural operations contributed the remaining increase of approximately
$16.0 million, with revenues increasing 27.9% to $73.4 million. All of the
agricultural revenue increase was due to same store sales increases. The
increase in same store agricultural revenues was largely due to extremely
favorable market and crop conditions. These conditions, combined with an
interest waiver program from Deere on used combines, generated significant
sales. In addition, two of the Company's agricultural stores had multiple unit
combine sales. The increase was also caused, to a lesser extent, by a
significant increase in sales at the Company's irrigation supply store in
response to an increase in the market demand for processed potatoes.
Wholegoods sales increased approximately $29.1 million, or 27.3%, from
$106.6 million in fiscal 1994 to $135.7 million in fiscal 1995. Industrial
operations contributed approximately $18.3 million of this increase, with sales
increasing 28.9% to $81.6 million. Approximately $2.8 million of the increase
was the result of a full year of wholegoods sales from the Rapid City
acquisition. The remaining increase of $15.5 million was due to same store sales
increases. Agricultural operations contributed the remaining increase of
approximately $10.8 million, with sales increasing 24.9% to $54.1 million. In
general, the increase in same store sales was due to the factors discussed
above. In addition, wholegoods sales increased as a result of a revised
marketing strategy initiated in March 1994, which focuses on increased market
share, customer relationship training of the Company's sales force, and the
utilization of software to track and manage sales calls. See "Business--Sales
and Marketing."
31
<PAGE>
Parts and service revenue increased approximately $10.7 million, or 28.5%,
from $37.5 million in fiscal 1994 to $48.2 million for fiscal 1995. This
increase was primarily due to the factors discussed above. An addition to the
undercarriage repair shop in Minneapolis, a new facility in St. Cloud, and the
acquisition of the Rapid City store also contributed to increased parts and
service revenue.
GROSS PROFIT
Gross profit increased approximately $8.1 million, or 29.3%, from $27.7
million in fiscal 1994 to $35.8 million for fiscal 1995, primarily due to the
increase in total revenues discussed above. Gross profit as a percentage of
total revenues increased slightly from 19.2% to 19.5% from fiscal 1994 to fiscal
1995. This increase was due largely to a shift in the mix of revenues in the
Industrial Division which experienced a higher growth rate in higher margin
parts and service revenue.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
As a percentage of total revenues, selling, general, and administrative
expense decreased from 14.2% in fiscal 1994 to 13.4% in fiscal 1995. This
decrease was a result of relatively stable fixed costs compared to a larger base
of total revenues. Total selling, general, and administrative expense increased
approximately $4.3 million, or 20.9%, from $20.6 million in fiscal 1994 to $24.9
million in fiscal 1995, primarily due to increases in variable expenses such as
commissions and bonus incentives incurred in connection with higher total
revenues and net income.
INTEREST EXPENSE
Interest expense increased approximately $225,000, or 13.5%, from $1.7
million in fiscal 1994 to $1.9 million in fiscal 1995. Higher interest expense
was the result of increased levels of floor plan financing incurred in
connection with higher inventory levels to support wholegoods sales growth.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was
consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income increased by approximately $2.3 million, or 63.9%, from
$3.5 million in fiscal 1994 to $5.9 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
wholegoods and repair parts, acquisitions of additional dealerships, and capital
expenditures. Historically, the Company has met these liquidity requirements
primarily through cash flow generated from operating activities, floor plan
financing, and borrowings under credit agreements with Deere, Deere Credit, Ag
Capital, and commercial banks. Floor plan financing from Deere and Deere Credit
represents the primary source of financing for wholegoods inventories,
particularly for equipment supplied by Deere. All lenders receive a security
interest in the inventory financed. Deere and Deere Credit offer floor plan
financing to Deere dealers for extended periods and with various interest-free
periods, depending on the type of equipment, to enable dealers to carry
representative inventories of equipment and to encourage the purchase of goods
by dealers in advance of seasonal retail demand. Down payments are not required
and interest may not be charged for a substantial part of the period for which
inventories are financed. Variable market rates of interest based on the prime
rate are charged on balances outstanding after any interest-free periods, which
are currently six to eight months for agricultural tractors and one to five
months for industrial equipment. Deere also provides financing to dealers on
used equipment accepted in trade and approved equipment
32
<PAGE>
from other manufacturers. See "Business--Floor Plan Financing" and "Certain
Relationships and Related Transactions."
The Company annually reviews the terms of its financing with its lenders,
including the interest rate. In fiscal 1994, 1995, and 1996, the average
interest rate under interest bearing floor plan financing was approximately
7.0%, 7.25%, and 8.85%, respectively. As of July 31, 1996, the Company had
outstanding floor plan debt of approximately $104.8 million, of which $57.7
million was then interest bearing, at an average annual rate of 8.25%.
During the first six months of fiscal 1997, operating activities provided
net cash of $3.7 million versus $1.4 million in the first six months of fiscal
1996. Net cash provided by operating activities in fiscal 1994, 1995, and 1996
was $2.8 million, $4.5 million, and $12.1 million, respectively. The increase in
fiscal 1996 was primarily attributable to increased levels of floor plan
payables.
Cash used for investing activities was approximately $9.1 million for the
first six months of fiscal 1997 versus $2.6 million in the first six months of
fiscal 1996. The increase was primarily due to the net assets acquired in the
Central Texas Acquisition. Cash used for investing activities in fiscal 1994,
1995, and 1996 was $600,000, $1.3 million, and $11.8 million, respectively. The
increase in fiscal 1996 was primarily related to the purchase of industrial
equipment for its rental operations in the Southwest and for the acquisition of
dealerships. Capital expenditures for these years were primarily attributable to
purchases of property and equipment.
Cash provided by financing activities amounted to $5.5 million for the first
six months of fiscal 1997 versus $900,000 for the first six months of fiscal
1996 and was primarily attributable to net proceeds from debt incurred by the
Company to acquire dealership assets. See "Certain Relationships and Related
Transactions." In fiscal 1994, 1995, and 1996, the Company utilized net cash for
financing activities of $2.2 million, $2.8 million, and $200,000, respectively.
The decrease in net cash utilized in fiscal 1996 reflects cash provided by an
increase in long-term debt of $5.9 million primarily to fund the purchase of the
fleet of industrial rental equipment for the Southwest.
The Company's capital expenditures for the last six months of fiscal 1997
are expected to approximate $1.7 million, relating primarily to construction of
additional service bays. In addition, approximately $13.8 million will be used
to fund the Central Texas, East Texas, and Washington Acquisitions. Upon
completion of the pending acquisitions, the Company anticipates that its floor
plan financing will increase by approximately $ . The Company
anticipates that cash from operations and borrowing capacity will be sufficient
to fund its planned capital expenditures for the remainder of fiscal 1997 and
fiscal 1998.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class
A Common Stock offered hereby (at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and offering expenses) are estimated to be approximately $41.2
million ($47.4 million if the Underwriters' over-allotment option is exercised
in full).
The Company plans to use a portion of the net proceeds in this Offering to
pay the purchase price and repay indebtedness incurred in connection with
recently completed or pending acquisitions, in the aggregate amount of
approximately $12.3 million, including (i) a promissory note in the amount of
$8.4 million, payable by the Company to Ag Capital, which bears interest at the
prime rate (8.25% as of September 30, 1996) and matures on January 31, 1997,
incurred in connection with the Central Texas Acquisition, (ii) a promissory
note in the amount of $1.7 million, payable by the Company to Ag Capital, which
will bear interest at the prime rate and mature January 31, 1997, incurred in
connection with the Washington Acquisition, and (iii) $2.2 million to complete
the East Texas Acquisition. See "Certain Relationships and Related
Transactions." The Company also plans to use a portion of the net proceeds of
this Offering to pay an aggregate distribution of approximately $15.0 million to
the existing stockholders of
33
<PAGE>
the Company, which represents a previously declared dividend to such
stockholders of substantially all of the previously undistributed, accumulated
net income of the Company as of January 31, 1996. See "S Corporation
Distributions."
The Company plans to use the balance of the net proceeds of approximately
$13.9 million ($20.1 million if the Underwriter's over-allotment option is
exercised in full) for general corporate purposes, including working capital and
potential acquisitions. Pending such uses, the balance of the net proceeds will
be used to reduce borrowings under the Company's lines of credit, including its
floor plan financing with Deere, which bears interest at the prime rate (8.25%
as of September 30, 1996).
INCOME TAXES
The Company has historically elected to be taxed as an S corporation for
income tax purposes, and the Company's existing stockholders have paid the
income taxes on the Company's taxable income directly. The Company made
distributions to its stockholders of $2.3 million, $3.8 million, and $4.3
million during fiscal 1994, 1995, and 1996, respectively, primarily in order to
provide the funds to the stockholders to pay such taxes.
As a result of the termination of the S corporation election, which will
occur simultaneously with the consummation of this Offering, the Company will be
required to record net deferred income tax assets of approximately $400,000,
which relate primarily to the timing differences between financial and income
tax reporting of certain items attributable to the periods in which the Company
has elected to be treated as an S corporation.
EFFECTS OF INFLATION
Inflation has not had a material impact upon operating results and the
Company does not expect it to have such an impact in the future. To date, in
those instances in which the Company has experienced cost increases, it has been
able to increase selling prices to offset such increases in cost. There can be
no assurance, however, that the Company's business will not be affected by
inflation or that it can continue to increase its selling prices to offset
increased costs and remain competitive.
SEASONALITY
The Company generally experiences a higher volume of wholegoods sales in the
second and third fiscal quarters of each fiscal year due to the crop growing
season and winter weather conditions in the Midwest. Typically, farmers purchase
agricultural equipment immediately prior to planting or harvesting crops, which
occurs during the Company's second and third quarter. As a result, sales of
agricultural equipment generally are lower in the first and fourth quarters.
Winter weather in the Midwest also limits construction to some degree and,
therefore, also typically results in lower sales of industrial equipment in the
first and fourth quarters. If the Company acquires operations in geographical
areas other than where it currently has operations, it may be affected by other
seasonal or equipment buying trends. See "Risk Factors--Effects of Downturn in
General Economic Conditions; Cyclicality, Seasonality, and Weather."
QUARTERLY FINANCIAL INFORMATION
The following table sets forth certain unaudited financial information for
each quarter during fiscal 1994, 1995, 1996, and the first two quarters of
fiscal 1997. The amounts shown are not necessarily
34
<PAGE>
comparable or indicative of actual trends, since these amounts reflect the
addition of stores during these periods.
<TABLE>
<CAPTION>
GROSS PRO FORMA NET
QUARTERS ENDED TOTAL REVENUES PROFIT OPERATING INCOME INCOME AFTER TAXES(1)
- ------------------------------------------- -------------- ----------- ----------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal 1994:
April 30, 1993........................... $ 35,224 $ 6,546 $ 1,880 $ 970
July 31, 1993............................ 38,331 7,204 2,659 1,232
October 31, 1993......................... 40,774 7,550 1,754 953
January 31, 1994......................... 29,783 6,443 873 345
Fiscal 1995:
April 30, 1994........................... 45,472 8,806 3,017 1,540
July 31, 1994............................ 49,732 9,768 3,632 2,026
October 31, 1994......................... 48,713 9,822 2,694 1,477
January 31, 1995......................... 39,993 7,403 1,563 845
Fiscal 1996:
April 30, 1995........................... 52,029 9,765 2,646 1,130
July 31, 1995............................ 57,718 10,863 3,122 1,619
October 31, 1995......................... 67,078 12,480 3,739 1,847
January 31, 1996......................... 46,732 9,610 1,556 245
Fiscal 1997:
April 30, 1996........................... 70,886 12,168 3,573 1,597
July 31, 1996............................ 82,887 15,764 5,836 2,758
</TABLE>
- ------------------------
(1) Assumes the Company was taxed as a C corporation for all periods presented.
35
<PAGE>
BUSINESS
GENERAL
Through its 35 stores, the Company owns and operates the largest networks of
Deere industrial stores and agricultural stores in the United States. The 24
industrial stores and 11 agricultural stores sell, rent, and service industrial
and agricultural equipment primarily supplied by Deere. The Company's revenues
have grown at a compound annual rate of 33% over the past five years, from $71.2
million in fiscal 1992 to $223.6 million in fiscal 1996 and on a pro forma basis
were $288.6 million in fiscal 1996.
The Company's stores are located in Arizona, California, Minnesota, North
Dakota, South Dakota, Texas, and Washington. The Company expects to continue to
expand its networks through future acquisitions, as the consolidation of Deere
equipment dealers continues to develop. The Company has acquired 16 stores in
the past five years, including 14 industrial stores and two agricultural stores.
The Company believes that its networks of industrial and agricultural stores
enable it to achieve benefits from increasing operational synergies.
The equipment and parts sold by the Company are supplied primarily by Deere,
which is a leading manufacturer and supplier of industrial and agricultural
equipment in the United States. Sales of new Deere equipment by the Company
accounted for approximately 72% of the Company's new equipment sales in fiscal
1996. No other supplier accounted for more than 7% of the Company's new
equipment sales in fiscal 1996. The Company expects that Deere products will
continue to account for the majority of its industrial and agricultural
equipment sales. The Company's stores also offer complementary equipment from
other suppliers, used equipment, new and used parts, equipment servicing,
equipment rental, and
other related products and services.
For the fiscal year ended January 31, 1996, the Company's revenues were
generated from the following areas of business:
<TABLE>
<S> <C>
New equipment sales.................................................. 51%
Used equipment sales................................................. 22%
Product support, parts, service...................................... 26%
Equipment rental income.............................................. 1%
</TABLE>
INDUSTRY OVERVIEW
INDUSTRIAL EQUIPMENT INDUSTRY. Management estimates that U.S. retail sales
of new industrial equipment in its target product market in calendar 1995
totaled approximately $7.4 billion. Deere is one of the leading suppliers of
industrial equipment in the United States for light to medium applications
offering a broad array of products. Currently, Deere has approximately 110
industrial dealers which operate approximately 355 stores in the United States.
Each dealer within the Deere industrial system is assigned specific geographic
areas of responsibility within which it has the right to sell new Deere
industrial products. Over the last five years, while the number of Deere
industrial stores has remained constant, the number of Deere industrial dealers
has declined by more than 30%. This dealer consolidation is being driven, in
part, by an increasing need for capital, owners' concerns about succession, and
Deere's support for consolidation of its dealers. The Company expects to benefit
from this consolidation trend by continuing its strategic acquisition of Deere
industrial dealerships.
AGRICULTURAL EQUIPMENT INDUSTRY. Management estimates that U.S. retail
sales of new agricultural equipment in its target product market in calendar
1995 totaled approximately $10.1 billion. Deere is the leading supplier of
agricultural equipment in the United States. Within the Deere agricultural
system, dealers are not assigned exclusive territories, but are given authorized
store locations. Currently, Deere has approximately 1,275 agricultural dealers
which operate approximately 1,545 stores. The Company believes that agricultural
dealerships also face an increasing need for capital, owners' concerns about
succession,
36
<PAGE>
and Deere support for consolidation and, as a result, that a consolidation of
agricultural dealers will occur. The Company expects that it will have
increasing opportunities to complete strategic acquisitions of Deere
agricultural dealerships as this consolidation trend develops.
GROWTH STRATEGY
In order to continue to expand its market leadership position and further
develop its industrial and agricultural equipment operations, the Company has
developed its growth strategy, the key elements of which are:
INCREASING MARKET SHARE. The Company seeks to increase its market share by
enhancing customer service and generating customer loyalty. To accomplish this,
the Company offers a broad range of products, utilizes aggressive marketing
programs, trains its employees to have a strong customer orientation, employs
state-of-the-art service equipment, and maintains a computerized real-time
inventory system. Each industrial and agricultural store offers a broad array of
its respective Deere equipment lines, and also sells complementary products from
other suppliers, based on the nature of each store's customer base.
As the installed base of equipment expands with the Company's increasing
market share, the Company has the opportunity to generate additional parts and
service business. The Company believes that a customer's experience with the
parts and service departments and other value-added services can positively
influence each customer's overall satisfaction. Parts and service currently
account for approximately 26% of the Company's total revenues but have
significantly higher profit margins than wholegoods sales.
The Company also has diversified its business into complementary fields to
serve its customers' needs, expand its customer base, and enhance its revenues
by developing its industrial rental fleet, offering undercarriage service at
strategic locations, and selling irrigation equipment at one store.
PURSUING ADDITIONAL ACQUISITIONS. Acquisitions have been and will continue
to be an important element of the Company's growth strategy, particularly given
the consolidation trends among industrial and agricultural equipment dealers.
Over the past five years, the Company has acquired 14 industrial stores and two
agricultural stores. Due to the Company's leadership position in the industry
and its track record in completing and integrating acquisitions, the Company
believes that attractive acquisition candidates will continue to become
available to the Company.
The Company believes that its management team has substantial experience in
evaluating potential acquisition candidates and determining whether a particular
dealership can be successfully integrated into the Company's existing
operations. Upon consummation of each acquisition, the Company integrates the
dealership into its industrial or agricultural operations by implementing the
Company's operating model and seeks to enhance the acquired dealership's
performance within its target market. Integration of an acquisition is completed
generally within the first six to 12 months although it can take several years
before the benefits of the Company's operating model, networks, strategies, and
systems are fully realized. The consent of Deere is required for the acquisition
of any Deere dealership. Accordingly, the Company will need to obtain Deere's
consent before being able to complete any future acquisitions it may negotiate.
See "Risk Factors--Risks Associated With Expansion."
IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven
operating model designed to improve the performance and profitability of each of
its stores. Components of this operating model include (i) pursuing aggressive
marketing programs, (ii) allowing store employees to focus on customers by
managing administrative functions, training, and purchasing at the corporate
level, (iii) providing a full complement of parts and state-of-the-art service
functions, including a computerized real-time inventory system and quick
response, on-site repair service, (iv) motivating store level management in
accordance with corporate goals, and (v) focusing on cost structures at the
store level.
37
<PAGE>
The Company implements its operating model in a variety of areas. For
example, the Company is proactive in attracting new customers by sending
targeted direct mailings, hosting open houses and service clinics, and
participating in trade shows. Additionally, the Company centralizes certain
functions such as accounting, purchasing, and employee recruitment, allowing its
store managers and personnel more time to focus on making sales and providing
product support to customers.
CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the Company's
strategy has been to expand its networks of industrial and agricultural stores
into geographic areas that have a large base of construction or agricultural
activity and that provide the Company with opportunities to continue to develop
its store networks. The Company believes that its business diversification into
both industrial and agricultural store operations has significantly increased
its customer base, while also mitigating the effects of industry-specific
economic cycles. Similarly, the Company's geographic diversification into
regions outside the Midwest helps to diminish the effects of seasonality, as
well as local and regional economic fluctuations. Typically, other Deere dealers
operate only industrial or agricultural dealerships, with a limited number of
stores concentrated in a specific geographic region. Based on information
published by Deere, the Company believes the average U.S. Deere industrial
dealer has less than four stores, as compared to the Company's 24 industrial
stores, and the average U.S. Deere agricultural dealer operates a single store
as compared to the Company's 11 agricultural stores.
RECENT AND PENDING ACQUISITIONS
The Company recently has acquired or entered into agreements to acquire six
industrial stores and two agricultural stores in calendar 1996. These
acquisitions extend the Company's networks into Texas and Washington, which the
Company believes will provide platforms for future growth.
Effective as of July 1, 1996, the Company completed the Central Texas
Acquisition, pursuant to which it acquired an industrial dealership with three
industrial stores located in Dallas-Fort Worth, and Waco, Texas. The acquisition
gives the Company a market presence in Texas and the Company now has a Deere
area of responsibility covering 35 counties. The purchase price for the net
assets acquired was approximately $8.4 million, which was financed by Ag
Capital. See "Use of Proceeds," "Certain Relationship and Related Transactions,"
and Note 13 to the Combined Financial Statements.
In August 1996, the Company entered into an agreement for the East Texas
Acquisition, consisting of a Deere industrial dealership with three stores
located in Longview, Lufkin, and Mount Pleasant, Texas. The Deere area of
responsibility for these stores covers 39 counties, and is contiguous with the
Company's Central Texas area of responsibility. The purchase price for the net
assets will be approximately $2.7 million, net of $9.1 million of liabilities to
be assumed. Approximately $500,000 of the purchase price will be financed by a
note payable to the seller, with the balance to be paid using a portion of the
net proceeds from this Offering. The transaction is expected to be completed in
December 1996. See "Use of Proceeds," "Certain Relationships and Related
Transactions," and Note 13 to the Combined Financial Statements.
The Company entered into an agreement for the Washington Acquisition in
August 1996, consisting of a Deere agricultural dealership with two stores
located in Pasco and Sunnyside, Washington. The purchase price for the net
assets will be approximately $2.7 million, net of $6.0 million of liabilities to
be assumed. Approximately $1.0 million of the purchase price will be financed by
a note payable to the seller, with the balance to be financed by a short-term
note payable to Ag Capital, which will be repaid using a portion of the net
proceeds from this Offering. The Company also may be obligated to pay additional
consideration of up to $750,000 in the event certain performance criteria are
met over a three-year period following completion of the acquisition. The
acquisition is expected to be completed in October 1996. See "Use of Proceeds,"
"Certain Relationships and Related Transactions," and Note 13 to the Combined
Financial Statements.
38
<PAGE>
INDUSTRIAL DIVISION
The Company is the largest Deere industrial dealer in the United States both
in number of stores and total revenues and accounted for approximately 6% of
Deere's United States industrial equipment sales in calendar 1995. The Company
owns and operates 24 industrial stores located in large metropolitan areas in
Arizona, Southern California, Minnesota, North Dakota, South Dakota, and Texas.
The total revenues of the Industrial Division have increased from $30.5 million
in fiscal 1992 to $139.0 million in fiscal 1996, representing a compound annual
growth rate of 46%. The historic growth of the Industrial Division is the result
of same store sales increases, which have averaged 21% since fiscal 1992, and
the acquisition of 14 stores over the same period. The Company began its
industrial operations in 1989 by acquiring a Deere industrial dealership with
stores located in Bismarck, Fargo, Grand Forks, and Minot, North Dakota.
Customers of the Company include contractors, for both residential and
commercial construction, utility companies, and federal, state, and local
government agencies. The Industrial Division has a diverse customer base and no
customer represented more than 5% of the Division's sales. The Industrial
Division provides a full line of equipment for light to medium size applications
and related product support to its customers. Its primary products include John
Deere backhoe loaders, hydraulic excavators, crawler dozers, and four-wheel
drive loaders. While the sale of new Deere industrial equipment is the main
focus, the Company's industrial stores also offer complementary equipment from
other suppliers, as well as used equipment taken as trade-ins.
The industrial stores are located in areas with significant construction
activity, including Dallas-Fort Worth, southern Los Angeles, Minneapolis-St.
Paul, Phoenix, and San Diego. A representative industrial store is 20,000 to
30,000 square feet in size and is located on a six-acre lot. Each industrial
store displays a broad array of new and used equipment and has a series of
fully-equipped service bays to provide on-site service and maintenance of
industrial equipment. The Company believes it has a competitive advantage over
other industrial dealers given its ability to draw on its network of stores for
equipment and parts and the economies of scale inherent in its centralized
administrative, purchasing, and inventory management functions. The Company
attributes the success of its Industrial Division to its continuing
implementation of its operating model.
Deere has established an Industrial Mark of Excellence Program to recognize
its industrial dealers which meet certain criteria, including targeted sales
growth, financial performance, customer satisfaction, and product support. In
calendar 1995, approximately 32% of the Deere industrial dealers achieved Mark
of Excellence status. The Industrial Division achieved Mark of Excellence status
for calendar 1995 for both its Midwest and Southwest areas of responsibility,
and has achieved such status for its operations each year since 1989.
The Company's industrial stores are located and were acquired or opened as
described below:
<TABLE>
<CAPTION>
LOCATION CALENDAR YEAR ACQUIRED/OPENED
- ----------------------------------------------------------- -----------------------------------
<S> <C> <C>
MIDWEST:
*Bismarck, ND.............................................. 1989 Acquired
Minot, ND................................................. 1989 Acquired
Fargo, ND................................................. 1989 Acquired
Grand Forks, ND........................................... 1989 Acquired
Minneapolis, MN........................................... 1990 Acquired
Rochester, MN............................................. 1990 Acquired
St. Cloud, MN............................................. 1990 Acquired
Mankato, MN............................................... 1992 Acquired
Sioux Falls, SD........................................... 1992 Acquired
*Rapid City, SD............................................ 1993 Acquired
Marshall, MN.............................................. 1996 Opened
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
LOCATION CALENDAR YEAR ACQUIRED/OPENED
- ----------------------------------------------------------- -----------------------------------
<S> <C> <C>
SOUTHWEST:
Flagstaff, AZ............................................. 1992 Acquired
Phoenix, AZ............................................... 1992 Acquired
Tucson, AZ................................................ 1992 Acquired
Prescott, AZ.............................................. 1995 Opened
Riverside, CA............................................. 1995 Acquired
San Diego, CA............................................. 1995 Acquired
Brawley, CA............................................... 1996 Opened
SOUTH:
Fort Worth, TX............................................ 1996 Acquired
Irving, TX................................................ 1996 Acquired
Waco, TX.................................................. 1996 Acquired
Longview, TX.............................................. 1996 To be acquired
Lufkin, TX................................................ 1996 To be acquired
Mount Pleasant, TX........................................ 1996 To be acquired
</TABLE>
- ------------------------
* Agricultural equipment also sold at this location.
AGRICULTURAL DIVISION
The Company is the largest Deere agricultural dealer in the United States
both in number of stores and total revenues and accounted for approximately 1%
of Deere's United States agricultural equipment sales in calendar 1995. The
revenues of the Agricultural Division increased from $40.7 million in fiscal
1992 to $84.6 million in fiscal 1996, representing a compound annual growth rate
of 20%. The historic growth of the Agricultural Division is primarily due to
same store sales growth resulting from the Company's implementation of
aggressive sales programs to build market share. The Company began its
agricultural operations in 1968, by acquiring a Deere agricultural store located
in Casselton, North Dakota. The Company owns and operates 11 agricultural stores
located in Minnesota, North Dakota, South Dakota, and Washington.
The Company's agricultural stores are full-service suppliers to farmers,
offering a broad range of farm equipment and related products. The Agricultural
Division sold equipment, parts, or service to over 32,000 customers in fiscal
1996 and no customer represented more than 7% of the Division's sales. The
Company's customers primarily farm corn, soybeans, wheat, sugar beets, and
potatoes. As a result of the customer mix and Deere's product offering, the core
products of the Agricultural Division include combines, tractors, planting, and
tillage equipment. The Company's agricultural stores also carry other harvesting
and crop handling machinery, as well as lawn and grounds care equipment. The
sale of new Deere agricultural equipment is the primary focus of the Company's
agricultural equipment sales and accounts for a majority of the Division's new
equipment sales. A wide variety of additional agricultural equipment lines,
which complement the Deere products, are also offered according to local market
demand. The agricultural stores also sell used equipment, generally acquired as
trade-ins. The Company's store in Wadena, Minnesota sells irrigation equipment
supplied by Valmont Industries Inc. and vegetable storage ventilation equipment.
The agricultural stores are located in areas with significant concentrations
of farmers and typically serve customers within a 25 to 50 mile radius. A
representative agricultural store is 20,000 to 30,000 square feet in size and
sits on a six-acre lot. Each store displays a broad array of new and used
equipment and has a series of fully-equipped service bays to provide on-site
service and maintenance of agricultural equipment. The Company believes it has
an advantage over other agricultural dealers given its ability to draw on its
network of agricultural stores for equipment and parts and the economies of
scale inherent in its centralized administrative, purchasing, and inventory
management functions.
40
<PAGE>
Deere has established the John Deere Signature Award Program to recognize
its agricultural dealers which meet certain criteria, including targeted sales
growth, customer satisfaction, and dealer image. For calendar year 1995,
approximately 36% of the Deere U.S. agricultural dealers were awarded Signature
status in at least one category, and 17% achieved Signature status in all
categories. Eight of the Company's Deere agricultural equipment stores were
awarded Signature status in calendar year 1995, including four stores that
achieved Signature status in all categories.
The Company's agricultural stores are located and were acquired or opened as
follows:
<TABLE>
<CAPTION>
LOCATION CALENDAR YEAR ACQUIRED/OPENED
- -------------------------------------------------------------- ------------------------------
<S> <C> <C>
Casselton, ND................................................. 1968 Acquired
Lisbon, ND.................................................... 1976 Opened
Breckenridge, MN.............................................. 1983 Acquired
Kindred, ND................................................... 1986 Opened
Barnesville, MN............................................... 1987 Acquired
Fargo, ND..................................................... 1987 Acquired
Washburn, ND.................................................. 1989 Acquired
*Aberdeen, SD................................................. 1990 Acquired
Wadena, MN.................................................... 1992 Opened
Pasco, WA..................................................... 1996 To be acquired
Sunnyside, WA................................................. 1996 To be acquired
</TABLE>
- ------------------------
* Industrial equipment also is sold at this location.
PARTS AND SERVICE
The Company's industrial and agricultural stores offer a broad range of
replacement parts and fully-equipped service and repair facilities for their
respective product lines. The Company believes that product support through
parts and service will be increasingly important to its ability to attract and
retain customers for both its industrial and agricultural equipment operations.
As of August 31, 1996, 105 of the Company's employees were employed in its parts
business and 337 were employed in its service business.
Each industrial and agricultural equipment store includes service bays
staffed by highly trained service technicians. Technicians are also available to
make on-site repairs of equipment that cannot be brought in for service. The
Company's service technicians receive training from Deere and certain other
suppliers, as well as additional on-site training conducted by the Company. The
industrial stores located in Minneapolis, Minnesota and Riverside, California
also operate full-service undercarriage shops for all makes and sizes of crawler
equipment. The Company recently opened an undercarriage shop at one of its
Dallas-Fort Worth industrial stores.
As part of its product support efforts, the Company provides proactive and
comprehensive customer service by maintaining service histories for each piece
of equipment owned by its customers, having longer service hours in times of
peak service usage, providing on-site repair service at customer locations,
scheduling off-season maintenance activities with customers, notifying customers
of periodic service requirements, and providing training programs to customers
to better educate them as to maintenance requirements, as well as teaching
preventive maintenance that customers can perform themselves. At the time
equipment is purchased, the Company also offers customers the option of
purchasing guaranteed maintenance contracts. The Company believes that these
product support services help attract customers, develop and strengthen existing
customer relationships, and promote customer loyalty.
41
<PAGE>
RENTAL FLEET OPERATIONS
The Company maintains a rental fleet of industrial equipment, primarily in
its Arizona and Southern California operations. The Company rents the industrial
equipment to customers on a short-term basis, generally for a specified number
of days or weeks, at competitive rates. The Company believes that its rental
operations will continue to benefit from the trend among businesses to outsource
operations, including equipment ownership, in order to minimize their capital
investment in equipment as well as reducing or eliminating the down-time,
maintenance, repair, and storage costs associated with equipment ownership. Used
rental equipment is then sold by the Company, generally after 18 to 24 months of
service. The Company believes that the rental business will be an area of growth
as it expands its operations in Arizona and California, as well as in its
recently acquired Dallas-Fort Worth operations. The Company's network of
industrial stores support the sale of the used equipment retired from the rental
fleet through the ability to move used equipment to various geographic regions
based on market demand, the access to an expanded customer base, and trained
personnel to service the used equipment to enhance its resale value.
ASSET MANAGEMENT
In order to maximize asset productivity, the Company maintains a complete
database on sales and inventory of parts and equipment. The Company has a
sophisticated, centralized real-time inventory control system. This system
enables each store to access the available inventory of the Company's other
stores before ordering additional parts or equipment from the supplier. As a
result, the Company minimizes its investment in inventory while still
effectively and promptly satisfying its customers' parts needs. Using this
system, the Company also monitors inventory levels and mix at each store and
makes adjustments as needed in accordance with its operating plan. The Company's
management information system and database also are used to monitor market
conditions, sales information, and customer demand, as well as to assess product
merchandising strategies. The Company has begun to use the Internet for direct
sales of parts to a growing number of its retail customers. The Company's parts
business is also supported by a network established by Deere which connects each
industrial and agricultural store to Deere's warehouses.
STORE OPERATIONS
The Company believes that management of its stores at the individual store
level is crucial to the success of its overall operations. Each store has its
own manager, who reports directly to one of the four Senior Vice Presidents. The
Company's store managers on average have more than ten years of experience in
industrial or agricultural sales and more than five years of experience as a
store manager. Each store also typically is staffed by a parts manager and
service manager. The Company has a bonus plan for its store managers which
rewards managers who demonstrate strong performance based on sales growth, net
income, and return on assets. See "Management--Cash Bonus Incentive Plan." Sales
personnel are compensated and evaluated on their success rate in obtaining
sales, their systematic contacting of potential customers, and their advance
awareness of potential sales in their area of responsibility. The Company also
has recently adopted the Incentive Plan, which will be used to provide
stock-based incentive compensation to the store managers. See "Management--1996
Stock Incentive Plan." Under the Company's operating model, decision-making for
customer-related issues is decentralized, with each store manager responsible
for such matters as the type of equipment to stock, equipment pricing, customer
credit approvals, staffing levels, and customer satisfaction.
MANAGEMENT STRUCTURE
Management of the day-to-day operations of the Company's industrial and
agricultural networks is coordinated by the Company's four Senior Vice
Presidents of Operations, including monitoring the Company's effectiveness and
actual day-to-day performance in areas such as annual budgets, inventory
42
<PAGE>
forecasting, and marketing efforts. Historically, each Division had one Senior
Vice President. As the Company has expanded through its recent and pending
acquisitions, the Company has appointed two Senior Vice Presidents for its
Industrial Division and two Senior Vice Presidents for its Agricultural
Division. Responsibility for stores and operations within each Division is
assigned based on the geographical locations of stores. The Company works to
maintain open communication systems among the stores to identify and pursue
potential areas of growth, and to enhance the Company's public image.
The Company maintains a small corporate staff at its headquarters. The
corporate office handles corporate planning, financial reporting and analysis,
execution of the Company's business strategy, and other centralized functions
for the Company's overall operations. The corporate office focuses on functions
that are not directly related to interactions with customers such as accounting
systems, training, purchasing, internal communication systems, facilities
management, employee recruitment, benefit plan management, and Company-wide
standard policies and procedures.
SALES AND MARKETING
The Company has developed and implemented a comprehensive marketing program.
Action plans are developed for each store and monitored on a regular basis.
Centralized marketing efforts include setting forecasts, developing marketing
strategies, establishing market share goals, initiating public relations, and
choosing advertising mediums to be used. Each individual store is responsible
for its own targeted marketing program for its particular customer base.
The Company is highly proactive with existing and potential customers in
both its industrial and agricultural operations. The Company attempts to
increase customer awareness of its products and services through its targeted
direct mailings, advertisements in trade journals, and participation in trade
shows. Open houses, service clinics, and seminars on a variety of topics such as
agri-business, servicing of industrial equipment, and preventive maintenance are
used to build and maintain the Company's customer base. In addition to its own
marketing efforts, the Company actively participates in the advertising and
promotional programs of Deere and other suppliers. The Company also participates
in cooperatively funded programs with suppliers, including advertising in trade
journals, participating in trade shows sponsored by such suppliers, and
developing point-of-purchase in-store displays on various equipment and parts.
Building strong name recognition throughout its target markets is an
important part of the Company's marketing program. Accordingly, the Company has
implemented programs to continually enhance recognition of the Company's
corporate name and logomark through consistent design elements in its signage,
facilities, vehicle identification program, merchandising and point-of-purchase
programs, and employee uniform and clothing standards.
Product support also is an important part of the Company's marketing
program. The Company believes that product support plays a key role in
establishing and maintaining solid customer relationships. For both its
industrial and agricultural operations, the Company promotes its ability to
support both the products it sells and products sold by others. The parts and
service departments are coordinated and operated as one function, providing a
cooperative effort in providing solutions for the customer. To increase its
knowledge of its existing and potential customers, the Company uses a
sophisticated computerized database to track each customer, identify in advance
potential purchases of industrial and agricultural equipment, and maintain a
comprehensive record as to equipment purchases, anticipated equipment needs, and
individual customer preferences. The Company also conducts training programs for
its store managers and sales personnel on sales techniques and methods for
building stronger customer relationships.
43
<PAGE>
DEALERSHIP AGREEMENTS
DEERE INDUSTRIAL DEALER AGREEMENTS. The Company has entered into agreements
with Deere which authorize the Company to act as a dealer of Deere construction,
utility, and forestry equipment (the "Industrial Dealer Agreements"). The
Company's areas of responsibility for the sale of Deere industrial equipment
are: (i) in the Midwest: almost all of Minnesota, North Dakota, and South
Dakota, and small portions of Iowa and Wyoming; (ii) in the Southwest: Arizona
and part of Southern California; and (iii) in the South: with the East Texas
Acquisition, the Northeast quadrant of Texas, including the Dallas-Fort Worth
and Waco metropolitan areas.
Pursuant to the Industrial Dealer Agreements, the Company is required, among
other things, to maintain suitable facilities, to provide competent management,
to actively promote the sale of the equipment covered by the agreements in the
designated areas of responsibility, to fulfill the warranty obligations of
Deere, to maintain adequate inventory in proportion to the sales potential in
each area of responsibility, to provide service and maintain sufficient parts
inventory to service the needs of its customers, to maintain adequate working
capital, and to maintain stores only in authorized locations. Deere is obligated
to make available to the Company any finance plans, lease plans, floor plans,
parts return programs, sales or incentive programs or similar plans or programs
it offers to other dealers. Deere also provides the Company with promotional
items and marketing materials prepared by Deere for its dealers. The Industrial
Dealer Agreements also entitle the Company to use John Deere trademarks and
tradenames, with certain restrictions. For a description of the rights of Deere
to terminate these dealer agreements, see "Risk Factors--Deere Termination
Rights."
DEERE AGRICULTURAL DEALER AGREEMENTS. The Company has entered into
non-exclusive dealership agreements with Deere for each of its agricultural
stores, which authorize the Company to act as a dealer in Deere agricultural
equipment (the "Agricultural Dealer Agreements"). The Agricultural Dealer
Agreements establish the Company's specific authorized store locations. The
terms of the Agricultural Dealer Agreements are substantially the same as the
Industrial Dealer Agreements. All of the agricultural stores also offer John
Deere lawn and garden equipment, for which the Company has entered into
non-exclusive Lawn and Garden Dealer Agreements, containing substantially the
same terms as the Agricultural Dealer Agreements. For a description of the
rights of Deere to terminate these dealer agreements, see "Risk Factors--Deere
Termination Rights."
DEERE DEALERSHIP AGREEMENTS--OTHER PROVISIONS. The Deere Agreement also
provides that the Company cannot engage in discussions to acquire other Deere
dealerships without Deere's prior written consent, which Deere may withhold in
its sole discretion. In addition, Deere has the right to have input into the
selection of Company's management personnel, including store managers. The prior
consent of Deere is required for the opening of any store within the Company's
designated areas of responsibility and for the acquisition of any other Deere
dealership. There can be no assurance that any such consent will be given by
Deere. In addition, the Company is prohibited from making acquisitions,
initiating new business activity, paying dividends, repurchasing its capital
stock, or making any other distributions to stockholders if the Company's equity
to assets ratio is below 30%, as calculated by Deere under the Deere Agreement,
or if such ratio would fall below 30% as a result of such action. The Company
believes its equity-to-assets ratio at the time of consummation of this Offering
and at the end of fiscal 1997 will be at least 30%.
The dealer appointments are not exclusive. Deere could appoint other dealers
in close proximity to the Company's existing stores. The areas of responsibility
assigned to the Company's industrial dealerships can be reduced by Deere upon
120 days prior written notice. In addition, the dealer agreements can be amended
at any time without the Company's consent, so long as the same amendment is made
to the dealer agreements of all other Deere dealers. Deere also has the right to
sell directly to federal, state, or local governments, as well as national
accounts. To the extent Deere appoints other dealers in the Company's markets,
reduces the areas of responsibility relating to the Company's industrial stores,
or
44
<PAGE>
amends the dealer agreements, the Company's results of operations and financial
condition could be adversely affected.
OTHER MANUFACTURERS. In addition to Deere, the Company is an authorized
dealer at various stores for suppliers of other equipment. The terms of such
arrangements vary, but most of the dealership agreements contain termination
provisions allowing the supplier to terminate the agreement after a specified
notice period (usually 180 days) upon a change of control, and in the event of
Ronald D. Offutt's death.
FLOOR PLAN FINANCING
Having adequate wholegoods and parts inventories at each of the Company's
industrial and agricultural equipment stores is important to meeting its
customer needs and to its sales. Accordingly, the Company attempts to maintain
at each store, or have readily available at other stores in its industrial and
agricultural equipment networks, sufficient inventory to satisfy anticipated
customer needs. Inventory levels fluctuate throughout the year and tend to
increase before the primary sales seasons for agricultural equipment. The cost
of financing its inventory also is an important factor affecting the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DEERE. Deere and Deere Credit offer floor plan financing to Deere dealers
for extended periods, to enable dealers to carry representative inventories of
equipment and to encourage the purchase of goods by dealers in advance of
seasonal retail demand.
Deere charges variable market rates of interest at or over the prime rate on
balances outstanding after any interest-free periods and retains a security
interest in the inventories, which it inspects periodically. The interest-free
periods, which Deere changes periodically, are currently six to eight months for
agricultural equipment, one to five months for industrial equipment, and five to
24 months for most other equipment. Deere also provides financing for used
equipment accepted in trade, repossessed equipment, and approved equipment from
other suppliers, and receives a security interest in such equipment.
The Company has a line of credit for $50.0 million with Deere Credit. After
the interest-free period, the Company generally shifts its financing to Deere
Credit to obtain a lower interest rate. The rate charged by Deere Credit is at
the prime rate, which as of July 31, 1996, was 8.25%.
OTHER SUPPLIERS. For equipment from suppliers other than Deere, the Company
primarily finances its floor inventory through its line of credit at Ag Capital.
Financing also may be available through floor plan financing programs provided
by the suppliers, which may be financed by such suppliers themselves or through
third party lenders, depending on which option provides the Company with the
most favorable terms. The interest rate on the Ag Capital line of credit is the
prime rate, which, as of July 31, 1996 was 8.25%. See "Certain Relationships and
Related Transactions."
CUSTOMER FINANCING OPTIONS
Financing options for customer purchases support the sales activities of the
Company. The primary financing for purchases by the Company's customers are
through programs offered by Deere and Ag Capital.
DEERE. Deere's credit subsidiaries provide and administer financing for
retail purchases and leases of new and used equipment, primarily through Deere
Capital. Deere Capital retains a security interest in the equipment financed. A
portion of the customer financing provided by Deere is recourse to the Company.
Deere retains a reserve for amounts that the Company may be obligated to pay
Deere, by retaining 1% of the face amount of each contract financed until the
reserve reaches 3% of the total dollar amount of contracts outstanding. In the
event a customer defaults in paying Deere and there is a deficiency in the
amount owed to Deere, the Company has the option of paying the amount due under
its recourse obligations or using a portion of its reserve. The Company's
liability is capped at the amount of the reserve, which, as of July 31, 1996,
was $817,000. See Note 9 of the Combined Financial Statements. The Company's
historical losses in connection with this contingent recourse liability have not
been material.
45
<PAGE>
AG CAPITAL AND OTHERS. Ag Capital, a cooperative lending institution, also
provides financing to the Company's customers. Some of the financing provided by
Ag Capital to its customers also is recourse to the Company. This contingent
liability is capped at an amount equal to 10% of the amount of the aggregate
outstanding contracts, which contingent liability was approximately $3.0 million
as of July 31, 1996. Another Offutt Entity, Farmers Equipment Rental, also has
provided financing to customers for which the Company has some contingent
recourse liability, which contingent liability was approximately $1.1 million as
of July 31, 1996. This contingent liability also is capped at an amount equal to
10% of the amount of the aggregate outstanding contracts. See "Certain
Relationships and Related Transactions" and Note 9 to the Combined Financial
Statements.
REPURCHASE CONTRACTS. The Company enters into repurchase contracts with
certain of its customers, primarily its governmental customers, pursuant to
which the Company, at the request of the customer, may be required to repurchase
the equipment at a price fixed in the contract after a specified period of time,
typically five years, subject to certain conditions. The repurchased equipment
is then sold by the Company as used equipment. Although there can be no
assurance that the proceeds to the Company upon sale of such equipment will be
equal to or exceed the repurchase price paid to the customer for such equipment,
the Company believes its multiple stores facilitate the sale of repurchased
equipment. See Note 9 to the Combined Financial Statements.
PERSONAL GUARANTY
Ronald D. Offutt, the Chairman, Chief Executive Officer, and principal
stockholder of the Company, has personally guaranteed all amounts owed to Deere
and its affiliates. Under the Deere Agreement, the Company is permitted to
replace the personal guaranty of Mr. Offutt with a letter of credit in an amount
and from a financial institution acceptable to Deere. The amount of the letter
of credit required by Deere would be adjusted annually based on the level of
Company's floor plan financing with Deere and its affiliates. If Mr. Offutt
should elect not to continue to provide his personal guaranty, the Company would
be required to establish the letter of credit. As of the date of this
Prospectus, the Company would be required to have a letter of credit of
approximately $41.0 million to secure the outstanding Deere floor plan
financing, which was approximately $89.3 million as of July 31, 1996, at an
annual cost of approximately $205,000.
COMPETITION
The Company's industrial equipment stores compete with distributors of
equipment produced by manufacturers other than Deere, including Case,
Caterpillar, and Komatsu. The Company also faces competition from distributors
of manufacturers of specific types of industrial equipment, including JCB
backhoes, Kobelco excavators, Komatsu wheel loaders and crawler dozers, and
Bobcat skid loaders. The Company's agricultural stores compete with distributors
of equipment from suppliers other than Deere, including Agco, Case, and New
Holland. The Company's equipment stores also compete with other Deere
dealerships. Consequently, competing Deere agricultural stores may be located in
close proximity to one of the Company's agricultural stores. Competition among
equipment dealers is primarily based on price, value, reputation, quality and
design of products offered by the dealer, the customer service and equipment
servicing provided by the dealer, and the accessibility of the stores to the
customers. The Company believes that its broad product line, product support,
and superior quality products will enable it to compete effectively.
PRODUCT WARRANTIES
Product warranties for new equipment and parts are provided by the supplier.
The term and scope of these warranties vary greatly by supplier and by product.
The Company does not provide additional warranties to retail purchasers of new
equipment. Deere pays the Company for repairs to Deere equipment still under
warranty. The Company generally sells used equipment "as is" and without
manufacturer's warranty, although manufacturers sometimes provide limited
warranties if the supplier's original warranty is transferrable and has not yet
expired. Typically, the Company provides no additional warranties on used
equipment.
46
<PAGE>
TRADEMARKS
RDO Equipment is a registered servicemark owned by the Company. John Deere
is a registered trademark of Deere & Company, the Company's use of which is
authorized under the Deere dealership agreements. Trademarks and tradenames of
new equipment obtained from suppliers other than Deere are licensed from their
respective owners. The Company historically has operated each of its industrial
and agricultural stores under either the RDO Equipment tradename or, for
purposes of continuity at a particular store if there was strong local name
recognition and customer loyalty, the name historically used by the Deere
dealership in that location. Beginning in fiscal 1995, the Company began to
implement a program to operate all of its industrial and agricultural stores
under the RDO Equipment tradename and servicemark. The Company expects to
complete this program at its existing stores in fiscal 1998. Each store also is
identified as either an authorized John Deere industrial or agricultural
equipment store and may display signs of other suppliers.
PRODUCT LIABILITY AND LEGAL PROCEEDINGS
From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to the Company's business. The
Company believes that there are no claims or litigation pending, the outcome of
which could have a material adverse effect on the financial position or results
of operations of the Company; however, the ultimate legal and financial
liability of the Company cannot be estimated with certainty. Products that have
been or may be sold by the Company may expose it to potential liabilities for
personal injury or property damage claims relating to the use of such products.
The Company maintains liability insurance, including product liability coverage,
in amounts deemed adequate by management. To date, aggregate costs to the
Company for claims, including product liability actions, have not been material.
An uninsured or partially insured claim, or a claim for which the manufacturer
is not liable or does not assume responsibility, however, could have a material
adverse effect on the financial condition of the Company. See "Risk
Factors--Product Liability Risk."
ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATIONS
The Company's operations are subject to numerous federal, state and local
rules and regulations, including laws designed to protect the environment and to
regulate the discharge of materials into the environment, primarily relating to
its service operations. Based on current laws and regulations, the Company
believes that it is in compliance with such laws and regulations and that its
policies, practices, and procedures are designed to prevent unreasonable risk of
environmental damage or violation of environmental laws and regulations and any
resulting financial liability to the Company. No assurance can be given that
future changes in such laws or regulations or changes in the nature of the
Company's operations or the effects of activities of prior occupants or
activities at neighboring facilities will not have an adverse impact on the
Company's operations. See "Risk Factors--Government Regulation."
EMPLOYEES
As of August 31, 1996, the Company employed 663 full-time employees. Of this
number, 13 employees were located at the Company's executive offices and
employed in corporate administration. The balance of the employees were located
at the various stores: 70 were employed in administration, 138 in equipment
sales and rental operations, 105 in parts sales, and 337 in servicing equipment.
None of the Company's employees is covered by a collective bargaining agreement.
PROPERTIES
The Company owns the real estate for eight of its stores, leases its
executive offices and eight stores from various Offutt Entities, and leases 19
stores from unrelated third parties. Lease terms range from one to ten years and
some leases include an option to purchase the leased property. See "Certain
Relationships and Related Transactions." The Company believes that all of its
facilities are in good operating condition.
47
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of the date of this
Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------ ---- ----------------------------------------
<S> <C> <C>
Ronald D. Offutt(1)........... 53 Chairman, Chief Executive Officer, and a
Director
Paul T. Horn(1)............... 53 President, Chief Operating Officer, and
a Director
Allan F. Knoll(1)(2)(3)....... 52 Chief Financial Officer, Secretary, and
a Director
Richard J. Moen............... 49 Chief Administrative Officer and
Treasurer
Gary R. Allan(4).............. 47 Senior Vice President,
Agricultural--Northwest Operations
H. David Frambers............. 52 Senior Vice President,
Industrial--Midwest and South Operations
Larry B. Kerkhoff............. 42 Senior Vice President,
Agricultural--Midwest Operations
Larry E. Scott................ 53 Senior Vice President,
Industrial--Southwest Operations
Mark A. Doda.................. 34 Controller
</TABLE>
- ------------------------
(1) Member of Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Will become an officer of the Company upon completion of the Washington
Acquisition
RONALD D. OFFUTT. Mr. Offutt is the Company's founder, Chairman, Chief
Executive Officer, and principal stockholder. Mr. Offutt was first elected
President of the Company in 1968, upon formation of the Company. Mr. Offutt also
serves as Chief Executive Officer and Chairman of the Board of Offutt Co., and
he also owns, controls, or manages the other Offutt Entities, which are engaged
in a variety of businesses such as farming, food processing, auto dealerships,
and agricultural financing activities, some of which transact business with the
Company. See "Certain Relationships and Related Transactions." Mr. Offutt will
continue to spend approximately 25% of his time on the Company's business. Mr.
Offutt is Chairman of the Board of Regents of Concordia College of Moorhead and
is a graduate of Concordia College of Moorhead with a degree in Economics.
PAUL T. HORN. Mr. Horn has served as President of the Company since August
1996 and as Chief Operating Officer and a Director of the Company since 1986.
Prior to October 1, 1996, he was an employee of Offutt Co. and spent
approximately 25% of his time on the business of the Company. Since such date,
he has been a full-time employee of the Company. See "Certain Relationships and
Related Transactions." Mr. Horn serves as a director and officer and is a
beneficial stockholder of many Offutt Entities, and he will continue to hold
many of these positions upon consummation of this Offering. See "Certain
Relationships and Related Transactions." Mr. Horn currently serves as Chairman
of the Board of Crop Growers Insurance Corp., a crop insurance company, and
Northern Grain Company, a regional grain elevator. Mr. Horn is a graduate of
Michigan State University with degrees in Business Administration and Agronomy.
ALLAN F. KNOLL. Mr. Knoll has served as Chief Financial Officer, Secretary,
and a Director of the Company since 1974. Mr. Knoll also serves as Chief
Financial Officer and Secretary of Offutt Co., and serves as a director and
officer and is a beneficial stockholder of many of the Offutt Entities. See
"Certain Relationships and Related Transactions." Mr. Knoll will continue to
spend approximately 25% of his time on the Company's business. Mr. Knoll is a
graduate of Moorhead State University with degrees in Business Administration
and Accounting.
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<PAGE>
RICHARD J. MOEN. Mr. Moen will serve as the Chief Administrative Officer
and Treasurer of the Company commencing October 1996. Prior to joining the
Company, from August 1993 until September 1996, Mr. Moen served as Vice
President--Legal Services of ConAgra Diversified Products Companies, a division
of ConAgra Inc., a diversified international food company. From March 1988 until
August 1993, Mr. Moen served as Executive Vice President--Administration,
General Counsel, Secretary, and a director of Golden Valley Microwave Foods,
Inc., a company specializing in food products designed for use in microwave
ovens. Mr. Moen is a graduate of Massachusetts Institute of Technology, with a
degree in Economics, and Harvard Law School.
GARY R. ALLAN. Mr. Allan will serve as Senior Vice President,
Agricultural--Northwest Operations upon completion of the Washington
Acquisition. Mr. Allan currently is the President of the Washington agricultural
stores to be acquired and has held such position since 1986. He is also a
partner in Coho L.T.D., a diversified farming company located in Pasco,
Washington, and currently serves on the Board of Directors of Yakima Federal
Savings and Loan in Yakima, Washington. Mr. Allan attended Columbia Basin
College and Eastern Washington University.
H. DAVID FRAMBERS. Mr. Frambers has served as Senior Vice President,
Industrial--Midwest and South Operations since July 1996. With the expansion of
the Industrial Division, he became Vice President and General Manager of the
Industrial Division for the Midwest and Southwest regions and held such position
from 1991 to July 1996. Mr. Frambers served as Vice President and General
Manager of the Agricultural and Industrial Divisions from 1986 to 1991. Prior to
joining the Company, he was the manager of a Deere agricultural dealership in
Grand Forks, North Dakota from 1979 to 1986. From 1968 to 1979 he was employed
by Deere in sales and marketing and held positions as the territory manager
based in Denver, Colorado, the store manager at Fargo Implement, Fargo, North
Dakota, and a division sales manager for Deere in Minneapolis, Minnesota. He is
a graduate of Kansas State College with a degree in Industrial Technology.
LARRY B. KERKHOFF. Mr. Kerkhoff has served as Senior Vice President,
Agricultural--Midwest Operations since July 1996. Prior to that time, he was the
manager of the equipment store in Breckenridge, Minnesota, since 1991. He has
been in the agri-business for over 20 years. Prior to joining the Company, he
was with Kibble Equipment, a Deere agricultural dealership, in Montevideo,
Minnesota. He is a graduate of Mankato Area Vocational Institute--Diesel
Mechanics Program and Mankato State University with a degree in Business
Administration.
LARRY E. SCOTT. Mr. Scott has served as Senior Vice President,
Industrial--Southwest Operations since July 1996. Prior to that time, he served
as a Vice President and General Manager of the Agricultural Division since 1991.
Mr. Scott has been involved in management in the agricultural business for 24
years. He managed the Company's agricultural stores in Casselton, North Dakota,
Breckenridge, Minnesota, and Fargo, North Dakota prior to becoming Vice
President of the Agricultural Division. He is a graduate of North Dakota State
University with a degree in Mathematics and a minor in Business Administration.
MARK A. DODA. Mr. Doda has served as Controller of the Company since
September 1992. Prior to joining the Company, Mr. Doda served as a Division
Controller for Graco, Inc., a manufacturer of fluid handling systems, from
January 1992 to September 1992. From January 1985 to December 1991, Mr. Doda
worked for Deloitte & Touche LLP. Mr. Doda is a graduate of the University of
North Dakota with a degree in Accounting.
Mr. Scott is the brother-in-law of Mr. Offutt. There are no other family
relationships among the directors and executive officers of the Company.
TERM OF OFFICE AND ELECTION OF ADDITIONAL DIRECTORS
Members of the Board of Directors are elected annually. The Company is
seeking to identify at least two individuals to serve as outside directors upon
consummation of this Offering.
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<PAGE>
BOARD COMMITTEES
The Board of Directors has established three committees of the Board which
will take effect upon consummation of this Offering: the Executive Committee,
the Audit Committee, and the Compensation Committee. The Executive Committee has
the authority to take all actions that the Board as a whole is able to take,
except as limited by applicable law. The Audit Committee recommends the
appointment of auditors and oversees the accounting and audit functions of the
Company. The Compensation Committee determines executive officers' and key
employees' salaries and bonuses and administers the Incentive Plan. Upon
consummation of this Offering, Messrs. Offutt, Horn, and Knoll will be appointed
to serve on the Company's Executive Committee, and Mr. Knoll and at least two
outside directors will be appointed to serve on the Company's Compensation
Committee and Audit Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, the Company had no Compensation Committee but the Board of
Directors performed equivalent functions. Of the members of the Board of
Directors in such year, Mr. Offutt served as the Company's Chairman and Chief
Executive Officer, Mr. Knoll served as the Company's Chief Financial Officer,
and Mr. Horn served as the Company's Chief Operating Officer.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company will receive
$1,000 per month and $500 for each Board and committee meeting attended.
Directors who are employees or officers of the Company do not receive additional
compensation for service as a director. In addition, all directors are entitled
to be reimbursed for certain expenses in connection with attendance at Board and
committee meetings. At the time such person first becomes a director of the
Company, each non-employee director will receive options to purchase 10,000
shares of Class A Common Stock, with such vesting periods as the Compensation
Committee may determine. See "--1996 Stock Incentive Plan."
EXECUTIVE COMPENSATION
Historically Messrs. Offutt, Horn, and Knoll have not been compensated
directly by the Company for their services, which has represented approximately
25% of each of their time. Their services have been provided to the Company
pursuant to an arrangement with Offutt Co. The compensation paid by Offutt Co.
to each of Messrs. Offutt, Horn, and Knoll for their services to the Company has
been $50,000, $50,000, and $30,000 in each of fiscal years 1996, 1995, and 1994,
respectively. Commencing as of October 1, 1996, each of these officers will be
paid directly by the Company for their services to the Company. Messrs. Offutt
and Knoll will receive salaries of $50,000 per year for their part-time
services, and Mr. Horn will receive a base salary of $150,000 per year for his
full-time services and will be eligible for an incentive bonus.
The following table describes the compensation paid or earned for services
rendered to the Company in fiscal 1996 by the Company's Chief Executive Officer
and four most highly compensated executive officers.
50
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY CASH BONUS COMPENSATION(1)
- ---------------------------------------- ------------- ------------- ----------------
<S> <C> <C> <C>
Ronald D. Offutt
Chairman and Chief Executive
Officer............................... $ 50,000(2) -- --
Paul T. Horn
President and Chief Operating
Officer............................... $ 50,000(2) -- --
Allan F. Knoll
Chief Financial Officer and
Secretary............................. $ 50,000(2) -- --
H. David Frambers
Senior Vice President,
Industrial--Midwest and South
Operations............................ $ 52,000 $ 148,813 --
Larry E. Scott
Senior Vice President,
Industrial--Southwest Operations...... $ 52,000 $ 147,986 --
</TABLE>
- ------------------------
(1) No executive officer of the Company received perquisites or other personal
benefits exceeding $50,000 or 10% of such officer's total annual salary and
bonus.
(2) Prior to this Offering, Messrs. Offutt, Horn, and Knoll have not been paid
directly by the Company, but have been compensated by Offutt Co. The amount
reflected in the table is the amount of compensation paid for the services
provided by each of them to the Company in fiscal 1996.
No option grants were made during fiscal 1996 to any of the executive
officers named in the Summary Compensation Table or any other employee of the
Company.
1996 STOCK INCENTIVE PLAN
In September 1996, the Board of Directors and stockholders of the Company
adopted the RDO Equipment Co. 1996 Stock Incentive Plan (the "Incentive Plan").
The Incentive Plan is intended to advance the best interests of the Company and
its stockholders by attracting, retaining, and motivating employees, directors,
advisors, and consultants of the Company. The Incentive Plan provides for the
grant of stock options (which may be non-qualified stock options or incentive
stock options for tax purposes), stock appreciation rights issued independent of
or in tandem with such options ("SARs"), restricted stock awards, and
performance stock awards, thereby increasing the personal stake of Incentive
Plan participants in the continued success and growth of the Company.
The Incentive Plan is administered by the Compensation Committee or other
designated committee of the Board of Directors (the "Committee"), which consists
of three members, including at least two non-employee directors of the Company
who are disinterested within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934. The Committee has broad authority to interpret and
administer the Incentive Plan, including the power to grant and modify awards
and the power to limit or eliminate its discretion as it may deem advisable to
comply with or obtain preferential treatment under any applicable tax or other
law, rule, or regulation. The Committee also has broad authority to accelerate
the vesting of an award or the time at which any award is exercisable or to
waive any condition or restriction on the vesting, exercise, or receipt of any
award. The Board of Directors may at any time amend, suspend, discontinue, or
terminate the Incentive Plan without stockholder approval or approval of
participants, subject to certain limitations.
Initially, shares of Class A Common Stock are available for issuance
under the Incentive Plan. In addition, as of February 1 of each year the
Incentive Plan is in effect, if the total number of shares of Common Stock
issued and outstanding, not including any shares of Class A Common Stock issued
under the Incentive Plan, exceeds the total number of shares of Common Stock
issued and outstanding as
51
<PAGE>
of February 1 of the preceding year (or, for fiscal 1997, as of the commencement
of the Incentive Plan), the number of shares available will be increased by an
amount such that the total number of shares available for issuance under the
Incentive Plan equals 10% of the total number of shares of Common Stock
outstanding, not including any shares issued under the Incentive Plan. Lapsed,
forfeited, or cancelled awards will not count against these limits. Cash
exercises of SARs and cash settlement of other awards will also not be counted
against these limits but the total number of SARs and other awards settled in
cash shall not exceed the total number of shares authorized for issuance under
the Incentive Plan (without reduction for issuances).
As of the date of this Prospectus, no awards have been made under the
Incentive Plan. Prior to consummation of this Offering, the Company plans to
grant options to purchase an aggregate of shares of Class A Common Stock
under the Incentive Plan at the initial public offering price.
CASH BONUS INCENTIVES
The Company expects that annual cash bonuses will be a substantial portion
of the cash compensation of its management team. For its senior management,
bonuses are determined based on achievement of a variety of factors, including
targeted return on assets, and earnings per share growth. Each store manager is
evaluated based on a number of performance criteria, including efficiency of
asset management, store profitability, sales growth, productivity, and product
support. Bonuses are accrued monthly based on the actual year-to-date
performance of the managers. A portion of each bonus is paid quarterly, with the
balance paid after the final bonus amount is determined at the end of each year.
401(K) EMPLOYEE SAVINGS PLAN
The Company's employees participate in a 401(k) employee savings plan,
sponsored by an Offutt Entity, which covers substantially all employees. The
Company matches a portion of employee contributions up to a maximum of $900 per
employee. Contributions to the plan by the Company were $121,000, $151,000, and
$194,000 for fiscal 1994, 1995, and 1996, respectively, and $80,000 and $109,000
for the six months ended July 31, 1995 and 1996, respectively.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains provisions (i)
eliminating the personal liability of its directors, officers, employees, and
other agents for monetary damages resulting from breaches of their fiduciary
duty to the fullest extent permitted by the law and (ii) indemnifying its
directors and officers to the fullest extent permitted by the DGCL. These
provisions in the Certificate of Incorporation do not eliminate the duty of care
and, in appropriate circumstances, equitable remedies such as an injunction or
other forms of non-monetary relief would remain available under Delaware law.
Each director will continue to be subject to liability for breach of a
director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for improper distributions to stockholders. These
provisions also do not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The DGCL and the Company's Certificate of Incorporation also provide that
the Company shall, under certain circumstances and subject to certain
limitations, indemnify any person made or threatened to be made a party to a
proceeding by reason of that person's former or present official capacity with
the Company against judgments, penalties, fines, settlements, and reasonable
expenses. Any such person is also entitled, subject to certain limitations, to
payment or reimbursement of reasonable expenses in advance of the final
disposition of the proceeding. The Company has entered into indemnification
agreements with its directors and executive officers which indemnify such
persons to the fullest extent
52
<PAGE>
permitted by its Certificate of Incorporation, its Bylaws, and the DGCL. The
Company also intends to obtain directors' and officers' liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company historically has engaged, and expects to engage in the future,
in various business transactions with various of the Offutt Entities, including
Ag Capital, a significant provider of working capital and floor plan financing
to the Company and financing to the Company's customers. Messrs. Offutt, Horn,
and Knoll each serve as officers or directors and have ownership interests in
various of the Offutt Entities, including all of the Offutt Entities which have
engaged in and will continue to engage in transactions with the Company, as
described below. The Company believes that all of these transactions were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and any
of the Offutt Entities or any of the Company's officers, directors, principal
stockholders, and their affiliates will be approved both by a majority of all
members of the Company's board of directors and by a majority of the independent
and disinterested outside directors, and will continue to be on terms believed
to be no less favorable to the Company than could be obtained from unaffiliated
third parties.
The Company had sales to the Offutt Entities of agricultural equipment and
related parts and service, totalling $1.9 million, $3.5 million, $5.5 million,
and $4.5 million in fiscal 1994, 1995, 1996, and the six months ended July 31,
1996 respectively.
The Company leases eight of its dealership facilities and many of its
service vehicles from an Offutt Entity. Total rent expense for these leases
totalled $523,000, $668,000, $1,089,000, and $554,000 in fiscal 1994, 1995,
1996, and the six months ended July 31, 1996, respectively. These leases have
terms expiring at various times from 1997 to 2007.
In October 1995, the Company acquired all the outstanding capital stock of a
Deere agricultural equipment dealership located in Kindred, North Dakota, which
was controlled by Mr. Offutt, in exchange for shares of the Company's Class
B Common Stock, $520,000 in cash, and a note payable for $375,000 which bears
interest at a rate per annum of 10% and is due January 31, 1999. The amount of
consideration paid for the capital stock of the dealership was determined by the
Company's Board of Directors. See Note 3 to the Combined Financial Statements.
The Company receives corporate support services from various Offutt
Entities, including office space for its executive offices, use of conference
and meeting facilities, use of an aircraft for Company business, administration
of the Company's 401(k) plan, and real estate management services. The Company
has historically paid for such services based on its pro rata usage of services
as compared to the usage of other Offutt Entities or at a fixed charge. Total
charges for such services totalled $48,000, $56,000, $77,000, and $35,000 in
fiscal 1994, 1995, 1996, and the six months ended July 31, 1996, respectively.
Effective upon consummation of this Offering, all such services will be provided
to the Company pursuant to a three-year Corporate Services Agreement, which is
terminable by the Company on 30 days' notice in whole or in part, on the same
cost basis as in prior years.
Ag Capital and Farmers Equipment Rental provide financing to the Company's
customers. The total amounts of such customer financing outstanding as of the
end of fiscal 1994, 1995, 1996, and the six months ended July 31, 1996, were
$12.2 million, $24.3 million, $32.8 million, and $41.4 million, respectively. A
portion of the financing provided by Ag Capital and Farmers Equipment Rental is
recourse to the Company. See "Business--Customer Financing Options" and Note 9
to the Combined Financial Statements. The Company finances certain of its
working capital needs, primarily inventory financing for non-Deere equipment,
through Ag Capital and other Offutt Entities. Interest on such inventory
financing typically bears interest at the prime rate as it varies from time to
time. Total interest paid to Offutt Entities totalled $771,000, $627,000,
$849,000, and $426,000 in fiscal 1994, 1995, 1996, and the six months ended July
31, 1996, respectively. The total amount outstanding under these financing
arrangements at July 31,
53
<PAGE>
1996 was $11.9 million, with an interest rate, as of that date, of 8.25%. See
Notes 5 and 6 to the Combined Financial Statements as to floor plan payables,
notes payable, and long-term debt due to various Offutt Entities.
To facilitate sales to certain customers, the Company guarantees a portion
of the outstanding balances of certain customer notes and lease contracts
financed by third parties, including customer financing provided by Ag Capital
and other Offutt Entities. The amount guaranteed by the Company to Ag Capital
and other Offutt Entities for customer financing was $4.1 million as of July 31,
1996.
In September 1996, the Company entered into an agreement to acquire MVI, a
company controlled by Mr. Offutt, in exchange for shares of Class B Common
Stock. The exchange ratio was determined by the Company's Board of Directors.
Because the Company and MVI have been under common ownership of the same
controlling stockholder, the financial statements of the Company have been
combined with the financial statements of MVI in the financial statements
presentation in this Prospectus. MVI is a dealer involved in the sale and
service of irrigation equipment and vegetable ventilation systems.
At various times in the past, to facilitate its money management the Company
has deposited funds with various Offutt Entities on a short-term and
interest-bearing basis, as described in Note 4 to Combined Financial Statements.
In addition, in connection with its reorganization in fiscal 1994, the Company
had notes outstanding from the stockholders in the amounts of $5.375 million and
$921,000 in fiscal 1994 and 1995, respectively. All such short-term notes were
repaid in fiscal 1996 and the Company has no plans to make similar advances in
the future. See Notes 4 and 12 to the Combined Financial Statements.
In August 1996, the Company entered into an agreement to sell an auto
dealership, owned by the Company and located in Lisbon, North Dakota, to an
Offutt Entity for cash in the amount of $123,000, which was considered by the
Company to be its market value. The results of operations of this dealership
have not been included with the Company's results of operations for any of the
periods presented.
Effective as of July 1, 1996, the Company completed the Central Texas
Acquisition and financed $8.4 million of the purchase price with a short-term
note, due January 31, 1997, payable to Ag Capital. The interest rate on this
indebtedness is at the prime rate and, as of the date of this Prospectus, was
8.25%. A portion of the net proceeds of this Offering will be used to pay this
indebtedness in full.
The principal stockholder and operator of the Deere dealership being
acquired by the Company in the Washington Acquisition is Gary Allan, who, upon
completion of the acquisition, will become Senior Vice President,
Agricultural--Northwest Operations of the Company. The purchase price of the
Washington Acquisition will be approximately $2.7 million, including cash in the
amount of $1.7 million, and a five year note in the amount of $1.0 million, with
an interest rate of 8.25% per annum. In addition, the Company has agreed to make
an additional payment, up to a maximum of $750,000, in the event the acquired
Washington operations meet certain operating and profit objectives during the
next three years.
The Washington Acquisition will be financed by the Company with a short-term
note in the amount of $1.7 million, due January 31, 1997, payable to Ag Capital,
which will bear interest at prime, which was 8.25% as of July 31, 1996. A
portion of the net proceeds of this Offering will be used to pay this
indebtedness in full.
Under the Deere agreements, Mr. Offutt currently personally guarantees all
Company obligations to Deere. Mr. Offutt has the right to terminate his personal
guaranty at any time, which would require the Company to obtain a letter of
credit in an amount meeting Deere's guidelines then in place from a bank
acceptable to Deere. As of the date of this Prospectus, the required amount of
the letter of credit to replace Mr. Offutt's personal guaranty would be
approximately $41.0, which the Company estimates would cost approximately
$205,000 per year.
Historically, a portion of the net income of the Company has been
distributed to its stockholders, primarily to enable them to pay the tax
liability incurred by them due to the Company's election to be
54
<PAGE>
taxed as an S corporation. Dividends declared and paid for the fiscal years
ended January 31, 1994, 1995, 1996, and the six-month period ended July 31, 1996
aggregated approximately $2.3 million, $3.8 million, $4.3 million, and $1.8
million, respectively. Dividends declared but unpaid as of July 31, 1996 were
$5.5 million. This amount, plus all net income for the third fiscal quarter of
1997 (estimated to be approximately $ million), is expected to be distributed
as a dividend to the existing stockholders prior to consummation of this
Offering. In addition, simultaneously with the consummation of this Offering,
the Company will pay from the net proceeds of this Offering to its existing
stockholders an additional aggregate distribution of approximately $15.0
million. This amount represents a previously declared dividend to such
stockholders of substantially all of the previously undistributed, accumulated
net income of the Company as of January 31, 1996 with respect to which such
stockholders have previously paid taxes. Purchasers of Class A Common Stock in
this Offering will not receive any of these distributions. The Company intends
to enter into a tax agreement with its current stockholders prior to the
consummation of this Offering. This agreement will provide that, to the extent
such undistributed taxable income of the Company, as subsequently established in
connection with the filing of the Company's tax return for the Company's short S
corporation tax year, is less than these dividends, such stockholders will make
a payment equal to such difference to the Company,and if such undistributed
taxable income is greater than these dividends, the Company will make an
additional distribution equal to such difference to such stockholders. This
agreement will also provide that the Company will indemnify its current
stockholders against additional income taxes resulting from adjustments made (as
a result of a final determination made by a competent tax authority) to the
taxable income reported by the Company as an S corporation for periods prior to
the Offering, but only to the extent those adjustments provide a tax benefit to
the Company.
The Company and Mr. Offutt have entered into a mutual indemnification
agreement relating to federal and certain state and local income tax liabilities
of the Company and for tax years during which the Company has elected to be
treated as an S corporation. This agreement generally provides that the Company
will indemnify Mr. Offutt, and Mr. Offutt will indemnify the Company, against
any increase in the indemnified party's income tax liabilities (including
interest and penalties and all expenses, attorneys' fees, and accountants' fees
incurred in connection therewith) for those jurisdictions in which an S
corporation election was made or deemed to have been made. Mr. Offutt's
indemnification is limited to the portion of any Company liability equal to the
prior distributions he has received.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of the Common Stock as the date of this Prospectus
and as adjusted to reflect the sale of the shares of Class A Common Stock
offered hereby, for (i) each person known by the Company to beneficially own
more than 5% of the Common Stock, (ii) each of the executive officers named in
the summary compensation table, (iii) each of the Company's directors and
nominees for director, and (iv) all directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information provided by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Unless otherwise noted, the address of
each of the stockholders named below is the Company's principal executive
administrative office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------------------------- -----------------------------------------
NUMBER OF NUMBER OF PERCENT OF NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
NAME OF STOCKHOLDER SHARES SHARES VOTING POWER(1) SHARES SHARES VOTING POWER(1)
- ------------------------------- ----------- ----------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ronald D. Offutt............... (2) (2)
Paul T. Horn................... (3) (3)
Allan F. Knoll................. (4) (4)
H. David Frambers..............
Larry E. Scott.................
All officers and directors as a
group (7 persons)............
</TABLE>
- ------------------------
* Less than one percent.
(1) In calculating the percent of total voting power, the voting power of shares
of Class A Common Stock (one vote per share) and Class B Common Stock (four
votes per share) is aggregated.
(2) Includes the shares of Class A Common Stock into which Mr. Offutt's
shares of Class B Common Stock are convertible on a one-for-one basis
and shares of Class A Common Stock that Messrs. Horn and Knoll have the
right to acquire from Mr. Offutt pursuant to option agreements.
(3) Includes shares of Class A Common Stock that Mr. Horn has the right to
acquire from Mr. Offutt pursuant to an option agreement.
(4) Includes shares of Class A Common Stock that Mr. Knoll has the right
to acquire from Mr. Offutt pursuant to an option agreement.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this Offering, the authorized capital stock of the
Company will consist of shares of Class A Common Stock, shares of
Class B Common Stock, each with a par value of $0.01 per share, and shares
of Preferred Stock, with no par value. At July 31, 1996, after giving effect to
the stock split and stock exchange in connection with the Company's
reincorporation, there were shares of Class A Common Stock and
shares of Class B Common Stock outstanding, which were held of record by
stockholders, and no shares of Preferred Stock outstanding. After consummation
of this Offering, shares of Class A Common Stock and shares of Class
B Common Stock will be issued and outstanding, assuming no exercise of the
Underwriters' over-allotment option. The following summary of the terms and
provisions of the Company's capital stock does not purport to be complete and is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
registration statement, of which this Prospectus is a part, and applicable law.
COMMON STOCK
DIVIDENDS. Holders of record of shares of Common Stock are entitled to
receive such dividends when, if, and as may be declared by the Board of
Directors out of funds legally available for such purposes. No dividends may be
declared or paid on any share of any class of Common Stock unless such dividend,
at the same rate per share, is simultaneously declared or paid on each share of
the other class of Common Stock. In the case of a stock dividend or
distribution, holders of Class A Common Stock are entitled to receive the same
percentage dividend or distribution as holders of Class B Common Stock and vice
versa, except that stock dividends and distributions shall be made in shares of
Class A Common Stock to the holders of Class A Common Stock and in shares of
Class B Common Stock to the holders of Class B Common Stock.
VOTING RIGHTS. Holders of Class A Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to four votes per share.
Holders of shares of Common Stock will vote as a single class on all matters
submitted to a vote of stockholders except with respect to future issuances of
Class B Common Stock and as otherwise required by law. The Certificate of
Incorporation provides that all issuances of Class B Common Stock must be
approved by the affirmative vote of a majority of each class of Common Stock,
voting separately as a class, except with respect to (i) payment of stock
dividends on Class B Common Stock, and (ii) a stock split, reclassification, or
other subdivision of the Class B Common Stock. Under Delaware law, the
affirmative vote of the holders of a majority of the outstanding shares of any
class of Common Stock is required to approve, among other things, a change in
the designations, preferences, or limitation of the shares of such class of
Common Stock.
CONVERTIBILITY. Each share of Class B Common Stock is convertible, at the
option of its holder, into one share of Class A Common Stock at any time. The
Class A Common Stock is not convertible into Class B Common Stock. Each share of
Class B Common Stock shall automatically be converted into one share of Class A
Common Stock (i) in the event of Mr. Offutt's death, or (ii) in the event such
share shall be transferred (including, without limitation, by way of sale,
assignment, exchange, gift, bequest, appointment or otherwise) to any person or
entity other than a trust arrangement pursuant to which Mr. Offutt retains the
right to control the voting of such shares.
LIQUIDATION RIGHTS. Upon liquidation, dissolution, or winding-up of the
Company, the holders of Class A Common Stock are entitled to share ratably with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors.
OTHER PROVISIONS. The holders of Common Stock are not entitled to
preemptive or subscription rights. In any merger, consolidation, or business
combination, the consideration to be received per share by holders of Class A
Common Stock must be identical to that received by holders of Class B Common
Stock.
57
<PAGE>
All outstanding shares of Class A Common Stock offered hereby will be upon
issuance, validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to shares of
Preferred Stock in one or more series and to designate the rights, preferences,
and privileges of each series, including dividend rights, conversion rights,
voting rights, terms of redemption, liquidation preferences, sinking fund terms,
and the number of shares constituting any series or the designation of such
series, any or all of which may be greater than the rights of the Common Stock,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of both classes of
Common Stock and the likelihood that such holders will receive dividend payments
and payments upon liquidation. The issuance of Preferred Stock also could have
the effect of delaying, deferring, or preventing a change of control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECT
The Company is subject to Section 203 of the DGCL. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or, in the case of affiliates or
associates of the corporation, within three years prior to the determination of
interested stockholder status, did own) 15% or more of a corporation's voting
stock. The existence of this provision could have anti-takeover effects with
respect to transactions not approved in advance by the board of directors, which
might discourage takeover attempts that might result in a premium over the
market price of the Common Stock. For purposes of Section 203, Mr. Offutt and
the Offutt Entities would not be prohibited from engaging in such transactions.
The Company's Certificate of Incorporation or By-laws, as applicable, among
other things, (i) limits the right of stockholders to call special stockholders
meetings, (ii) requires stockholders to follow an advance notification procedure
for certain stockholder nominations of candidates to the Board of Directors and
for new business to be conducted at stockholders' meetings, and (iii) provides
that the Board of Directors, without action by the stockholders, may issue and
fix the rights and preferences of shares of Preferred Stock. These provisions
may have the effect of delaying, deferring, or preventing a change of control of
the Company without further action by the stockholders, may discourage bids for
the Class A Common Stock at a premium over the market price of the Class A
Common Stock, may adversely affect the market price of, and the voting and other
rights of, the holders of the Class A Common Stock, and could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management or members of the Company's Board of Directors even if some of the
Company's stockholders deemed such an attempt to be in their best interests.
The Deere Agreement permits Deere to terminate the Company's dealer
appointments if Mr. Offutt, during his lifetime, ceases to (i) own or control
shares representing in excess of 50% of all outstanding voting power or whatever
percentage is required to control corporate actions that require a stockholder
vote and (ii) own 35% of the outstanding Common Stock. See "Risk Factors--Deere
Termination Rights" and "Business--Dealership Agreements." These provisions
could discourage or prevent a third party from acquiring a significant equity
position or control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock is .
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have outstanding
shares of Class A Common Stock and shares of Class B Common Stock (
shares of Class A Common Stock if the Underwriters' over-allotment option is
exercised in full). Of these shares, all of the shares of Class A Common
Stock sold in this Offering will be freely tradeable by persons other than
"affiliates" of the Company. The shares of Class A Common Stock and
shares of Class B Common Stock outstanding prior to this Offering are
"restricted securities" under the Securities Act. These shares, and any shares
purchased by affiliates of the Company, may not be sold unless they are
registered under the Securities Act or unless an exemption from registration,
such as the exemption provided by Rule 144 under the Securities Act, is
available. The Class B Common Stock is convertible on a share-for-share basis
into Class A Common Stock and must be converted to effect any public sale of
such shares.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned "restricted securities" for at least two years is entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock, or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission") pursuant to Rule 144
(or, if no such notice is required, the date of receipt of the order to execute
the transaction by the broker or the date of execution of the transaction
directly with a market maker). Sales under Rule 144 also are subject to certain
other requirements relating to manner of sale, notice of sale, and availability
of current public information about the Company. A person (or persons whose
shares are aggregated) who is not and has not been an affiliate of the Company
at any time during the three months immediately preceding the sale of the Common
Stock is entitled to sell "restricted securities" pursuant to Rule 144(k)
without regard to the limitations described above, provided that three years
have elapsed since the date on which such restricted shares were acquired from
the Company or the date they were acquired from an affiliate of the Company.
The Commission has proposed reducing the initial Rule 144 holding period to
one year and the Rule 144(k) holding period to two years. There can be no
assurance as to when or whether such rule changes will be enacted. If enacted,
such modification will have a material effect on the time when shares of Common
Stock become eligible for resale for any holders of Common Stock who have not
yet held their shares for two years.
Immediately after consummation of this Offering, an aggregate of
approximately shares of Class A Common Stock will become available for
sale in the public market, pursuant to Rule 144(k). Beginning 90 days after the
date of this Prospectus, an aggregate of approximately shares will become
available for sale in the public market pursuant to Rule 144, subject in certain
cases to volume and manner of sale limitations. After expiration of the lock-up
agreements, which will be 180 days after the date of this Prospectus, an
aggregate of approximately shares of Class A Common Stock will be
available for sale in the public market, subject in most cases to volume and
manner of sale limitations. The remaining approximately shares held by
existing stockholders will become eligible for public resale at various times
over a period of less than two years following the consummation of this
Offering, subject in some cases to volume and manner of sale limitations.
Prior to this Offering, there has been no established trading market for the
Class A Common Stock, and no predictions can be made as to the effect that sales
of Class A Common Stock under Rule 144, pursuant to a registration statement or
otherwise, or the availability of shares of Class A Common Stock for sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of Class A Common Stock in the public market, or the perception that
such sales could occur, could depress the prevailing market price. Such sales
may also make it more difficult for the Company to sell equity
59
<PAGE>
securities or equity-related securities in the future at a time and price that
it deems appropriate. See "Risk Factors--Shares Eligible for Future Sale."
Certain stockholders of the Company, holding in the aggregate shares
of Common Stock, have agreed not to offer, sell, contract to sell, announce
their intention to sell, or pledge or otherwise dispose of any such Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of CS First Boston Corporation. See "Underwriting."
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any additional shares of its Common Stock, other
than with respect to the Incentive Plan, or securities convertible into or
exchangeable or exercisable for any shares of the Common Stock without the prior
written consent of CS First Boston Corporation for a period of 180 days after
the date of this Prospectus.
The Company intends to file a registration statement under the Securities
Act to register an aggregate of shares of Class A Common Stock reserved
for issuance under the Incentive Plan, thus permitting the resale of such shares
by non-affiliates in the public market without restriction under the Securities
Act, subject, however, to vesting requirements with the Company and the lock-up
agreements described above.
60
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated , 1996 (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters"), for whom CS First Boston Corporation and Dain
Bosworth Incorporated are acting as representatives (the "Representatives"),
have severally, but not jointly, agreed to purchase from the Company the
following respective numbers of shares of Class A Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------------------- -----------
<S> <C>
CS First Boston Corporation..................................................................
Dain Bosworth Incorporated...................................................................
-----------
Total................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the shares of Class A Common Stock offered hereby
(other than those shares covered by the over-allotment option described below),
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up to
additional shares of Class A Common Stock at the initial public offering
price less the underwriting discounts and commissions, all as set forth on the
cover page of this Prospectus. Such option may be exercised only to cover
over-allotments in the sale of the shares of Class A Common Stock. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Class A Common Stock from the Company as it was obligated
to purchase from the Company pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Class A Common Stock to the public initially at
the public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ per share and the Underwriters and such dealers may allow a discount
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Representatives.
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the shares of Class A
Common Stock being offered hereby.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, approximately 5% of the shares offered hereby
for employees and directors of the Company and the Offutt Entities who have
expressed an interest in purchasing such shares of Class A Common Stock in this
Offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
61
<PAGE>
Certain stockholders of the Company, holding in the aggregate shares
of Common Stock, have agreed not to offer, sell, contract to sell, announce
their intention to sell, or pledge or otherwise dispose of any such Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of CS First Boston Corporation. See "Shares Eligible for Future
Sale."
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any additional shares of its Common Stock, other
than with respect to the Incentive Plan, or securities convertible into or
exchangeable or exercisable for any shares of the Common Stock without the prior
written consent of CS First Boston Corporation for a period of 180 days after
the date of this Prospectus.
Prior to this Offering, there has been no public trading market for the
Class A Common Stock. Accordingly, the initial public offering price for the
shares has been determined by negotiation among the Company and the
Representatives. In determining such price, consideration has been given to
various factors, including the history of and prospects for the industry in
which the Company operates, the Company's past and present operations, its past
and present operating income and earnings and the trends of such operating
income and earnings, the prospects for operating income and earnings of the
Company, an assessment of the Company's management, stock prices of comparable
companies, and the general condition of the securities markets. There can be no
assurance, however, that the price at which the Class A Common Stock will sell
in the public market after this Offering will not be lower than the price at
which it is sold by the Underwriters.
The Company and Ronald D. Offutt have agreed to indemnify the Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or contribute to payments which the Underwriters may be required to make in
respect thereof.
Application has been made for listing of the shares of Class A Common Stock
on the NNM under the symbol "RDOE."
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Class A Common Stock in Canada is being
made only on a private placement basis exempt from the requirement that the
Company prepare and file a prospectus with the securities regulatory authorities
in each province where trades of the shares of Class A Common Stock are
effected. Accordingly, any resale of the Class A Common Stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the shares of
Class A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of shares of Class A Common Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such shares of
Class A Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."
62
<PAGE>
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT(Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the United States federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of Class A Common Stock to whom the SECURITIES ACT
(British Columbia) applies is advised that such purchaser is required to file
with the British Columbia Securities Commission a report within ten days of the
sale of any of the shares of Class A Common Stock acquired by such purchaser
pursuant to this Offering. Such report must be in the form attached to British
Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from the Company. Only one such report must be filed in respect of
shares of Class A Common Stock acquired on the same date and under the same
prospectus exemption.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby is being
passed upon for the Company by Oppenheimer Wolff & Donnelly, Minneapolis,
Minnesota. Certain legal matters will be passed upon for the Underwriters by
McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The combined financial statements of RDO Equipment Co. and Affiliate as of
and for the year ended January 31, 1996 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report. The combined financial statements of the Company
and MVI as of January 31, 1995 and for each of the two years ended January 31,
1995 appearing elsewhere herein have been included in reliance upon the report
of Eide Helmeke PLLP, independent public accountants, and upon their authority
as experts in accounting and auditing.
The financial statements of Mega Equipment Co. as of and for the year ended
December 31, 1995 included in this Prospectus and elsewhere in the Registration
Statement have been audited by Hansen, Plahm & Co., independent public
accountants, as indicated in their report with respect thereto, and are included
in reliance upon the authority of such firm as experts in giving said report.
For its fiscal year ended January 31, 1996, the Company's Board of Directors
dismissed Eide Helmeke PLLP and appointed Arthur Andersen LLP as the Company's
independent public accountants. The report of Eide Helmeke PLLP on the Company's
financial statements as of January 31, 1995 and for each of the two years ended
January 31, 1995, did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with Eide Helmeke PLLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure at the time of the change of independent public accountants
or
63
<PAGE>
with respect to the Company's financial statements as of January 31, 1995 and
for each of the two years ended January 31, 1995. Prior to retaining Arthur
Andersen LLP, the Company had not consulted with Arthur Andersen LLP regarding
the application of accounting principles or the type of audit opinion that might
be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement under the Securities Act with respect to the shares of
Class A Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Class A Common Stock offered hereby, reference is made to the Registration
Statement and to the exhibits and schedules filed therewith. Although all
material terms and provisions of any material contract or other document are
referred to in this Prospectus and described herewith, such descriptions are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of all or any part of the Registration Statement may be obtained
from the Public Reference Section of the Commission in Washington, D.C. upon the
payment of the fees prescribed by the Commission. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy statements, and other
information that will be filed by the Company.
The Company intends to furnish holders of the Class A Common Stock with
annual reports containing financial statements audited by independent public
accountants, and quarterly updates for each of the first three quarters of each
fiscal year containing summary unaudited financial information.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RDO EQUIPMENT CO.:
Reports of Independent Public Accountants
- Arthur Andersen LLP.................................................................................... F-2
- Eide Helmeke PLLP...................................................................................... F-3
Combined Balance Sheets as of January 31, 1995 and 1996, and as of July 31, 1996 (unaudited)............. F-4
Combined Statements of Operations for the Years Ended January 31, 1994, 1995 and 1996, and Six Months
Ended July 31, 1995 and 1996 (unaudited)............................................................... F-5
Combined Statements of Stockholders' Equity for the Years Ended January 31, 1994, 1995, and 1996, and Six
Months Ended July 31, 1996 (unaudited)................................................................. F-6
Combined Statements of Cash Flows for the Years Ended January 31, 1994, 1995, and 1996, and Six Months
Ended July 31, 1995 and 1996 (unaudited)............................................................... F-7
Notes to Combined Financial Statements................................................................... F-8
MEGA EQUIPMENT CO. (an acquired business):
Independent Auditor's Report............................................................................. F-20
Balance Sheet as of December 31, 1995.................................................................... F-21
Statement of Liabilities and Stockholders' Equity as of December 31, 1995................................ F-22
Statement of Income and Retained Earnings for the Year Ended December 31, 1995........................... F-23
Statement of Cash Flows for the Year Ended December 31, 1995............................................. F-24
Notes to Financial Statements............................................................................ F-25
Balance Sheet as of June 30, 1996 (unaudited)............................................................ F-27
Statement of Operations and Retained Earnings for the Six Months Ended June 30, 1996 (unaudited)......... F-28
Statement of Cash Flows for the Six Months Ended June 30, 1996 (unaudited)............................... F-29
Notes to Unaudited Interim Financial Statements.......................................................... F-30
PRO FORMA UNAUDITED FINANCIAL STATEMENTS:
Introduction to Pro Forma Unaudited Financial Statements................................................. F-31
Pro Forma Unaudited Balance Sheet as of July 31, 1996.................................................... F-32
Notes to Pro Forma Unaudited Balance Sheet............................................................... F-33
Pro Forma Unaudited Statement of Operations for the Year Ended January 31, 1996.......................... F-34
Pro Forma Unaudited Statement of Operations for the Six Months Ended July 31, 1996....................... F-35
Notes to Pro Forma Unaudited Statements of Operations.................................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RDO Equipment Co.:
We have audited the accompanying combined balance sheet of RDO Equipment Co.
(a North Dakota corporation) and Affiliate as of January 31, 1996, and the
related combined statements of operations, stockholders' equity and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of RDO Equipment Co.
and Affiliate as of January 31, 1996, and the combined results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 29, 1996 (except for Note 13,
as to which the date is October 1, 1996)
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RDO Equipment Co.:
We have audited the accompanying combined balance sheet of RDO Equipment Co.
(a North Dakota corporation) and Affiliate as of January 31, 1995, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the two years in the period ended January 31, 1995. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of RDO Equipment Co.
and Affiliate as of January 31, 1995, and the combined results of their
operations and their cash flows for each of the two years in the period ended
January 31, 1995, in conformity with generally accepted accounting principles.
EIDE HELMEKE PLLP
Fargo, North Dakota,
December 15, 1995
F-3
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1995 1996
--------- ---------- JULY 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 683 $ 787 $ 966
Accounts receivable (less allowance for doubtful accounts of $319, $555, and
$600)..................................................................... 10,906 15,533 26,227
Receivables from affiliates................................................. 396 490 --
Notes receivable from affiliates............................................ 4,010 -- --
Inventories................................................................. 77,204 115,616 129,008
Prepaid expenses............................................................ 270 312 568
--------- ---------- -----------
Total current assets...................................................... 93,469 132,738 156,769
PROPERTY AND EQUIPMENT, net................................................... 3,625 13,039 14,029
OTHER ASSETS:
Deposits.................................................................... 1,111 1,579 1,648
Other....................................................................... 110 737 4,756
--------- ---------- -----------
Total assets.............................................................. $ 98,315 $ 148,093 $ 177,202
--------- ---------- -----------
--------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables......................................................... $ 53,581 $ 91,614 $ 104,795
Notes payable and current maturities of long-term debt--
Banks and others.......................................................... 233 2,835 3,662
Affiliates................................................................ 1,965 136 8,400
Accounts payable............................................................ 4,229 4,104 6,697
Accrued liabilities......................................................... 2,926 3,350 6,038
Customer advance deposits................................................... 3,835 4,103 1,955
Distributions payable....................................................... -- -- 5,502
--------- ---------- -----------
Total current liabilities................................................. 66,769 106,142 137,049
LONG-TERM DEBT, net of current maturities:
Banks and others............................................................ 641 6,469 4,609
Affiliates.................................................................. 438 1,198 1,260
--------- ---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock (Note 1)....................................................... 187 188 188
Additional paid-in capital.................................................. 16,113 16,180 16,180
Retained earnings........................................................... 14,167 17,916 17,916
--------- ---------- -----------
Total stockholders' equity................................................ 30,467 34,284 34,284
--------- ---------- -----------
Total liabilities and stockholders' equity................................ $ 98,315 $ 148,093 $ 177,202
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-4
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, JULY 31,
---------------------------------- ----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Wholegoods sales................................... $ 106,600 $ 135,704 $ 164,054 $ 80,891 $ 116,861
Parts and service.................................. 37,512 48,206 58,998 28,856 35,710
Rental............................................. -- -- 505 -- 1,202
---------- ---------- ---------- ---------- ----------
Total Revenues................................... 144,112 183,910 223,557 109,747 153,773
COST OF SALES........................................ 116,369 148,111 180,839 89,119 125,841
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................................... 27,743 35,799 42,718 20,628 27,932
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES........ 20,577 24,893 31,655 14,860 18,523
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 7,166 10,906 11,063 5,768 9,409
INTEREST EXPENSE..................................... (1,670) (1,895) (3,817) (1,590) (2,667)
INTEREST INCOME...................................... 336 802 823 403 517
---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE INCOME TAXES....................... $ 5,832 $ 9,813 $ 8,069 $ 4,581 $ 7,259
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
UNAUDITED PRO FORMA DATA (Notes 8 and 13):
Income before income taxes......................... $ 5,832 $ 9,813 $ 8,069 $ 4,581 $ 7,259
Provision for income taxes......................... 2,332 3,925 3,228 1,832 2,904
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 3,500 $ 5,888 $ 4,841 $ 2,749 $ 4,355
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, AND 1996
AND THE SIX MONTHS ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------- ADDITIONAL
RDO TOTAL PAID-IN RETAINED
MVI SHARES SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1993......................... 4,308 105,248 $ 109 $ 6,345 $ 4,651 $ 11,105
Conversion of debt to equity.................... -- 43,599 44 5,455 -- 5,499
Issuance of common stock........................ -- 34,467 34 4,313 -- 4,347
Net income...................................... -- -- -- -- 5,832 5,832
Dividends paid.................................. -- -- -- -- (2,280) (2,280)
----- --------- ----- ----------- --------- ---------
BALANCE, January 31, 1994......................... 4,308 183,314 187 16,113 8,203 24,503
Net income...................................... -- -- -- -- 9,813 9,813
Dividends paid.................................. -- -- -- -- (3,849) (3,849)
----- --------- ----- ----------- --------- ---------
BALANCE, January 31, 1995......................... 4,308 183,314 187 16,113 14,167 30,467
Issuance of common stock........................ -- 458 1 67 -- 68
Net income...................................... -- -- -- -- 8,069 8,069
Dividends paid.................................. -- -- -- -- (4,320) (4,320)
----- --------- ----- ----------- --------- ---------
BALANCE, January 31, 1996......................... 4,308 183,772 188 16,180 17,916 34,284
Net income (unaudited).......................... -- -- -- -- 7,259 7,259
Dividends paid (unaudited)...................... -- -- -- -- (1,757) (1,757)
Dividends payable (unaudited)................... -- -- -- -- (5,502) (5,502)
----- --------- ----- ----------- --------- ---------
BALANCE, July 31, 1996 (unaudited)................ 4,308 183,772 $ 188 $ 16,180 $ 17,916 $ 34,284
----- --------- ----- ----------- --------- ---------
----- --------- ----- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, JULY 31,
--------------------------------- ----------------------
1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................... $ 5,832 $ 9,813 $ 8,069 $ 4,581 $ 7,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 668 690 1,326 307 690
Change in operating assets and liabilities:
Accounts and notes receivable.................... (1,052) (4,026) (432) (2,969) (10,204)
Inventories...................................... (9,186) (12,436) (29,266) (33,081) (1,886)
Prepaid expenses................................. (47) (199) (36) (49) (254)
Deposits......................................... (64) (405) (343) (148) (69)
Floor plan payables.............................. 3,142 8,995 32,723 29,426 5,155
Accounts payable and accrued liabilities......... 2,032 971 (125) 4,933 5,199
Customer advance deposits........................ 1,508 1,072 184 (1,567) (2,148)
--------- ---------- ---------- ---------- ----------
Net cash provided by operating activities...... 2,833 4,475 12,100 1,433 3,742
--------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment................... (627) (1,208) (9,993) (1,715) (680)
Purchase of net assets of dealerships................ -- -- (1,263) (849) (8,400)
Other, net........................................... 43 (46) (571) -- (19)
--------- ---------- ---------- ---------- ----------
Net cash used for investing activities......... (584) (1,254) (11,827) (2,564) (9,099)
--------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 1,024 250 5,862 1,089 --
Payments on long-term debt........................... (736) (565) (510) (125) (1,798)
Net proceeds (payments) of bank lines and short-term
notes payable...................................... (259) (1,711) (1,269) 1,888 9,091
Issuance of common stock............................. 70 -- 68 68 --
Payment of dividends................................. (2,280) (761) (4,320) (2,017) (1,757)
--------- ---------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities................................... (2,181) (2,787) (169) 903 5,536
--------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH............................ 68 434 104 (228) 179
CASH AND CASH EQUIVALENTS, beginning of period......... 181 249 683 683 787
--------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period............... $ 249 $ 683 $ 787 $ 455 $ 966
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 31, 1995 AND 1996, AND
FOR THE SIX MONTHS THEN ENDED IS UNAUDITED)
1. NATURE OF BUSINESS:
PRINCIPLES OF COMBINATION
The financial statements of RDO Equipment Co. (RDO) have been combined with
the financial statements of Minnesota Valley Irrigation, Inc. (MVI or
Affiliate), a Minnesota corporation, as RDO entered into an agreement to acquire
MVI in September 1996 and both of these entities (collectively, the Company) are
owned by the same majority stockholder. The acquisition, which will be effective
upon successful completion of the proposed initial public offering (see Note 13)
will be effected through the issuance of 4,308 shares of RDO common stock in
exchange for 200 shares of MVI common stock. This stock exchange has been
retroactively reflected in the financial statements.
CAPITAL STOCK
Upon consummation of the proposed initial public offering (see Note 13), the
authorized capital stock of the Company will consist of Class A Common Stock,
Class B Common Stock and Preferred Stock; each with a par value of $0.01 per
share. The economic rights of each class of common stock are the same, but the
voting rights differ. Each share of Class A Common Stock is entitled to one vote
per share and each share of Class B Common Stock is entitled to four votes per
share. In addition, the shares of Class B Common Stock contain restrictions as
to transferability and are convertible into shares of Class A Common Stock on a
one-for-one basis.
Following is a summary of the outstanding Common Stock of RDO and MVI as of
January 31, 1995 and 1996 and July 31, 1996.
<TABLE>
<CAPTION>
JANUARY 31,
---------------------- JULY 31,
1995 1996 1996
---------- ---------- -----------
<S> <C> <C> <C>
RDO Common Stock: $1 par value, 250,000 shares authorized; 183,314 shares
issued and outstanding at January 31, 1995 and 183,772 shares issued and
outstanding at January 31, 1996 and July 31, 1996.......................... $ 183,314 $ 183,772 $ 183,772
MVI Common Stock: no par value, 50,000 shares authorized; 200 shares issued
and outstanding (4,308 shares issued and outstanding as adjusted for the
21.5-for-1 exchange ratio used to effect the acquisition).................. 4,308 4,308 4,308
---------- ---------- -----------
Total................................................................... $ 187,622 $ 188,080 $ 188,080
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Upon consummation of the MVI merger and proposed initial public offering,
certain shares of the Company's common stock will be designated as Class B
Common Stock and the remaining shares will be designated as Class A Common
Stock. There are no shares of Preferred Stock issued or outstanding as of July
31, 1996.
BUSINESS
The Company is engaged in the sale, rental, and servicing of industrial and
agricultural equipment to customers primarily in the construction and
agricultural industries and to governmental agencies. The
F-8
<PAGE>
1. NATURE OF BUSINESS: (CONTINUED)
Company's headquarters are located in Fargo, North Dakota. The Company owns and
operates industrial and agricultural equipment dealerships located in Arizona,
California, Minnesota, North Dakota, South Dakota and Texas. Accordingly, the
Company's results of operations can be significantly impacted by the general
economic health of the construction and agricultural industries. MVI is a dealer
involved in the sales and service of irrigation equipment and vegetable storage
ventilation systems.
The Company's major supplier of new equipment and parts for sale is Deere &
Company (Deere), which accounted for 47%, 47%, and 48% of total revenues for
fiscal years 1994, 1995, and 1996, respectively, and 47% and 48% of total
revenues for the six months ended July 31, 1995 and 1996, respectively. No other
supplier's equipment accounted for more than 10% of total revenues.
As discussed in Note 10, the Company has significant transactions with
related parties, primarily related to financing arrangements.
DEALERSHIP AGREEMENTS
The Company has entered into agreements with Deere which authorize the
Company to act as an authorized dealer of Deere industrial and agricultural
equipment. The dealer agreements continue until terminated by Deere or the
Company in accordance with the specified provisions.
The Company is required to meet certain performance criteria and equity
ratios, to maintain suitable facilities, to actively promote the sale of Deere
equipment, to fulfill warranty obligations, and to maintain stores only in the
authorized locations. The Company's principal stockholder is also required to
maintain certain voting control and ownership interests. The agreements also
contain certain provisions that must be complied with in order to retain the
Company's dealership agreements in the event of certain changes in control, as
defined, or the death of the controlling stockholder.
Deere is obligated to make available to the Company floor plan and other
financing programs that it offers to other dealers, provide promotional and
marketing materials, and authorize the Company to use Deere trademarks and trade
names.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses during the reporting period and disclosure of contingent assets and
liabilities. The ultimate results could differ from those estimates. Estimates
are used for such items as used equipment inventory, depreciable lives of
property and equipment, allowance for uncollectible accounts, inventory
reserves, and guarantees. As better information becomes available or as actual
amounts are determinable, the recorded estimates are revised.
INTERIM FINANCIAL STATEMENTS
The combined balance sheet as of July 31, 1996, and the related combined
statements of operations, stockholders' equity and cash flows for the six months
ended July 31, 1995 and 1996, are unaudited and are not covered by the reports
of independent public accountants. However, in the opinion of management, these
interim financial statements include all adjustments (consisting of only normal
recurring adjustments) which are necessary for the fair presentation of the
results for the interim periods presented. The results of operations for the
unaudited six-month period ended July 31, 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year.
F-9
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents. Cash equivalents consist primarily of certificates of deposit.
INVENTORIES
All inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method for new equipment and
parts inventory. The specific identification method is used to determine cost
for used equipment.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------- JULY 31,
1995 1996 1996
--------- ---------- ----------
<S> <C> <C> <C>
New equipment.............................................. $ 47,541 $ 72,647 $ 75,003
Used equipment............................................. 21,333 32,056 40,210
Parts and other............................................ 8,330 10,913 13,795
--------- ---------- ----------
Total.................................................. $ 77,204 $ 115,616 $ 129,008
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred. Major betterments and improvements which extend
the useful life of the related item are capitalized and depreciated.
Depreciation is provided for over the estimated useful lives of the individual
assets using accelerated and straight-line methods. In fiscal 1996, the Company
began using the straight-line method of depreciation exclusively for all new
additions. The impact on net income resulting from this change was not material.
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, USEFUL
-------------------- JULY 31, LIVES
1995 1996 1996 (YEARS)
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Land................................................. $ 224 $ 488 $ 488 --
Buildings and improvements........................... 2,020 3,394 3,645 31.5
Equipment, furniture and fixtures.................... 4,174 5,585 6,976 5-7
Rental equipment..................................... 201 7,750 8,013 5-7
Construction in progress............................. 442 18 41 --
--------- --------- ---------
Total.......................................... 7,061 17,235 19,163
Accumulated depreciation............................. (3,436) (4,196) (5,134)
--------- --------- ---------
Property and equipment, net.......................... $ 3,625 $ 13,039 $ 14,029
--------- --------- ---------
--------- --------- ---------
</TABLE>
REVENUE RECOGNITION
Revenue on equipment and parts sales is recognized upon shipment of product
to customers. Rental and service revenue is recognized at the time such services
are provided.
F-10
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
companies to review long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. This pronouncement also
provides guidance to be considered in performing such reviews. The Company will
be required to adopt SFAS No. 121 in fiscal 1997. The Company expects that the
ultimate adoption of SFAS No. 121 will not have a significant impact on its
financial position or results of operations.
3. BUSINESS COMBINATIONS:
In October 1995, the Company acquired all the common stock of Cass County
Equipment Co. (Cass), which was controlled by the Company's majority
stockholder, in exchange for 5,248 shares of the Company's common stock,
$520,000 in cash, and a note payable for $375,000. Because the Company and Cass
were under common control, the merger has been accounted for essentially as a
pooling of interests. Accordingly, the Company's financial statements include
the historical carrying amounts of the combined net assets and results of the
operations of the combined entities for all periods presented.
In February 1995, the Company purchased the assets and assumed certain
liabilities of Whitney Machinery, Inc. (Whitney). Total consideration for the
acquisition was $2,699,000. The acquisition has been accounted for using the
purchase method. Accordingly, the purchase price was allocated to assets and
liabilities based on the estimated fair value at the acquisition date. The
excess of purchase price over the fair value of the net assets totaled $625,000
and is being amortized over 30 years. The fiscal 1996 financial statements
include Whitney's results of operations from the date of acquisition. Pro forma
results of operations for fiscal 1994 and 1995, had the acquisition taken place
on February 1, 1993, were not significantly different from reported amounts.
4. NOTES RECEIVABLE--AFFILIATES:
Short-term notes receivable from affiliates, all of which were repaid in
fiscal 1996, were as follows as of January 31, 1995 (in thousands):
<TABLE>
<S> <C>
Majority stockholder, demand note, interest at 8.0%................. $ 922
Farmers Equipment Rental, Inc., demand note, interest at 7.5%....... 2,408
R. D. Offutt Company, demand notes, interest ranging from 7.5% to
8.0%............................................................... 680
---------
$ 4,010
---------
---------
</TABLE>
5. FLOOR PLAN PAYABLES:
Floor plan payables include borrowings from Deere, Ag Capital and other
vendors under floor plan financing arrangements for inventory. The terms of
these arrangements generally include a one-to-twelve-month interest-free term
followed by a term during which interest is charged. Payoff of the floor plan
generally occurs at the earlier of sale of the equipment or in accordance with
the terms of the financing
F-11
<PAGE>
5. FLOOR PLAN PAYABLES: (CONTINUED)
arrangements. All debts owed to Deere are guaranteed by the majority stockholder
of the Company and are collateralized by inventory. Floor plan payables consist
of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- JULY 31,
1995 1996 1996
--------- --------- ----------
<S> <C> <C> <C>
INTEREST BEARING:
Deere Credit Services inventory notes, due as inventory is sold, interest at
various rates from 5.65% to 9.0%............................................ $ 608 $ 20,015 $ 39,559
Deere & Company payables, due as inventory is sold, interest at various rates
from 8.25% to 9.0%.......................................................... 14,496 17,487 3,936
Ag Capital Company, interest based on prime (8.5% at January 31, 1996 and 1995
and 8.25% at July 31, 1996)................................................. 3,858 7,299 11,902
Other......................................................................... 628 363 2,289
--------- --------- ----------
19,590 45,164 57,686
--------- --------- ----------
NON-INTEREST BEARING:
Deere & Company............................................................... 33,991 45,147 45,825
Other......................................................................... -- 1,303 1,284
--------- --------- ----------
33,991 46,450 47,109
--------- --------- ----------
Total....................................................................... $ 53,581 $ 91,614 $ 104,795
--------- --------- ----------
--------- --------- ----------
</TABLE>
6. NOTES PAYABLE AND LONG-TERM DEBT:
BANKS AND OTHERS
Notes payable and long-term debt to banks and others consisted of the
following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- JULY 31,
1995 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Deere Credit Services rental equipment notes, due in various
amounts through January 2000, interest at various rates from 8.25%
to 9.0%, collateralized by rental equipment....................... $ -- $ 3,533 $ 5,479
Bank lines of credit (see below)................................... -- 3,472 1,492
Other.............................................................. 874 2,299 1,300
--------- --------- ---------
Total.......................................................... 874 9,304 8,271
Less short-term notes and current maturities of long-term debt..... (233) (2,835) (3,662)
--------- --------- ---------
$ 641 $ 6,469 $ 4,609
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has bank lines of credit totaling $3,500,000 through May 1,
1997 at variable interest rates. Bank lines of credit are guaranteed by a
majority stockholder of the Company. During the years ended January 31,
1994, 1995, and 1996, the highest balances outstanding under these lines
were $562,000, $750,000, and $2,972,000, respectively. The weighted average
interest rates on these lines during such periods were 6.86%, 7.94%, and
8.41%, respectively.
F-12
<PAGE>
6. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED)
AFFILIATES
Notes payable and long-term debt due to affiliates consist of the following
(in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------- JULY 31,
1995 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Ag Capital Company, bridge loan related to acquisition of net
assets of Central Texas (See Note 13), interest based on
prime (8.25%), collateralized by substantially all assets of
the Company.................................................. $ -- $ -- $ 8,400
Ag Capital Company, other...................................... 611 1,334 1,260
Farmers Equipment Rental, Inc., interest at prime plus 1%
(9.50% at January 31, 1995) collateralized by inventory and
equipment, paid in fiscal 1996............................... 1,792 -- --
--------- --------- ---------
Total........................................................ 2,403 1,334 9,660
Less short-term notes and current maturities of long-term
debt......................................................... (1,965) (136) (8,400)
--------- --------- ---------
$ 438 $ 1,198 $ 1,260
--------- --------- ---------
--------- --------- ---------
</TABLE>
Future maturities of all debt as of January 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
1997............................................................... $ 2,971
1998............................................................... 4,901
1999............................................................... 1,505
2000............................................................... 391
2001............................................................... 116
Thereafter......................................................... 754
---------
$ 10,638
---------
---------
</TABLE>
The Company's debt agreements contain various restrictive covenants which,
among other matters, require the Company to maintain minimum net worth levels,
as defined, and place limits on additional indebtedness. The Company was in
compliance with all debt covenants at January 31, 1996 and July 31, 1996.
7. EMPLOYEE BENEFIT PLANS:
401(k) EMPLOYEE SAVINGS PLAN
The Company's employees participate in a 401(k) employee savings plan
sponsored by an affiliate which covers substantially all employees. The Company
matches a portion of employee contributions up to a maximum of $900 per
employee. Contributions to the plan by the Company were $121,000, $151,000, and
$194,000 for the fiscal years ended January 31, 1994, 1995, and 1996,
respectively, and $80,000 and $109,000 for the six months ended July 31, 1995
and 1996, respectively.
EMPLOYEE HEALTH BENEFIT TRUST
The Company participates in a tax-exempt voluntary employee benefit trust
sponsored by an affiliate which provides health and dental benefits for
full-time employees. In the event of a deficiency in the trust,
F-13
<PAGE>
7. EMPLOYEE BENEFIT PLANS: (CONTINUED)
additional monthly premiums could be assessed to the Company; however,
management anticipates no substantial increases in premiums at the present time.
The maximum liability to the Company is limited by stop-loss insurance to the
lesser of $35,000 per employee or 120% of expected claims for the year.
8. INCOME TAXES:
The Company has elected to be treated as an S corporation under the Internal
Revenue Code. Under this election, the Company is not directly subject to income
taxes. Instead, corporate taxable earnings are passed through to the
stockholders, who are responsible for any taxes which may be due.
In connection with the pending reorganization and offering described in Note
13, both RDO and MVI will terminate their S corporation federal tax status and
change to C corporations and, accordingly, will be subject to federal and
certain state income taxes. Prior to such termination, the Company will
distribute to its current stockholders all, or a portion of, accumulated S
corporation earnings as of the termination date. Through January 31, 1996, the
amount of the undistributed accumulated Subchapter S earnings was approximately
$15.0 million. Additional undistributed Subchapter S earnings of $5.5 million
have been declared but unpaid as of July 31, 1996.
Pro forma net income and pro forma net income per share for the year ended
January 31, 1996, and for the six months ended July 31, 1996, have been
determined assuming that the Company had been taxed as a C corporation for
federal and certain state income tax purposes for such periods.
Unaudited pro forma income taxes represent the estimated income taxes that
would have been reported had the Company been a taxable entity for both federal
and state income tax purposes for the years ended January 31, 1994, 1995, and
1996. The components of the unaudited pro forma income tax provision are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Federal........................................................ $ 1,671 $ 3,319 $ 2,433
State.......................................................... 504 992 757
Deferred......................................................... 157 (386) 38
--------- --------- ---------
Unaudited pro forma provision for income taxes................... $ 2,332 $ 3,925 $ 3,228
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of taxes based on the federal statutory rate of 34% and the
unaudited pro forma provision for income taxes for the years ended January 31,
1994, 1995, and 1996 is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Income taxes at the federal statutory rate............................ 34% 34% 34%
State income taxes, net of federal benefit............................ 6% 6% 6%
-- -- --
Unaudited pro forma provision for income taxes........................ 40% 40% 40%
-- -- --
-- -- --
</TABLE>
Effective with the termination of the Company's S corporation status, the
Company will provide for deferred income taxes for cumulative temporary
differences between the tax basis and financial reporting basis of its assets
and liabilities at the date of termination. If the termination had occurred at
July 31, 1996, the net deferred income tax asset would have approximated
$400,000.
F-14
<PAGE>
8. INCOME TAXES: (CONTINUED)
The pro forma deferred tax asset consisted of the following temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves...................................................... $ 417 $ 320
Compensation accruals...................................................... 384 480
Other...................................................................... 17 6
--------- ---------
Total deferred tax assets................................................ 818 806
Deferred tax liabilities:
Property and equipment..................................................... (191) (249)
Inventory.................................................................. (332) (300)
--------- ---------
Total deferred tax liabilities........................................... (523) (549)
--------- ---------
Net deferred tax asset................................................... $ 295 $ 257
--------- ---------
--------- ---------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases retail space and vehicles under various noncancelable
operating leases. The leases have varying terms and expire at various dates
through 2007. Generally, the leases require the Company to pay taxes, insurance
and maintenance costs. Rent expense was $1,033,000, $1,386,000, and $2,055,000
for fiscal 1994, 1995, and 1996, respectively, and $770,000 and $884,000 for the
six months ended July 31, 1995 and 1996, respectively.
Future minimum rental payments, by year, required under leases with initial
or remaining terms of one year or more consist of the following (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 1,746
1998................................................................ 1,360
1999................................................................ 1,112
2000................................................................ 909
2001................................................................ 843
Thereafter.......................................................... 1,088
---------
$ 7,058
---------
---------
</TABLE>
GUARANTEES
The Company has guaranteed a portion of the remaining outstanding balances
of certain customer notes and lease contracts financed by credit companies. The
Company has made deposits with the finance
F-15
<PAGE>
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
companies to partially fund contingent liabilities which may come due. These
customer notes are collateralized by equipment. The contingent liability and
off-setting deposits are as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1996
-------------------------- --------------------------
FINANCE FINANCE
GUARANTEED DEPOSITS GUARANTEED DEPOSITS
AMOUNTS RECEIVABLE AMOUNTS RECEIVABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ag Capital Company (affiliate).............. $ 1,862 $ -- $ 3,011 $ --
Farmers Equipment Rental, Inc.
(affiliate)............................... 1,418 -- 1,125 --
Deere Credit Services....................... 771 745 817 817
Other....................................... 25 3 38 6
----------- ----- ----------- -----
Total..................................... $ 4,076 $ 748 $ 4,991 $ 823
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
MINIMUM REPURCHASE GUARANTEES
The Company has entered into various sales agreements with certain customers
which are subject to repurchase agreements. Pursuant to these agreements, the
Company, at the discretion of the customer, may be required to repurchase
equipment at specified future dates at specified repurchase prices. With respect
to these agreements, the Company believes the estimated future retail values of
the equipment exceed the guaranteed repurchase prices.
The Company's existing repurchase agreements expire as follows (in
thousands):
<TABLE>
<S> <C>
1997................................................................ $ 270
1998................................................................ 296
1999................................................................ 1,640
2000................................................................ 1,362
2001................................................................ 3,250
Thereafter.......................................................... 2,998
---------
Total............................................................. $ 9,816
---------
---------
</TABLE>
10. RELATED-PARTY TRANSACTIONS:
The Company has transactions with companies which are related through common
ownership. A summary of significant related-party transactions is as follows:
a. Ag Capital Company and Farmers Equipment Rental, Inc. provide financing
to customers purchasing equipment, parts and repair service from the
Company. The Company is contingently liable to these related entities on
a portion of this customer financing as summarized in Note 9.
b. In addition, the Company has floor plan payables, notes payable and
long-term debt owed to Ag Capital Company and Farmers Equipment Rental,
Inc. to finance inventory as summarized in Notes 5 and 6. Interest
expense paid to related entities totaled $771,000, $627,000, and $849,000
in fiscal 1994, 1995, and 1996, respectively, and $257,000 and $426,000
during the six months ended July 31, 1995 and 1996, respectively.
c. The Company's notes receivable from affiliates are summarized in Note 4.
d. The Company had sales to related entities totaling $1,885,000,
$3,450,000, and $5,492,000 in fiscal 1994, 1995, and 1996, respectively,
and $2,318,000 and $4,473,000 during the six months ended
F-16
<PAGE>
10. RELATED-PARTY TRANSACTIONS: (CONTINUED)
July 31, 1995 and 1996, respectively. The Company also leases certain
retail space and vehicles from related entities. Total rent expense for
these leases totaled $579,000, $737,000, and $1,089,000 in fiscal 1994,
1995, and 1996, respectively, and $370,000 and $554,000 during the six
months ended July 31, 1995 and 1996, respectively.
11. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Supplemental cash flow disclosures for the Company are as follows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JULY 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash payments for interest................... $ 1,436 $ 1,937 $ 3,820 $ 969 $ 2,640
Supplemental disclosures of noncash investing
and financing activities:
Increase in assets related to acquisitions
of dealerships through issuance and
assumption of debt and issuance of common
stock.................................... $ -- $ -- $ 9,991 $ -- $ 8,108
Dividends declared, accrued and unpaid..... $ -- $ -- $ -- $ -- $ 5,502
Reduction of notes receivable from
affiliates and other receivables through
payment of dividends..................... $ -- $ 3,088 $ -- $ -- $ --
Conversion of long-term debt due to
affiliates to common stock............... $ 5,499 $ -- $ -- $ -- $ --
Issuance of common stock in exchange for
short-term note receivable from
affiliate................................ $ 4,347 $ -- $ -- $ -- $ --
</TABLE>
12. SEGMENT INFORMATION:
The Company's operations are classified into two business segments:
industrial and agricultural. The industrial operations include the sale, rental,
and service of industrial equipment to customers primarily in the construction
and utility industries and to units of government. Agricultural operations
include the sale, rental and service of agricultural equipment primarily to
customers in the agricultural industry.
Operating earnings by business segment are defined as revenues less
operating costs and expenses. Income and expense not allocated to business
segments include investment income, interest expense, and corporate
administrative costs.
Identifiable assets are those used exclusively in the operations of each
business segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash, short-term investments, certain property, plant,
and equipment and stockholder notes receivable which originated from the
Company's reorganization in fiscal 1994. These stockholder notes receivable of
$5.375 million and $921,000 in fiscal 1994 and 1995, respectively, have all been
repaid.
F-17
<PAGE>
12. SEGMENT INFORMATION: (CONTINUED)
The following tables show sales, operating income and other financial
information by business segment for the fiscal years 1994, 1995, and 1996 (in
thousands):
<TABLE>
<CAPTION>
CORPORATE
INDUSTRIAL AGRICULTURAL AND OTHER TOTAL
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
1994:
Revenues.................................. $ 86,721 $ 57,391 $ -- $ 144,112
Operating income (loss)................... 4,234 3,436 (504) 7,166
Depreciation.............................. 423 245 -- 668
Identifiable assets....................... 48,990 28,962 5,389 83,341
Capital expenditures...................... 448 179 -- 627
1995:
Revenues.................................. 110,546 73,364 -- 183,910
Operating income (loss)................... 6,709 4,796 (599) 10,906
Depreciation.............................. 388 239 7 634
Identifiable assets....................... 59,573 37,110 1,632 98,315
Capital expenditures...................... 360 643 25 1,028
1996:
Revenues.................................. 138,972 84,585 -- 223,557
Operating income (loss)................... 6,604 4,826 (367) 11,063
Depreciation.............................. 750 307 28 1,085
Identifiable assets....................... 102,289 45,591 213 148,093
Capital expenditures...................... 7,855 2,001 137 9,993
</TABLE>
13. PENDING OFFERING, CHANGE IN TAX STATUS, AND ACQUISITIONS:
PROPOSED INITIAL PUBLIC OFFERING
The Company has filed a Registration Statement with the Securities and
Exchange Commission for an offering of shares of Class A Common Stock (the
Offering). The Company expects to use the net proceeds of this Offering
(estimated to be approximately $41.2 million) to fund the distribution of
accumulated S corporation dividends (see Note 8), repay a note issued in
connection with the acquisition of Mega Equipment Company (Central Texas) (see
Acquisitions Completed or Pending Subsequent to January 31, 1996 below), fund
the purchase price of certain proposed acquisitions (see Acquisitions Completed
or Pending Subsequent to January 31, 1996 below), pay down inventory floor plan
financing, fund potential future acquisitions, and for general corporate
purposes. In connection with this offering, the Company will grant to the
underwriters an option to purchase additional shares of Class A Common Stock at
the initial public offering price. The option is exercisable for a period of 30
days from the effective date.
CHANGE IN TAX STATUS
The Company will terminate its S corporation federal tax election upon the
consummation of this Offering and, accordingly, will be subject to federal and
certain state income taxes as a C corporation from that date forward (see Note
8).
STOCK INCENTIVE PLAN
In connection with the proposed initial public offering, the Company will
adopt the 1996 Stock Incentive Plan (the Plan) to provide incentives to key
employees, directors, advisors, and consultants of the Company. The Plan, which
is administered by the Compensation Committee of the Board of Directors (the
Committee), will provide for an authorization of shares of common stock for
issuance thereunder such
F-18
<PAGE>
13. PENDING OFFERING, CHANGE IN TAX STATUS, AND ACQUISITIONS: (CONTINUED)
that the total number of shares available for issuance under the Plan equals 10%
of the total number of shares of Common Stock issued and outstanding. Under the
Plan, the Company may grant eligible recipients incentive stock options,
nonqualified stock options, restricted stock, stock appreciation rights, stock
awards, or any combination thereof. The Committee establishes the exercise price
of any stock options granted under the Plan.
ACQUISITIONS COMPLETED OR PENDING SUBSEQUENT TO JANUARY 31, 1996
Effective July 1, 1996, the Company acquired certain assets and assumed
certain liabilities of Mega Equipment Company (Central Texas), which consists of
three full-service industrial stores located in the Dallas/Fort Worth
metropolitan area and Waco, Texas. Total consideration for the net assets
acquired, which has been accounted for using the purchase method, was
approximately $8.4 million and was financed by debt from Ag Capital. Resulting
goodwill of approximately $4.0 million is being amortized over 30 years. The
Company also acquired certain new equipment and parts inventory from Deere to
stock the Central Texas dealership. Total consideration for such inventory of
approximately $7.7 million was financed through Deere floor plan financing
arrangements. Central Texas' results of operations will be included with the
Company's results of operations beginning on the effective date of the
acquisition.
In August, 1996, the Company signed letters of intent to purchase certain
assets and assume certain liabilities of East Texas Machinery, Inc. (East
Texas), which consists of 3 full-service industrial equipment stores located in
Longview, Lufkin and Mount Pleasant, Texas, and of Liberty Agricultural, Inc.
(Washington), a full-service agricultural equipment dealership with two stores
located in Pasco and Sunnyside, Washington. Based on the letters of intent, the
total purchase price for the net assets of these two entities will be
approximately $5.4 million and will be financed with debt, a portion of which
will be repaid with proceeds from the proposed initial public offering. The
letter of intent with Washington also calls for future contingent consideration
of up to $750,000 in the event certain performance criteria are met over a
three-year period.
These two acquisitions will be accounted for under the purchase method and
will result in goodwill of approximately $2.0 million, which will be amortized
over 30 years. The results of operations of the entities will be included in the
Company's results of operations beginning on the effective dates of the
acquisitions (expected to be December 1996 for East Texas and October 1996 for
Washington).
14. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL YEAR
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1995:
Total revenues...................... $ 45,472 $ 49,732 $ 48,713 $ 39,993 $ 183,910
Gross profit........................ 8,806 9,768 9,822 7,403 35,799
Net income.......................... 2,566 3,376 2,461 1,410 9,813
Fiscal 1996:
Total revenues...................... 52,029 57,718 67,078 46,732 223,557
Gross profit........................ 9,765 10,863 12,480 9,610 42,718
Net income.......................... 1,884 2,697 3,078 410 8,069
</TABLE>
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
February 13, 1996
To the Board of Directors
MEGA EQUIPMENT COMPANY
Irving, Texas
We have audited the accompanying balance sheet of MEGA EQUIPMENT COMPANY as
of December 31, 1995, and the related statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MEGA EQUIPMENT COMPANY, as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
HANSEN, PLAHM & CO.
F-20
<PAGE>
MEGA EQUIPMENT COMPANY
BALANCE SHEET
AT DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
CURRENT ASSETS:
Cash..................................................... $ 116,941
Receivables:
Trade Accounts........................... 2,513,122
Other.................................... 154,230 2,667,352
------------
Inventories:
New Machines............................. 1,883,573
Used Machines and Rental Equipment....... 8,210,447
Parts and Sundry......................... 1,357,843 11,451,863
------------
Prepaid Expenses and Deposits............................ 16,978
------------
TOTAL CURRENT ASSETS................................... 14,253,134
PROPERTY AND EQUIPMENT:
Office Equipment........................... 83,907
Computer Equipment......................... 134,292
Shop Equipment............................. 392,152
Transportation Equipment................... 390,913
------------
1,001,264
Less: Accumulated Depreciation............. 680,857 320,407
------------
OTHER ASSETS:
Deposits................................................. 1,104
------------
TOTAL ASSETS......................................... $ 14,574,645
------------
------------
</TABLE>
See Notes to the Financial Statements.
F-21
<PAGE>
MEGA EQUIPMENT COMPANY
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Notes Payable........................................... $ 4,180,143
Accounts Payable and Accrued Expenses:
John Deere Industrial Equipment
Company................................ 7,172,311
Other.................................... 186,477 7,358,788
-----------
Accrued Expenses...................................... 429,772
Deferred Revenues..................................... 429,545
------------
TOTAL LIABILITIES................................... 12,398,248
STOCKHOLDERS' EQUITY:
Common Stock--No Par Value, Authorized
1,000,000 Shares, Issued 200,000
Shares................................... 200,000
Retained Earnings.......................... 1,976,397
-----------
TOTAL STOCKHOLDERS' EQUITY............................ 2,176,397
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $ 14,574,645
------------
------------
</TABLE>
See Notes to the Financial Statements.
F-22
<PAGE>
MEGA EQUIPMENT COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET SALES.................................... $ 28,049,080
COST OF SALES................................ 22,174,475
------------
GROSS PROFIT............................. 5,874,605
OPERATING EXPENSES........................... 6,012,297
------------
LOSS FROM OPERATIONS..................... (137,692)
OTHER INCOME................................. 396,979
------------
NET INCOME............................... 259,287
RETAINED EARNINGS--BEGINNING................. 1,863,257
CONTRIBUTIONS BY SHAREHOLDERS................ 300,000
DISTRIBUTIONS TO SHAREHOLDERS................ (446,147)
------------
RETAINED EARNINGS--ENDING.................... $ 1,976,397
------------
------------
</TABLE>
See Notes to the Financial Statements.
F-23
<PAGE>
MEGA EQUIPMENT COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................... $ 259,287
Adjustments to Reconcile Net Income to Net
Cash Used in Operating Activities:
Depreciation............................. 102,043
Changes in Operating Assets and
Liabilities:
Increase in Receivables................ (893,543)
Increase in Inventory.................. (2,638,904)
Increase in Prepaid Expenses and Other
Assets............................... (2,191)
Increase in Accounts Payable........... 1,495,934
Increase in Accrued Expenses........... 210,902
Increase in Deferred Revenues.......... 48,868
------------
TOTAL ADJUSTMENTS.................................. (1,676,891)
------------
NET CASH USED IN OPERATING ACTIVITIES.............. (1,417,604)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital Expenditures....................... (232,332)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes Payable.................. 1,657,409
Retained Earnings Distributions............ (446,147)
Shareholder Contributions.................. 300,000 1,511,262
------------ ------------
NET DECREASE IN CASH............................... (138,674)
CASH AT BEGINNING OF YEAR.................................. 255,615
------------
CASH AT END OF YEAR........................................ $ 116,941
------------
------------
</TABLE>
See Notes to the Financial Statements.
F-24
<PAGE>
MEGA EQUIPMENT COMPANY
NOTES TO THE FINANCIAL STATEMENTS
AT DECEMBER 31, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Mega Equipment Company (Mega) has adopted the last-in, first-out (LIFO)
method to value new machine inventories.
For the year ended December 31, 1995, there was a net profit of $283,552
prior to a credit to earnings for the decrease in the LIFO reserve of $85,737.
The LIFO reserve at December 31, 1995 is $215,483.
Mega rents new and used machines. The cost of each machine rented is reduced
by 75% of rental revenue earned. Subsequent repairs to the machine are used to
increase the inventory cost of the machine. At the end of the fiscal year all
used machines are valued at lower of cost or market and the parts and sundry
inventory is valued at cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Repairs are charged to earnings
as incurred. Depreciation on property and equipment is calculated principally by
the straight-line method over the estimated useful life of the asset.
STATEMENT OF CASH FLOWS
Mega has adopted cash flow reporting in accordance with Statement of
Financial Accounting Standards No. 95--Statement of Cash Flows.
For purposes of the Statement of Cash Flows, Mega considers money market
funds and short-term investments purchased with a maturity of three months or
less to be cash equivalents.
NOTE 2--NOTES PAYABLE:
The following is a schedule of outstanding notes payable at December 31,
1995, all of which are secured by equipment inventories, fixed assets and/or
accounts receivable of Mega, except as noted. All notes secured by inventory are
shown as current maturities.
<TABLE>
<CAPTION>
DESCRIPTION RATE CURRENT LONG-TERM TOTAL
- ---------------------------------------------------------------- --------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Bank of America--Line of Credit up $4,000,000.
Interest rate on unused portion is 1/2%....................... Varies $ 3,150,000 $ 0 $ 3,150,000
John Deere Industrial Equipment Company......................... 7% 65,181 0 65,181
Officers/Shareholders--Unsecured................................ 6.5% 964,962 0 964,962
--
------------ ------------
$ 4,180,143 $ 0 $ 4,180,143
--
--
------------ ------------
------------ ------------
</TABLE>
F-25
<PAGE>
MEGA EQUIPMENT COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AT DECEMBER 31, 1995
NOTE 3--REAL PROPERTY LEASES:
Mega leases real property at three (3) locations, Irving, Fort Worth and
Waco, Texas. The properties at Irving and Fort Worth are leased from Mega's
majority shareholder. The following is a summary by location of specific lease
agreements:
<TABLE>
<CAPTION>
IRVING FORT WORTH WACO
----------------------- ----------------- ----------------------
<S> <C> <C> <C>
Term Renewable Annually July 1, 1991 - June 1, 1992 -
Beginning 9/1/93 June 30, 2002 December 31, 1996
Base Rent $9,000 $3,500 + C.P.I. $2,500
Additional Real Estate Taxes $50,000 $30,000 $20,000
</TABLE>
NOTE 4--EMPLOYEE VOLUNTARY PRE-TAX SAVINGS PLAN:
Mega has established a pre-tax savings plan for its employees, in accordance
with Section 401(k) of the Internal Revenue Code. Mega will contribute $.50 for
each $1.00 an employee saves. Mega matching contribution is limited to $1,000
per employee per plan year.
F-26
<PAGE>
MEGA EQUIPMENT COMPANY
BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents.................. $ 450,702
Accounts Receivable........................ 2,697,512
Inventories................................ 11,316,855
------------
Total Current Assets..................... 14,465,069
Property, Plant and Equipment................ 378,908
Other Assets................................. 2,390
------------
Total Assets........................... $ 14,846,367
------------
------------
LIABILITIES AND STOCKHOLDERS INVESTMENT
Current Liabilities:
Notes Payable.............................. $ 3,034,672
Accounts Payable........................... 6,549,945
Other...................................... 198,789
Accrued Expenses........................... 596,305
------------
Total Current Liabilities................ 10,379,711
Long-Term Debt............................... 500,000
------------
Total Liabilities........................ 10,879,711
Stockholders' Equity:
Common Stock............................... 200,000
Retained Earnings.......................... 3,766,656
------------
Total Shareholders' Equity............... 3,966,656
Total Liabilities and Shareholders'
Equity............................... $ 14,846,367
------------
------------
</TABLE>
See Notes to Unaudited Interim Financial Statements
F-27
<PAGE>
MEGA EQUIPMENT COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Revenues..................................... $ 15,618,037
Cost of Sales................................ 12,432,805
------------
Gross Profit................................. 3,185,232
Selling, General and Administrative
Expense..................................... 1,922,625
------------
Operating Income............................. 1,262,607
Interest Expense, net........................ 213,061
------------
Net Income................................... $ 1,049,546
Retained Earnings, beginning................. 1,976,397
Contributions by Shareholders................ 740,713
------------
Retained Earnings, ending.................... $ 3,766,656
------------
------------
</TABLE>
See Notes to Unaudited Interim Financial Statements
F-28
<PAGE>
MEGA EQUIPMENT COMPANY
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
-------------
<S> <C>
OPERATING ACTIVITIES:
Net income....................................................................................... $ 1,049,546
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................. 58,501
Changes in operating assets and liabilities.................................................... (750,136)
-------------
Net cash provided by operating activities.................................................... 357,911
INVESTING ACTIVITIES:
Purchase of property and equipment............................................................... (117,002)
Other, net....................................................................................... (2,390)
-------------
Net cash used for investing activities......................................................... (119,392)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt......................................................... 500,000
Net change in short-term notes payable........................................................... (1,145,471)
Contribution by shareholders..................................................................... 740,713
-------------
Net cash provided by financing activities...................................................... 95,242
-------------
Net change in cash................................................................................. 333,761
Cash and cash equivalents, beginning of year....................................................... 116,941
-------------
Cash and cash equivalents, end of year............................................................. $ 450,702
-------------
-------------
</TABLE>
See Notes to Unaudited Interim Financial Statements
F-29
<PAGE>
MEGA EQUIPMENT COMPANY
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
JUNE 30, 1996
1. INTERIM FINANCIAL STATEMENTS
The balance sheet of Mega Equipment Company as of June 30, 1996, and the
related statements of operations, retained earnings and cash flows for the six
months ended June 30, 1996, are unaudited and are not covered by the reports of
independent public accountants. However, in the opinion of management, these
interim financial statements include all adjustments (consisting of only normal
recurring adjustments) which are necessary for the fair presentation of the
results for the interim period presented. The results of operations for the
unaudited six-month period ended June 30, 1996 are not necessarily indicative of
the results which may be expected for the entire fiscal year.
F-30
<PAGE>
RDO EQUIPMENT CO. AND AFFILIATE
INTRODUCTION TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 1996 AND THE
SIX-MONTH PERIOD ENDED JULY 31, 1996
The following unaudited pro forma consolidated financial information
consists of pro forma unaudited consolidated statements of operations of the
Company for the fiscal year ended January 31, 1996 and for the six-month period
ended July 31, 1996 and a pro forma consolidated balance sheet of the Company as
of July 31, 1996. The unaudited pro forma consolidated financial statements give
effect to the July 1, 1996 acquisition of certain net assets of Mega Equipment
Co. (Central Texas), the pending acquisitions of certain net assets of Liberty
Agricultural Inc. (Washington) and East Texas Machinery, Inc. (East Texas). The
pro forma unaudited consolidated statements of operations give effect to such
transactions as if the transactions had occurred on February 1, 1995. The pro
forma unaudited consolidated balance sheet gives effect to the transactions,
with the exception of the Central Texas acquisition, as if the transactions had
occurred on July 31, 1996. The Central Texas acquisition has been reflected in
the Company's historical balance sheet as of July 31, 1996.
Effective July 1, 1996, the Company acquired certain assets and assumed
certain liabilities of Central Texas. Total consideration for the acquisition,
which has been accounted for using the purchase method, was $8.4 million and was
financed by borrowings from an affiliated entity. Resulting goodwill of
approximately $4.0 million is being amortized over 30 years. The Company
acquired certain new equipment and parts inventory from Deere to stock the
Central Texas dealership. Total consideration for such inventory of
approximately $7.7 million was financed through the John Deere floor plan
financing arrangement.
In August, 1996, the Company signed letters of intent to purchase certain
assets and assume certain liabilities of East Texas, which consists of 3
full-service industrial equipment stores located in Longview, Lufkin and Mount
Pleasant, Texas, and to purchase certain assets and assume certain liabilities
of Washington, a full-service agricultural equipment dealership with two stores
located in Pasco and Sunnyside, Washington. The purchase price for these two
entities will be approximately $5.4 million and will be financed by debt, a
portion of which will be repaid out of proceeds from the Offering. The
acquisitions will be accounted for using the purchase method. Resulting goodwill
of approximately $2.0 million will be amortized over 30 years.
The unaudited pro forma consolidated statement of operations for the year
ended January 31, 1996, reflects the audited historical combined income
statement of the Company for the year ended January 31, 1996, the audited
historical income statement of Central Texas for the year ended December 31,
1995 and the unaudited historical income statements of East Texas and Washington
for their respective years ended October 31, 1995 and December 31, 1995. The
unaudited pro forma combined financial statements as of July 31, 1996 and for
the six months then ended, reflect the unaudited historical combined financial
statements of the Company as of and for the six months ended July 31, 1996, the
unaudited historical financial statements of Central Texas as of and for the six
months ended June 30, 1996, the unaudited historical financial statements of
East Texas as of and for the six months ended April 30, 1996, and the unaudited
historical financial statements of Washington as of and for the six months ended
June 30, 1996.
The pro forma unaudited consolidated financial statements and accompanying
notes should be read in conjunction with the historical combined financial
statements and notes thereto appearing elsewhere or incorporated by reference in
this Registration Statement. The pro forma unaudited consolidated financial
statements do not purport to represent what the results of operations or
financial positions of what the Company would actually have been if the
aforementioned transactions had occurred on February 1, 1995 or on July 31, 1996
or at any future date.
F-31
<PAGE>
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED BALANCE SHEET
AS OF JULY 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
THE PENDING PRO FORMA PRO
COMPANY ACQUISITIONS ADJUSTMENTS FORMA
--------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ 966 $ 331 $ (331)(1) $ 966
Accounts receivable........................ 26,227 2,983 (2,983)(1) 26,227
Inventories................................ 129,008 17,017 104(2) 146,129
Prepaid expenses........................... 568 -- -- 568
--------- ----------- ------------ ---------
Total current assets..................... 156,769 20,331 (3,210) 173,890
PROPERTY AND EQUIPMENT, net.................. 14,029 2,932 (1,884)(1) 15,437
360(3)
DEFERRED INCOME TAXES........................ -- -- 400(5) 400
OTHER ASSETS:
Deposits................................... 1,648 -- -- 1,648
Goodwill and other intangibles, net........ 4,551 -- 2,000(3) 6,551
Other...................................... 205 415 (415)(1) 205
--------- ----------- ------------ ---------
Total assets............................. $ 177,202 $ 23,678 $ (2,749) $ 198,131
--------- ----------- ------------ ---------
--------- ----------- ------------ ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables........................ $ 104,795 $ 12,657 $ 2,373(1) $ 119,825
Notes payable and current maturities of
long-term debt-
Banks and others......................... 3,662 2,344 (2,344)(1) 3,662
Affiliates (4)........................... 8,400 -- -- 8,400
Acquisition debt......................... -- -- 3,900(3) 3,900
Accounts payable........................... 6,697 800 (800)(1) 6,697
Accrued liabilities........................ 6,038 52 47(1) 6,137
Customer advance deposits.................. 1,955 33 (33)(1) 1,955
Distributions payable...................... 5,502 -- -- 5,502
--------- ----------- ------------ ---------
Total current liabilities.............. 137,049 15,886 3,143 156,078
--------- ----------- ------------ ---------
LONG-TERM DEBT, net of current maturities:
Banks and others........................... 4,609 2,441 (2,441)(1) 4,609
Affiliates................................. 1,260 -- -- 1,260
Acquisition debt........................... -- -- 1,500(3) 1,500
--------- ----------- ------------ ---------
Total long-term debt..................... 5,869 2,441 (941) 7,369
--------- ----------- ------------ ---------
STOCKHOLDERS' EQUITY:
Common stock............................... 188 561 (561)(3) 188
Additional paid-in capital................. 16,180 849 (849)(3) 16,180
Retained earnings.......................... 17,916 3,941 (2,415)(1) 18,316
104(2)
(1,630)(3)
400(5)
--------- ----------- ------------ ---------
Total stockholders' equity............... 34,284 5,351 (4,951) 34,684
--------- ----------- ------------ ---------
Total liabilities and stockholders'
equity................................. $ 177,202 $ 23,678 $ (2,749) $ 198,131
--------- ----------- ------------ ---------
--------- ----------- ------------ ---------
</TABLE>
F-32
<PAGE>
RDO EQUIPMENT CO.
NOTES TO PRO FORMA UNAUDITED BALANCE SHEET
AS OF JULY 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A. Pro forma adjustments related to the pending acquisition of certain assets
and assumption of certain liabilities of East Texas and Washington:
(1) Reflects the elimination of assets, liabilities and equity of East Texas
and Washington which were not acquired or assumed by the Company.
(2) Reflects the conversion of Washington's inventory from LIFO and FIFO,
which approximates fair market value.
(3) Reflects the effects of purchase accounting for the acquisition of East
Texas and Washington. Property and equipment is adjusted to its fair
market value, goodwill is recorded and acquisition debt is reflected.
B. Information related to the Central Texas Acquisition:
(4) Reflects affiliate debt of $8,400 issued in connection with the Central
Texas Acquisition.
C. Pro forma adjustments related to the Company's reorganization and change in
tax status:
(5) Reflects a deferred income tax asset of $400, and a corresponding credit
to retained earnings, as if the Company and Washington had converted to C
corporations as of July 31, 1996.
F-33
<PAGE>
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEGA
THE EQUIPMENT PENDING PRO FORMA PRO
COMPANY CO. ACQUISITIONS ADJUSTMENTS FORMA
-------- ------- ---------- --------------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Wholegoods sales........................... $164,054 $20,769 $27,537 $ (2,200)(1) $210,160
Parts and service.......................... 58,998 7,280 11,655 -- 77,933
Rental..................................... 505 -- -- -- 505
-------- ------- ---------- ------- --------
Total revenues........................... 223,557 28,049 39,192 (2,200) 288,598
Cost of sales................................ 180,839 22,054 31,519 (2,200) (1) 232,109
(103) (2)
-------- ------- ---------- ------- --------
Gross profit................................. 42,718 5,995 7,673 103 56,489
Selling, general and administrative expense.. 31,655 5,468 5,976 (1,765)(3) 41,852
200(4)
263(5)
55(6)
-------- ------- ---------- ------- --------
Operating income............................. 11,063 527 1,697 1,350 14,637
Interest expense............................. (3,817) (423 ) (782 ) (802)(7) (5,824)
Interest income.............................. 823 155 314 -- 1,292
-------- ------- ---------- ------- --------
Net income before income taxes............... 8,069 259 1,229 548 10,105
Provision for income taxes(8)................ 3,228 96 454 264 4,042
-------- ------- ---------- ------- --------
Net income................................... $ 4,841 $ 163 $ 775 $ 284 $ 6,063
-------- ------- ---------- ------- --------
-------- ------- ---------- ------- --------
Net income per common share..................
-------- ------- ---------- ------- --------
-------- ------- ---------- ------- --------
Weighted average shares outstanding..........
-------- ------- ---------- ------- --------
-------- ------- ---------- ------- --------
</TABLE>
See the accompanying notes to pro forma unaudited statements of operations.
F-34
<PAGE>
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
MEGA
THE EQUIPMENT PENDING PRO FORMA PRO
COMPANY CO. ACQUISITIONS ADJUSTMENTS FORMA
--------- --------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Wholegoods sales........................... $116,861 $11,088 $15,431 $-- $143,380
Parts and service.......................... 35,710 2,333 5,989 -- 44,032
Rental..................................... 1,202 -- -- -- 1,202
--------- --------- ---------- ----- --------
Total revenues........................... 153,773 13,421 21,420 -- 188,614
Cost of sales................................ 125,841 10,620 16,927 -- 153,388
--------- --------- ---------- ----- --------
Gross profit................................. 27,932 2,801 4,493 -- 35,226
Selling, general and administrative expense.. 18,523 1,567 3,042 100(4) $ 23,391
131(5)
28(6)
--------- --------- ---------- ----- --------
Operating income............................. 9,409 1,234 1,451 (259) 11,835
Interest expense............................. (2,667) (352 ) (439 ) (297)(7) (3,755)
Interest income.............................. 517 110 173 -- 800
--------- --------- ---------- ----- --------
Net income before income taxes............... 7,259 992 1,185 (556) 8,880
Provision for income taxes(8)................ 2,904 367 438 (157) 3,552
--------- --------- ---------- ----- --------
Net income................................... $ 4,355 $ 625 $ 747 $ (399) $ 5,328
--------- --------- ---------- ----- --------
--------- --------- ---------- ----- --------
Net income per common share..................
--------- --------- ---------- ----- --------
--------- --------- ---------- ----- --------
Weighted average shares outstanding..........
--------- --------- ---------- ----- --------
--------- --------- ---------- ----- --------
</TABLE>
See the accompanying notes to pro forma unaudited statements of operations.
F-35
<PAGE>
RDO EQUIPMENT CO.
NOTES TO PRO FORMA UNAUDITED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1996 AND THE SIX MONTHS ENDED JULY 31, 1996
(1) To reflect reclassification of certain Central Texas revenues and costs of
goods sold to a basis consistent with the Company's.
(2) To reflect the current year impact of the conversion of Central Texas and
Washington from LIFO to FIFO.
(3) Reflects the elimination of certain Central Texas salary costs which will
not recur.
(4) Reflects amortization of $6.0 million of goodwill over 30 years arising from
the acquisitions of Central Texas, East Texas, and Washington.
(5) Reflects increase in rent expense related to new leases on buildings used in
the East Texas and Washington operations.
(6) Reflects the net change in depreciation expense associated with certain
assets not acquired, and the write-up to fair market value of certain assets
acquired, from Central Texas, East Texas, and Washington.
(7) The pro forma adjustments to interest expense arising from the acquisitions
of Central Texas, East Texas, and Washington are presented below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JULY
JANUARY 31, 1996 31, 1996
----------------- -------------
<S> <C> <C>
Additional interest on floor plan debt assumed, net of
interest on other debt not assumed........................... $ 357 $ 74
Interest on acquisition debt.................................. 445 223
------ -----
Pro forma interest adjustment............................... $ 802 $ 297
------ -----
------ -----
</TABLE>
(8) To provide for federal and state income tax expense as if the Company,
Central Texas, and Washington had been taxed as C corporations for all
periods presented at rates which reflect the federal statutory rate plus the
net effect of state taxes.
F-36
<PAGE>
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
S Corporation Distributions............................................... 18
Reincorporation........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Combined and Pro Forma Financial and Operating Data.............. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 25
Business.................................................................. 36
Management................................................................ 48
Certain Relationships and Related Transactions............................ 53
Principal Stockholders.................................................... 56
Description of Capital Stock.............................................. 57
Shares Eligible for Future Sale........................................... 59
Underwriting.............................................................. 61
Notice to Canadian Residents.............................................. 62
Legal Matters............................................................. 63
Experts................................................................... 63
Additional Information.................................................... 64
Index to Financial Statements............................................. F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
RDO Equipment Co.
Shares
Class A Common Stock
($.01 PAR VALUE)
PROSPECTUS
CS First Boston
Dain Bosworth
Incorporated
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Class A Common Stock being registered. All of the amounts shown
are estimates, except the SEC registration fee, the NASD filing fee and the
Nasdaq listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC registration fee.............................................................. $ 17,845
NASD filing fee................................................................... 5,675
Nasdaq listing fee................................................................ 20,000
Blue Sky fees and expenses........................................................ 15,000
Legal fees and expenses...........................................................
Accounting fees and expenses......................................................
Printing expenses.................................................................
Transfer agent fees...............................................................
Miscellaneous.....................................................................
-----------
Total......................................................................... $
-----------
-----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may indemnify any person who was or is a party
or is threatened to be made a party to an action (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by him ("Expenses"), and judgments,
fines and amounts paid in settlement of such action, provided that he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although the DGCL permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnify for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, (2) if there are no such
directors or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders. The DGCL also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the DGCL provides the general authorization of
advancement of a director's or officer's litigation expenses in lieu of
requiring the authorization of such advancement by the board of directors in
specific cases, and that indemnification and advancement of expenses provided by
the statute shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement or otherwise.
II-1
<PAGE>
The Company's By-Laws provide for indemnification of the Company's directors
and officers, to the fullest extent not prohibited by DGCL.
The Company has entered into agreements to indemnify its directors and
certain officers, in addition to the indemnification provided for in the
Company's By-Laws. These agreements, among other things, indemnify the Company's
directors and selected officers for all direct and indirect expenses and costs
(including, without limitation, all reasonable attorneys' fees and related
disbursement, other out of pocket costs and reasonable compensation for time
spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and settlement fees) actually and
reasonably incurred by such person in connection with either the investigation,
defense, settlement or appeal of any threatened, pending or completed action,
suit or other proceeding, including any action by or in the right of the
corporation, arising out of such person's services as a director, officer,
employee or other agent of the Company, any subsidiary of the Company or any
other company or enterprise to which the person provides services at the request
of the Company if such director or officer acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, if he or she
had no reasonable cause to believe his or her conduct was unlawful.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The descriptions of issuances of securities set forth below will be adjusted
to reflect the for one stock split effected pursuant to the Company's
reincorporation in Delaware.
1. In , 1996, the Company will acquire all of the outstanding
stock of MVI in exchange for the issuance of shares of Class B Common Stock
to Mr. Offutt.
2. On November 17, 1995, the Company issued 5,248 shares of Class B Common
Stock to Ronald D. Offutt in exchange for all of his shares of Cass County
Equipment Co. ("CCE"). The balance of the outstanding shares of CCE were owned
by the Company. CCE was merged into the Company pursuant to Articles of Merger,
filed with the North Dakota Secretary of State on November 28, 1995.
3. On February 1, 1995, the Company sold an aggregate of 458 shares of
Class A Common Stock to certain existing stockholders of the Company at
approximately $148 per share for an aggregate consideration of $67,700 in the
following amounts: David Chandler (169 shares) and Larry Kerkhoff (289 shares).
4. On January 1, 1994, the Company sold 20,615 shares of Class B Common
Stock to Ronald D. Offutt for an aggregate consideration of $2,600,000 paid for
by delivery of a promissory note, due December 31, 1994, with an interest rate
of 7% per annum.
5. On January 1, 1994, the Company also sold an aggregate of 13,852 shares
of Class A Common Stock to certain individuals at $126.12 per share for an
aggregate consideration of $1,747,017.24 in the following amounts: Larry Scott
(4,826 shares), H. David Frambers (2,385 shares), Larry Kerkhoff (2,839 shares),
David Chandler (1,470 shares), and Betty Lou Scott (2,332 shares).
6. On November 1, 1993, the Company issued 43,599 shares of Class B Common
Stock at $126.12 per share, to Ronald D. Offutt in consideration of Mr. Offutt's
assumption of $5,498,646.46 of debt owed by the Company to R.D. Offutt Company
and certain of its affiliates.
7. In connection with the merger, effective as of October 31, 1993, as
amended, of Lisbon Equipment Co., Fargo Implement, Inc., McClean County
Implement, Inc., and Central Dakota Equipment Co., each a North Dakota
corporation, Red River Implement Company, Inc. and Midwest Machinery, Inc.,
II-2
<PAGE>
each a Minnesota corporation, Brown Implement Co., a South Dakota corporation,
and Arizona Industrial Machinery Company, an Arizona corporation, with and into
the Company, the Company issued shares of Common Stock in consideration for
shares of stock of the acquired companies surrendered in the merger as follows:
Ronald D. Offutt (93,820 shares of Class B Common Stock), John H. Hastings
(3,619 shares of Class A Common Stock), Ronald Becker (1,187 shares of Class A
Common Stock), Paul T. Horn (687 shares of Class A Common Stock), and Allan F.
Knoll (687 shares of Class A Common Stock).
No underwriting commissions or discounts were paid with respect to the sales
of unregistered securities described herein.
The issuances of the securities set forth in this Item 15 were deemed to be
exempt from registration in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. In all such
transactions that relied upon the exemption set forth in Section 4(2) of the
Securities Act, the recipients of securities represented their intentions to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the securities issued in such transactions. All recipients had adequate access,
through their relationships with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
1.1. Form of Underwriting Agreement
3.1. Certificate of Incorporation of the Registrant (to be effective upon reincorporation in Delaware)
3.2. Bylaws of the Registrant (to be effective upon reincorporation in Delaware)
4.1. Certificate of Incorporation and Bylaws of the Registrant. (See Exhibits 3.1 and 3.2 above)
*4.2. Specimen of certificate representing Class A Common Stock, $.01 par value, of the Registrant
*4.3. Specimen of certificate representing Class B Common Stock, $.01 par value, of the Registrant
*5.1. Opinion of Oppenheimer Wolff & Donnelly regarding legality of the Common Stock being registered
10.1. Agreement between Ronald D. Offutt, RDO Equipment Co., John Deere Company, and John Deere Industrial
Equipment Company
10.2. Form of Deere Agricultural Dealer Agreement Package
10.3. Form of Deere Industrial Dealer Agreement Package
10.4. Loan Agreement, Seasonal Note, and Security Agreement between Ag Capital Company and the Registrant,
dated July 25, 1996.
10.5. Loan Agreement and Seasonal Note between Ag Capital Company and Minnesota Valley Irrigation, Inc.,
dated August 26, 1996
10.6 Deere Agricultural Dealer Finance Agreement
10.7. Deere Industrial Dealer Finance Agreement
10.8. RDO Equipment Co. 1996 Stock Incentive Plan
10.9. Form of Indemnification Agreement, among the Company and its executive officers and directors
*10.10. Corporate Services Agreement
10.11. Letter of Intent, dated August 21, 1996, between the Company and Liberty Agriculture, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.12 Letter of Intent, dated August 27, 1996, between the Company and East Texas Machinery, Inc.
10.13 Agreement and Plan of Merger, by and between RDO Equipment Co. (North Dakota) and RDO Equipment Co.
(Delaware)
*10.14 Tax Indemnification Agreement
*11.1. Statement re Computation of Per Share Earnings
23.1. Consent of Arthur Andersen LLP
23.2. Consent of Eide Helmeke PLLP
23.3 Consent of Hansen, Plahm & Co.
*23.4. Consent of Oppenheimer Wolff and Donnelly (included in Exhibit 5.1)
24.1. Powers of Attorney (see page II-5)
27.1. Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Inapplicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Registrant, the Underwriting Agreement, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fargo,
State of North Dakota on October 2, 1996.
RDO EQUIPMENT CO.
By
------------------------------------------
Ronald D. Offutt
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ronald D. Offutt, Paul T. Horn, and Allan
F. Knoll, and each of them individually, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
on Form S-1, to sign a Registration Statement pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, and amendments thereto
with the Securities and Exchange Commission, granting upon said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and this power of attorney have been signed on October 2,
1996, by the following persons in the capacities indicated.
NAME AND SIGNATURE TITLE
- ---------------------------------------- --------------------------------------
Chairman, Chief Executive Officer, and
- ---------------------------------------- Director (principal executive
Ronald D. Offutt officer)
President, Chief Operating Officer,
- ---------------------------------------- and Director
Paul T. Horn
Chief Financial Officer, Secretary,
- ---------------------------------------- and Director (principal financial
Allan F. Knoll officer)
Controller (principal accounting
- ---------------------------------------- officer)
Mark A. Doda
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1. Form of Underwriting Agreement...............................................................
3.1. Certificate of Incorporation of the Registrant (to be effective upon reincorporation in
Delaware)..................................................................................
3.2. Bylaws of the Registrant (to be effective upon reincorporation in Delaware)..................
4.1. Certificate of Incorporation and Bylaws of the Registrant. (See Exhibits 3.1 and 3.2
above).....................................................................................
*4.2. Specimen of certificate representing Class A Common Stock, $.01 par value, of the
Registrant.................................................................................
*4.3. Specimen of certificate representing Class B Common Stock, $.01 par value, of the
Registrant.................................................................................
*5.1. Opinion of Oppenheimer Wolff & Donnelly regarding legality of the Common Stock being
registered.................................................................................
10.1. Agreement between Ronald D. Offutt, RDO Equipment Co., John Deere Company, and John Deere
Industrial Equipment Company...............................................................
10.2. Form of Deere Agricultural Dealer Agreement Package..........................................
10.3. Form of Deere Industrial Dealer Agreement Package............................................
10.4. Loan Agreement, Seasonal Note, and Security Agreement between Ag Capital Company and the
Registrant, dated July 25, 1996............................................................
10.5. Loan Agreement and Seasonal Note between Ag Capital Company and Minnesota Valley Irrigation,
Inc., dated August 26, 1996................................................................
10.6 Deere Dealer Agricultural Finance Agreement..................................................
10.7. Deere Dealer Industrial Finance Agreement....................................................
10.8. RDO Equipment Co. 1996 Stock Incentive Plan..................................................
10.9. Form of Indemnification Agreement, among the Company and its executive officers and
directors..................................................................................
*10.10. Corporate Services Agreement.................................................................
10.11. Letter of Intent, dated August 21, 1996, between the Company and Liberty Agriculture, Inc....
10.12 Letter of Intent, dated August 27, 1996, between the Company and East Texas Machinery,
Inc........................................................................................
10.13 Agreement and Plan of Merger, by and between RDO Equipment Co. (North Dakota) and RDO
Equipment Co. (Delaware)...................................................................
*10.14 Tax Indemnification Agreement
*11.1. Statement re Computation of Per Share Earnings...............................................
23.1. Consent of Arthur Andersen LLP...............................................................
23.2. Consent of Eide Helmeke PLLP.................................................................
23.3 Consent of Hansen, Plahm & Co................................................................
*23.4. Consent of Oppenheimer Wolff and Donnelly (included in Exhibit 5.1)..........................
24.1. Powers of Attorney (see page II-5)...........................................................
27.1. Financial Data Schedule......................................................................
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
__________ SHARES
CLASS A COMMON STOCK*
UNDERWRITING AGREEMENT
_______________, 1996
CS First Boston Corporation
Dain Bosworth Incorporated
As Representatives of the Several Underwriters,
c/o CS First Boston Corporation,
Park Avenue Plaza,
New York, N.Y. 10055
Dear Sirs:
1. INTRODUCTORY. RDO Equipment Co., a Delaware corporation ("COMPANY"),
proposes to issue and sell ______________ shares ("FIRM SECURITIES") of its
Class A Common Stock, par value $.01 per share ("SECURITIES") and also proposes
to issue and sell to the Underwriters, at the option of the Underwriters, an
aggregate of not more than ____________ additional shares ("OPTIONAL
SECURITIES") of its Securities as set forth below. The Firm Securities and the
Optional Securities are herein collectively called the "OFFERED SECURITIES."
Ronald D. Offutt (the "STOCKHOLDER") is the controlling stockholder of the
Company and it is contemplated that the Stockholder will receive a distribution
from the proceeds of the offering of the Offered Securities as described in the
Prospectus. For purposes of the representations and warranties of the Company
in this Agreement and the opinion to be delivered pursuant to Section 7(j)
hereof it is assumed that the reincorporation of the Company in Delaware has
occurred prior to the date hereof and that each of the East Texas Acquisition
and the Washington Acquisition (each of which is defined in the Registration
Statement (as hereinafter defined)) have been completed prior to the date
hereof. The Company and the Stockholder hereby agree with the several
Underwriters named in Schedule A hereto ("UNDERWRITERS") as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER. The
Company hereby represents and warrants to, and agrees with, the several
Underwriters that:
(a) A registration statement (No. 333-_______) relating to the
Offered Securities, including a form of prospectus, has been filed
with the Securities and Exchange Commission ("COMMISSION") and either
(i) has been declared
- -----------
* Plus an option to acquire from the Company up to _______ additional shares
to cover over-allotments.
<PAGE>
effective under the Securities Act of 1933 ("ACT") and is not proposed to
be amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement ("INITIAL REGISTRATION
STATEMENT") has been declared effective, either (i) an additional
registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating to
the Offered Securities may have been filed with the Commission pursuant to
Rule 462(b) ("RULE 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities all
have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed to
be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the
- 2 -
<PAGE>
Form on which it is filed and including all information (if any) deemed to
be a part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act, is hereinafter
referred to as the "INITIAL REGISTRATION STATEMENT". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION
STATEMENT". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("RULE
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "PROSPECTUS". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act. The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus, and each preliminary
prospectus has conformed in all material respects with the requirements of
the Act and the Rules and Regulations (as hereinafter defined) and, as of
its date, has not included any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements
of the Act and the rules and regulations of the Commission ("RULES AND
REGULATIONS") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) on
the Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed, or will conform, in all
respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a
material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective
Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will
omit, to state any material fact required to be stated therein
- 3 -
<PAGE>
or necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act and
the Rules and Regulations, neither of such documents will include any
untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in Section
7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, and no proceeding of which the Company has knowledge
has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(d) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, and no
proceeding of which the Company has knowledge has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification;
all of the issued and outstanding capital stock of each subsidiary of
the Company has been duly authorized and validly issued and is fully
paid and nonassessable; and the Company owns directly or indirectly
100% of the issued and outstanding capital stock of each subsidiary
free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all
outstanding shares of capital stock of the Company are, and, when the
Offered Securities have been delivered and paid for in accordance with
this Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and
nonassessable and will conform to the description
- 4 -
<PAGE>
thereof contained in the Prospectus; and the stockholders of the Company
have no preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
any Underwriter for a brokerage commission, finder's fee or other like
payment.
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(h) The Company has filed a registration statement pursuant to
Section 12(g) of Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") to register the Class A Common Stock of the Company
thereunder. The Offered Securities have been approved for listing on
The Nasdaq Stock Market's National Market subject to notice of
issuance.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement,
and the issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which
the Company or any such subsidiary is a party or by which the Company
or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and the Company has
full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all
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<PAGE>
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent
that might have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(o) The Company and its subsidiaries own and possess all right,
title and interest in and to, or have duly licensed or otherwise
lawfully acquired from third parties, all trademarks, trade names and
other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property
(collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct
the business now operated by them, or presently employed by them, and
have not received any notice of infringement of or conflict with
asserted rights of others with respect to any intellectual property
rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole.
(p) Except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or
any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "ENVIRONMENTAL LAWS"), owns or
operates any real property contaminated with any substance that is
subject to any environmental laws, is liable for any off-site disposal
or contamination pursuant to any environmental laws, or is subject to
any claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole; and the Company is not aware of any
pending investigation which might lead to such a claim.
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<PAGE>
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(r) The accountants who have expressed their opinions with
respect to certain of the financial statements and schedules included
in the Registration Statement are independent accountants as required
by the Act.
(s) The consolidated financial statements included in each
Registration Statement and the Prospectus present fairly the financial
position of the Company and its consolidated subsidiaries as of the
dates shown and their results of operations and cash flows for the
periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the
United States applied on a consistent basis; the schedules (if any)
included in each Registration Statement present fairly the information
required to be stated therein; the financial information set forth in
the Prospectus under "Summary Combined and Pro Forma Financial and
Operating Date" and "Selected Combined and Pro Forma Financial and
Operating Data" presents fairly, on the basis stated in each
Registration Statement and the Prospectus, the information set forth
therein; the pro forma financial information included in each
Registration Statement and the Prospectus presents fairly the
information shown therein and has been prepared in accordance with
generally accepted accounting principles in the United States and the
Commission's rules and guidelines with respect to pro forma
information; and the assumptions used in preparing the pro forma
financial statements included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the
proper application of those adjustments to the corresponding
historical financial statement amounts.
(t) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by
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<PAGE>
the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(v) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion
of the distribution of the Offered Securities it commences doing such
business.
(w) Neither the Company nor any subsidiary is in violation of
its charter or in default under any consent decree, or in default with
respect to any material provision of any lease, loan agreement,
franchise, license, permit or other contract obligation to which it is
a party; and, to the Company's knowledge, there does not exist any
state of facts which constitutes an event of default as defined in
such documents or which, with notice or lapse of time or both, would
constitute such an event of default, in each case, except for defaults
which neither singly nor in the aggregate are material to the Company
and its subsidiaries taken as a whole.
(x) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Exchange
Act or otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Offered Securities.
(y) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal,
state, local and foreign laws and regulations, except where the failure
to be in compliance would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole.
(z) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times exempt from the registration
requirements of the Act and were duty registered with or the subject of
an available exemption from the registration requirements of the
applicable state securities or blue sky laws.
(aa) The Company and each of its subsidiaries maintains reasonably
adequate insurance.
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<PAGE>
(ab) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire
any shares of the capital stock of, or other ownership interest in, the
Company or any subsidiary thereof except as otherwise disclosed in the
Registration Statement.
(ac) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(ad) The Company has filed all necessary federal and state income
and franchise tax returns and has paid all taxes shown as due thereon,
and there is no tax deficiency that has been, or to the knowledge of the
Company might be, asserted against the Company or any of its properties
or assets that would or could be expected to have a material adverse
affect upon the condition (financial or otherwise) or results of
operations of the Company and its subsidiaries taken as a whole, other
than any such taxes as are being contested in good faith.
(ae) The Company and all of the currently existing stockholders of
the Company have made a valid election pursuant to Section 1362(a) of
the Code of to be an "S corporation" within the meaning of Section
1361(a)(1) of the Code for all taxable periods beginning after November
1, 1989; the Company is, and since November 1, 1989 has been an S
corporation, and no event has occurred since the date of the filing of
the election to be an S corporation that would result in a termination
of such election; the Company has no federal corporate income tax
liability for the period from November 1, 1989 to the termination of the
election to be an S corporation which will occur on the First Closing Date.
(af) The Company had or has all corporate power and authority to
carry out the following transactions described in the Prospectus (i) the
Central Texas Acquisition, East Texas Acquisition and Washington
Acquisition, and (ii) the reincorporation of the Company in Delaware,
and the Company, has taken all action required by law, the Company's
charter and bylaws or otherwise to approve each of the foregoing.
(ag) The consummation of the Central Texas Acquisition, East Texas
Acquisition and Washington Acquisition and the reincorporation of the
Company in Delaware did not or will not contravene any provision of
applicable law or the charter or bylaws of the Company, any provision of
any material agreement or other material instrument binding upon the
Company or any order, writ, injunction or decree of any jurisdiction,
court or governmental body, and no consent, approval, authorization or
order of any court or governmental agency or body is or was required in
connection with each of the foregoing, except such as have been obtained.
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
(a) The Stockholder represents and warrants to, and agrees with, the
Underwriters to the same effect as the representations and warranties of the
Company set forth in Section 2 of this Agreement.
(b) The Stockholder has full right, power and authority to enter into
this Agreement.
4. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $__________ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives
for the accounts of the Underwriters at the office of _______________, against
payment of the purchase price in funds available on the same day by wire
transfer to the account of the Company at a bank acceptable to CS First Boston
Corporation ("CS FIRST BOSTON") or by official Federal Reserve Bank check drawn
to the order of the Company at the office of __________ at 9:00 a.m. New York
time, on the fourth business day, if permitted under Rule 15c6-1 under the
Exchange Act (or the third business day if required under Rule 15c6-1 under the
Exchange Act or unless postponed in accordance with the provisions of Section 9
hereof) following the date the Registration Statement is declared effective by
the Commission (or, if the Company has elected to rely on Rule 430A, the fourth
business day, if permitted under Rule 15c6-1 under the Exchange Act (or the
third business day if required under Rule 15c6-1 under the Exchange Act) after
execution of this Agreement), or at such other time not later than seven full
business days thereafter as CS First Boston and the Company may determine, such
time being referred to as the "FIRST CLOSING DATE". The certificates for the
Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CS First Boston requests and will
be made available for checking and packaging at office of _______________ at
least 24 hours prior to the First Closing Date.
In addition, upon written notice from CS First Boston given to the
Company from time to time not more than 30 days subsequent to the date of the
Prospectus, the Underwriters may purchase all or less than all of the Optional
Securities at the purchase price per Security to be paid for the Firm
Securities. The Company agrees to sell to the Underwriters the number of shares
of Optional Securities specified in such notice and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Securities set forth opposite such
Underwriter's name bears to the total number of shares of Firm Securities
(subject to adjustment by CS First Boston to eliminate fractions) and may be
purchased by the Underwriters only for the purpose of covering over-allotments
made in connection with the sale of the Firm Securities. No Optional Securities
shall be sold or delivered unless the Firm Securities
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<PAGE>
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CS First Boston to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by CS
First Boston but shall be not later than five full business days after written
notice of election to purchase Optional Securities is given. The manner of
payment for and delivery of the Option Securities shall be the same as for the
Firm Securities as specified above. The certificates for the Optional
Securities being purchased on each Optional Closing Date will be in definitive
form, in such denominations and registered in such names as CS First Boston
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the office of ______________ at a
reasonable time in advance of such Optional Closing Date.
5. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
6. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the
Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CS First
Boston, subparagraph (4)) of Rule 424(b) not later than the
earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the
fifteenth business day after the Effective Date of the
Initial Registration Statement.
The Company will advise CS First Boston promptly of any such
filing pursuant to Rule 424(b). If the Effective Time of
the Initial Registration Statement is prior to the execution
and delivery of this Agreement and an additional
registration statement is necessary to register a portion of
the Offered Securities under the Act but the Effective Time
thereof has not occurred as of such execution and delivery,
the Company will file the additional registration statement
or, if filed, will file a post-effective amendment thereto
with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date
of this Agreement or, if earlier, on or prior to the time
the Prospectus is printed and distributed to any
Underwriter, or will make such filing at such later date as
shall have been consented to by CS First Boston.
(b) The Company will advise CS First Boston promptly
of any proposal to amend or supplement the initial or any
additional registration
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<PAGE>
statement as filed or the related prospectus or the
Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and
will not effect such amendment or supplementation without
CS First Boston's consent; and the Company will also
advise CS First Boston promptly of the effectiveness of
each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a
Registration Statement or the Prospectus and of the
institution by the Commission of any stop order
proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to
the Offered Securities is required to be delivered under
the Act in connection with sales by any Underwriter or
dealer, any event occurs as a result of which the
Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state
any material fact necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at
any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CS First Boston of such
event and will promptly prepare and file with the
Commission, at its own expense, an amendment or
supplement which will correct such statement or omission
or an amendment which will effect such compliance.
Neither CS First Boston's consent to, nor the
Underwriters' delivery of, any such amendment or
supplement shall constitute a waiver of any of the
conditions set forth in Section 7.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will
make generally available to its securityholders an
earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date
of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For
the purpose of the preceding sentence, "Availability
Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes
such Effective Date, except that, if such fourth fiscal
quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to the Representatives
copies of each Registration Statement (three of which
will be signed and will include all exhibits), each
related preliminary prospectus, and, so long as delivery
of a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with
sales by any Underwriter or dealer, the Prospectus and
all amendments and supplements to such documents, in each
case in such quantities as CS First Boston requests. The
Prospectus shall be so furnished on or prior to 3:00
P.M., New York time, on the business day following the
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<PAGE>
later of the execution and delivery of this Agreement or
the Effective Time of the Initial Registration Statement.
All other documents shall be so furnished as soon as
available. The Company will pay the expenses of printing
and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification
of the Offered Securities for sale under the laws of such
jurisdictions as CS First Boston designates and will
continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the
Company will furnish to the Representatives and, upon
request, to each of the other Underwriters, as soon as
practicable after the end of each fiscal year, a copy of
its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon
as available, a copy of each report and any definitive
proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders, and
(ii) from time to time, such other information concerning
the Company as CS First Boston may reasonably request.
(h) The Company will pay all expenses incident to
the performance of its obligations under this Agreement
and will reimburse the Underwriters (if and to the extent
incurred by them) for any filing fees and other expenses
(including fees and disbursements of counsel) incurred by
them in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions
as CS First Boston designates and the printing of
memoranda relating thereto, for the filing fee incident
to, and the reasonable fees and disbursements of counsel
to the Underwriters in connection with the review by the
National Association of Securities Dealers, Inc. of the
Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses
of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered
Securities and for expenses incurred in distributing
preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the
initial public offering of the Offered Securities, the
Company will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file
with the Commission a registration statement under the
Act relating to, any additional shares of its Securities
or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written
consent of CS First Boston, except grants of employee
stock options pursuant to the terms of a plan in effect
on the date hereof, issuances of Securities pursuant to
the exercise of such options or the exercise of any other
employee stock options outstanding on the date hereof.
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<PAGE>
(j) Neither the Company nor any of its subsidiaries
will, prior to the earlier of the Second Closing Date or
termination or expiration of the related option, incur any
liability or obligation, direct or contingent or enter into
any material transaction, other than in the ordinary course
of business, except as contemplated by the Prospectus.
(k) Neither the Company nor any of its subsidiaries
will acquire any capital stock of the Company prior to the
earlier of the Second Closing Date or termination or
expiration of the related option nor will the Company
declare or pay any dividend or make any other distribution
upon the Class A Common Stock payable to stockholders of
record on a date prior to the earlier of the Second Closing
Date or termination or expiration of the related option,
except in either case as contemplated by the Prospectus.
(l) The Company will use the net proceeds received by
it from the sale of the Offered Securities being sold by it
in the manner specified in the Prospectus.
7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be purchased
on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Representatives shall have received a letter,
dated the date of delivery thereof (which, if the Effective
Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, shall be on or
prior to the date of this Agreement or, if the Effective
Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, shall be prior
to the filing of the amendment or post-effective amendment
to the registration statement to be filed shortly prior to
such Effective Time), of Arthur Andersen LLP confirming that
they are independent public accountants within the meaning
of the Act and the applicable published Rules and
Regulations thereunder and stating to the effect that:
(i) in their opinion the financial
statements and schedules (if any) examined by them
and included or incorporated by reference in the
Registration Statements comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published
Rules and Regulations;
(ii) they have performed the procedures
specified by the American Institute of Certified
Public Accountants for a review
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<PAGE>
of interim financial information as described in
Statement of Auditing Standards No. 71, Interim
Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to
in clause (ii) above, a reading of the latest
available interim financial statements of the
Company, inquiries of officials of the Company who
have responsibility for financial and accounting
matters and other specified procedures, nothing
came to their attention that caused them to
believe that:
(A) the unaudited financial
statements included in the Registration
Statements do not comply as to form in
all material respects with the
applicable accounting requirements of
the Act and the related published Rules
and Regulations or any material
modifications should be made to such
unaudited financial statements for them
to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest
available balance sheet read by such
accountants, or at a subsequent
specified date not more than three days
prior to the date of this Agreement,
there was any change in the capital
stock or any increase in short-term
indebtedness or long-term debt of the
Company and its consolidated
subsidiaries or, at the date of the
latest available balance sheet read by
such accountants, there was any decrease
in consolidated net current assets or
net assets, as compared with amounts
shown on the latest balance sheet
included in the Prospectus; or
(C) for the period from the
closing date of the latest income
statement included in the Prospectus to
the closing date of the latest available
income statement read by such
accountants there were any decreases, as
compared with the corresponding period
of the previous year and with the period
of corresponding length ended the date
of the latest income statement included
in the Prospectus, in consolidated total
revenues or operating income,
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<PAGE>
or in the total or per share amounts of
net income.
except in all cases set forth in clauses (B)
and (C) above for changes, increases or decreases
which the Prospectus discloses have occurred or
may occur or which are described in such letter;
(iv) they have compared specified dollar
amounts (or percentages derived from such dollar
amounts) and other financial information contained
in the Registration Statements (in each case to
the extent that such dollar amounts, percentages
and other financial information are derived from
the general accounting records of the Company and
its subsidiaries subject to the internal controls
of the Company's accounting system or are derived
directly from such records by analysis or
computation) with the results obtained from
inquiries, a reading of such general accounting
records and other procedures specified in such
letter and have found such dollar amounts,
percentages and other financial information to be
in agreement with such results, except as
otherwise specified in such letter;
(v) with respect to the pro forma financial
information included in the Registration
Statement, they have performed the procedures
specified by the American Institute of Certified
Public Accountants Statement on Standards for
Attestation Engagements No. 1, "Reporting on Pro
Forma Financial Statements"; and
(vi) on the basis of the procedures referred
to in clause (v) above, inquiries of officials of
the Company who have responsibility for financial
and accounting matters and other specified
procedures, nothing came to their attention that
caused them to believe that the pro forma
financial information and statements included in
the Registration Statements do not comply as to
form in all material respects with the applicable
accounting requirements of the Act and the related
published Rules and Regulations or any material
modifications should be made to such pro forma
financial information and statements for them to
be in accordance with such requirements and
generally accepted accounting principles.
(b) The Representatives shall have received a letter,
dated the date of delivery thereof (which, if the Effective
Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, shall be on or
prior to the date of this Agreement or, if the Effective
Time of the
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<PAGE>
Initial Registration Statement is subsequent to the execution
and delivery of this Agreement, shall be prior to the filing
of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such
Effective Time), of Eide Helmeke PLLP. confirming that they
are independent public accountants within the meaning of the
Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial
statements and schedules (if any) examined by them
and included or incorporated by reference in the
Registration Statements comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published
Rules and Regulations;
(ii) they have performed the procedures
specified by the American Institute of Certified
Public Accountants for a review of interim
financial information as described in Statement of
Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements
included in the Registration Statements;
(iii) on the basis of the review referred to
in clause (ii) above, a reading of the latest
available interim financial statements of the
Company, inquiries of officials of the Company who
have responsibility for financial and accounting
matters and other specified procedures, nothing
came to their attention that caused them to
believe that:
(A) the unaudited financial
statements included in the Registration
Statements do not comply as to form in
all material respects with the
applicable accounting requirements of
the Act and the related published Rules
and Regulations or any material
modifications should be made to such
unaudited financial statements for them
to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest
available balance sheet read by such
accountants, or at a subsequent
specified date not more than three days
prior to the date of this Agreement,
there was any change in the capital
stock or any increase in short-term
indebtedness or long-term debt of the
Company and its consolidated
subsidiaries or, at the date of the
latest available
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<PAGE>
balance sheet read by such accountants,
there was any decrease in consolidated
net current assets or net assets, as
compared with amounts shown on the latest
balance sheet included in the Prospectus;
or
(C) for the period from the
closing date of the latest income
statement included in the Prospectus to
the closing date of the latest available
income statement read by such
accountants there were any decreases, as
compared with the corresponding period
of the previous year and with the period
of corresponding length ended the date
of the latest income statement included
in the Prospectus, in consolidated total
revenues or operating income, or in the
total or per share amounts of net
income.
except in all cases set forth in clauses (B)
and (C) above for changes, increases or decreases
which the Prospectus discloses have occurred or
may occur or which are described in such letter;
and
(iv) they have compared specified dollar
amounts (or percentages derived from such dollar
amounts) and other financial information contained
in the Registration Statements (in each case to
the extent that such dollar amounts, percentages
and other financial information are derived from
the general accounting records of the Company and
its subsidiaries subject to the internal controls
of the Company's accounting system or are derived
directly from such records by analysis or
computation) with the results obtained from
inquiries, a reading of such general accounting
records and other procedures specified in such
letter and have found such dollar amounts,
percentages and other financial information to be
in agreement with such results, except as
otherwise specified in such letter.
(c) The Representatives shall have received a letter,
dated the date of delivery thereof (which, if the Effective
Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, shall be on or
prior to the date of this Agreement or, if the Effective
Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, shall be prior
to the filing of the amendment or post-effective amendment
to the registration statement to be filed shortly prior to
such Effective Time), of Hansen Plahm & Co. confirming that
they are
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<PAGE>
independent public accountants within the meaning of the
Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial
statements and schedules (if any) examined by them
and included or incorporated by reference in the
Registration Statements comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published
Rules and Regulations;
(ii) they have performed the procedures
specified by the American Institute of Certified
Public Accountants for a review of interim
financial information as described in Statement of
Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements
included in the Registration Statements;
(iii) on the basis of the review referred to
in clause (ii) above, a reading of the latest
available interim financial statements of Mega
Equipment Co. ("MEGA"), inquiries of officials of
the Mega who have responsibility for financial and
accounting matters and other specified procedures,
nothing came to their attention that caused them
to believe that:
(A) the unaudited financial
statements included in the Registration
Statements do not comply as to form in
all material respects with the
applicable accounting requirements of
the Act and the related published Rules
and Regulations or any material
modifications should be made to such
unaudited financial statements for them
to be in conformity with generally
accepted accounting principles;
(B) at the date of the latest
available balance sheet read by such
accountants, or at a subsequent
specified date not more than three days
prior to the date of this Agreement,
there was any change in the capital
stock or any increase in short-term
indebtedness or long-term debt of Mega
and its consolidated subsidiaries or, at
the date of the latest available balance
sheet read by such accountants, there
was any decrease in consolidated net
current assets or net assets, as
compared with amounts shown on the
latest balance sheet included in the
Prospectus; or
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<PAGE>
(C) for the period from the
closing date of the latest income
statement included in the Prospectus to
the closing date of the latest available
income statement read by such
accountants there were any decreases, as
compared with the corresponding period
of the previous year and with the period
of corresponding length ended the date
of the latest income statement included
in the Prospectus, in consolidated total
revenues or operating income, or in the
total or per share amounts of net
income.
except in all cases set forth in clauses (B)
and (C) above for changes, increases or decreases
which the Prospectus discloses have occurred or
may occur or which are described in such letter;
and
(iv) they have compared specified dollar
amounts (or percentages derived from such dollar
amounts) and other financial information contained
in the Registration Statements (in each case to
the extent that such dollar amounts, percentages
and other financial information are derived from
the general accounting records of Mega and its
subsidiaries subject to the internal controls of
Mega's accounting system or are derived directly
from such records by analysis or computation) with
the results obtained from inquiries, a reading of
such general accounting records and other
procedures specified in such letter and have found
such dollar amounts, percentages and other
financial information to be in agreement with such
results, except as otherwise specified in such
letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and delivery of
this Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(d) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time
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<PAGE>
shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented
to by CS First Boston. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred
not later than 10:00 P.M., New York time, on the date of this
Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CS First Boston. If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, the Prospectus shall have
been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such Closing
Date, no stop order suspending the effectiveness of a Registration
Statement shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission.
(e) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or
any development or event involving a prospective change, in
the condition (financial or other), business, properties or
results of operations of the Company or its subsidiaries
which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and
adverse and makes it impractical or inadvisable to proceed
with completion of the public offering or the sale of and
payment for the Offered Securities; (ii) any downgrading in
the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Act), or any
public announcement that any such organization has under
surveillance or review its rating of any debt securities of
the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of
a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or
in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal or, New York or authorities; or (v)
any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by
Congress or any other substantial national or international
calamity or emergency if, in the judgment of a majority in
interest of the Underwriters including the Representatives,
the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale
of and payment for the Offered Securities.
(f) The Shares shall have been qualified for sale
under the blue sky laws of such states as shall have been
specified by the Representatives.
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<PAGE>
(g) The legality and sufficiency of the authorization,
issuance and sale or transfer and sale of the Offered
Securities hereunder, the validity and form of the
certificates representing the Offered Securities, the
execution and delivery of this Agreement, and all corporate
proceedings and other legal matters incident thereto, and
the form of the Registration Statement and the Prospectus
(except financial statements) shall have been approved by
counsel for the Underwriters exercising reasonable judgment.
(h) You shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment or
supplement thereto, contains an untrue statement of fact,
which, in the opinion of counsel for the Underwriters, is
material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated
therein or necessary to make the statements therein not
misleading.
(i) The East Texas Acquisition and Washington
Acquisition shall have been completed on or prior to the
First Closing Date.
(j) The Representatives shall have received an
opinion, dated such Closing Date, of Oppenheimer, Wolff &
Donnelley, counsel for the Company, to the effect that:
(i) The Company has been duly incorporated
and is an existing corporation in good standing
under the laws of the State of Delaware, with
corporate power and authority to own its
properties and conduct its business as described
in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation
in good standing in all other jurisdictions in
which its ownership or lease of property or the
conduct of its business requires such
qualification;
(ii) An opinion to the same general effect
as clause (i) in respect of each subsidiary of the
Company;
(iii) All of the issued and outstanding
capital stock of each subsidiary of the Company
has been duly authorized, validly issued and is
fully paid and nonassessable, and, except as
disclosed in the Registration Statement, the
Company owns directly or indirectly 100% of the
outstanding capital stock of each subsidiary, and
to the knowledge of such counsel, such stock is
owned free and clear of any claims, liens,
encumbrances or security interests;
(iv) The authorized capital stock of the
Company, of which there is outstanding the amount
set forth in the Registration Statement and
Prospectus (except for subsequent issuances, if
any, pursuant to stock options or other rights
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<PAGE>
referred to in the Prospectus), conforms as to legal matters in
all material respects to the description thereof in the
Registration Statement and Prospectus;
(v) The certificates for the Offered
Securities to be delivered hereunder are in due
and proper form, and when duly countersigned by
the Company's transfer agent and delivered to you
or upon your order against payment of the agreed
consideration therefor in accordance with the
provisions of this Agreement, the Offered
Securities represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable;
(vi) The Offered Securities delivered on
such Closing Date and all other outstanding shares
of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform to the description
thereof contained in the Prospectus; and the
stockholders of the Company have no preemptive
rights with respect to the Securities;
(vii) There are no contracts, agreements or
understandings known to such counsel between the
Company and any person granting such person the
right to require the Company to file a
registration statement under the Act with respect
to any securities of the Company owned or to be
owned by such person or to require the Company to
include such securities in the securities
registered pursuant to the Registration Statement
or in any securities being registered pursuant to
any other registration statement filed by the
Company under the Act;
(viii) The Company is not and, after giving
effect to the offering and sale of the Offered
Securities and the application of the proceeds
thereof as described in the Prospectus, will not
be an "investment company" as defined in the
Investment Company Act of 1940;
(ix) No consent, approval, authorization or
order of, or filing with, any governmental agency
or body or any court is required for the
consummation of the transactions contemplated by
this Agreement in connection with the issuance or
sale of the Offered Securities by the Company,
except such as have been obtained and made under
the Act and such as may be required under state
securities laws;
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<PAGE>
(x) This Agreement has been duly authorized,
executed and delivered by the Company;
(xi) This Agreement constitutes the legal,
valid and binding agreements of the Company,
except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting
creditors' rights and by the exercise of judicial
discretion in accordance with general principles
applicable to equitable and similar remedies and
except as to those provisions relating to
indemnities and contribution for liabilities
arising under the Act as to which no opinion need
be expressed;
(xii) The execution, delivery and
performance of this Agreement and the issuance and
sale of the Offered Securities will not result in
a breach or violation of any of the terms and
provisions of, or constitute a default under, any
statute, any rule, regulation or order of any
governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of
the Company or any of their properties, or any
agreement or instrument to which the Company or
any such subsidiary is a party or by which the
Company or any such subsidiary is bound or to
which any of the properties of the Company or any
such subsidiary is subject, or the charter or
by-laws of the Company or any such subsidiary, and
the Company has full power and authority to
authorize, issue and sell the Offered Securities
as contemplated by this Agreement;
(xiii) Neither the Company nor any of its
subsidiaries is in violation of its respective
charter or by-laws to the best of such counsel's
knowledge after due inquiry, neither the Company
nor any of its subsidiaries is in default in the
performance of any obligation, agreement or
condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any
other agreement, indenture or instrument material
to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or
by which it or any of its subsidiaries or their
respective property is bound;
(xiv) The descriptions in the Registration
Statement of laws, regulations and rules, of legal
and governmental proceedings and of contracts,
agreements, leases and other documents including,
without limitation, under the headings "Risk
Factors-Dependence upon John Deere," "-Deere
Termination Rights," "-Risks Associated with
Expansion," "-Anti-takeover Measures; Possible
Issuances of Preferred
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<PAGE>
Stock," "-S Corporation Distributions," "Business-Recent
Acquisitions," "-Dealership Agreements," "-Floor Plan Financing,"
"-Customer Financing Options," "Management - 1996 Stock Incentive
Plan," "-Cash Bonus Incentive Plan," "-401(k) Employee Benefit
Plan," "-Limitation of Liability and Indemnification of Officers
and Directors," "Certain Relationships and Related Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future
Sale" have been reviewed by such counsel and are accurate in all
material respects, and comply as to form in all material respects
with the applicable requirements of the Act and the rules and
regulations thereunder;
(xv) To the best of such counsel's
knowledge, all offers and sales of the Company's
capital stock prior to the date hereof were at all
relevant times exempt from the registration
requirements of the Act and were duly registered
or the subject of an available exemption from the
registration requirements of the applicable state
securities or blue sky laws;
(xvi) After due inquiry, such counsel does
not know of any legal or governmental proceeding
pending or threatened to which the Company or any
of its subsidiaries is a party or to which any of
their respective property is subject which is
required to be described in the Registration
Statement or the Prospectus and is not so
described, or of any contract or other document
which is required to be described in the
Registration Statement or the Prospectus or is
required to be filed as an exhibit to the
Registration Statement which is not described or
filed as required;
(xvii) To the best of such counsel's
knowledge, after due inquiry, except as otherwise
set forth in the Prospectus all leases to which
the Company or any of its subsidiaries is a party
are valid and binding and no default has occurred
or is continuing thereunder, which might result in
any material adverse change in the business,
prospects, financial condition or results of
operations of the Company and its subsidiaries
taken as a whole, and the Company and its
subsidiaries enjoy peaceful and undisturbed
possession under all such leases to which any of
them is a party as lessee with such exceptions as
do not materially interfere with the use made by
the Company or such subsidiary;
(xviii) The distribution that the
Stockholder will receive from the proceeds of the
offering of the Offered Securities as described in
the Prospectus has been duly authorized by all
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<PAGE>
necessary corporation action and such distribution will not
contravene any of the provisions of, or result in a default
under, any agreement, franchise, license, indenture, mortgage,
deed of trust, or other agreement or instrument known to such
counsel, of the Company or by which the property of the Company
is bound and which contravention or default would be material to
the Company; or violate any of the provisions of the charter or
bylaws of the Company, or violate any statute, order, rule or
regulation of any regulatory or governmental body having
jurisdiction over the Company;
(xix) With respect to the Stockholder this
Agreement has been duly authorized, executed and
delivered by or on behalf of the Stockholder and
the performance of this Agreement and the
consummation of the transactions herein
contemplated by the Stockholder will not result in
a breach or violation of any of the terms and
provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust,
note agreement or other agreement or instrument
known to such counsel to which the Stockholder is
a party or by which he is bound or to which any of
the property of the Stockholder is subject, or any
order, rule or regulation known to such counsel of
any court or governmental agency or body having
jurisdiction over the Stockholder or any of his
properties;
(xx) The distribution that the Stockholder
will receive from the proceeds of the offering of
the Offered Securities as described in the
Prospectus has been duly authorized by all
necessary corporate action and such distribution
will not contravene any of the provisions of, or
result in a default under, any agreement,
franchise, license, indenture, mortgage, deed of
trust, or other agreement or instrument known to
such counsel, of the Company or by which the
property of the Company is bound and which
contravention or default would be material to the
Company, or violate any of the provisions of the
charter or bylaws of the Company, or so far as it
is known to such counsel, violate any statute,
order, rule or regulation of any regulatory or
governmental body having jurisdiction over the
Company;
(xxi) The Stockholder has full right, power
and authority to enter into this Agreement;
(xxii) This Agreement is the legal, valid
and binding agreement of the Stockholder except as
enforceability of the same may be limited by
bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights
and
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<PAGE>
by the exercise of judicial discretion in accordance
with general principles applicable to equitable and
similar remedies and except with respect to those
provisions relating to indemnities for liabilities
arising under the Act, as to which no opinion need
be expressed;
(xxiii) The Company has all corporate power
and authority to carry out the Central Texas
Acquisition, East Texas Acquisition and Washington
Acquisition and the reincorporation of the Company
in Delaware, and the Company has taken all action
required by law, the Company's charter and bylaws
or otherwise to approve each of the foregoing;
(xxiv) The consummation of the Central Texas
Acquisition, East Texas Acquisition, Washington
Acquisition and the reincorporation of the Company
in Delaware did not or will not contravene any
provision of applicable law or the charter or
bylaws of the Company, except to the extent the
Company has obtained the requisite consent, any
provision of any material agreement or other
material instrument binding upon the Company, or
any order, writ, injunction or decree of any
jurisdiction, court or governmental body, and no
consent, approval, authorization or order of any
court or governmental agency or body is or was
required in connection with the Central Texas
Acquisition, East Texas Acquisition or Washington
Acquisition, except such as have been obtained;
and
(xxv) The Initial Registration Statement was
declared effective under the Act as of the date
and time specified in such opinion, the Additional
Registration Statement (if any) was filed and
became effective under the Act as of the date and
time (if determinable) specified in such opinion,
the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule
424(b) specified in such opinion on the date
specified therein or was included in the Initial
Registration Statement or the Additional
Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no
stop order suspending the effectiveness of a
Registration Statement or any part thereof has
been issued and no proceedings for that purpose
have been instituted or are pending or
contemplated under the Act, and each Registration
Statement and the Prospectus, and each amendment
or supplement thereto, as of their respective
effective or issue dates, complied as to form in
all material respects with the requirements of the
Act and the Rules and
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<PAGE>
Regulations; such counsel have no reason to believe
that any part of a Registration Statement or any
amendment thereto, as of its effective date or as of
such Closing Date, contained any untrue statement of
a material fact or omitted to state any material
fact required to be stated therein or necessary to
make the statements therein not misleading or that
the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing
Date, contained any untrue statement of a material
fact or omitted to state any material fact necessary
in order to make the statements therein, in the
light of the circumstances under which they were
made, not misleading; the descriptions in the
Registration Statements and Prospectus of statutes,
legal and governmental proceedings and contracts and
other documents are accurate and fairly present the
information required to be shown; and such counsel
do not know of any legal or governmental proceedings
required to be described in a Registration Statement
or the Prospectus which are not described as required
or of any contracts or documents of a character
required to be described in a Registration Statement
or the Prospectus or to be filed as exhibits to a
Registration Statement which are not described and
filed as required; it being understood that such
counsel need express no opinion as to the financial
statements or other financial data contained in the
Registration Statements or the Prospectus.
(k) The Representatives shall have received from
McDermott, Will & Emery, counsel for the Underwriters, such
opinion or opinions, dated such Closing Date, with respect
to the incorporation of the Company, the validity of the
Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related
matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they
request for the purpose of enabling them to pass upon such
matters.
(l) The Representatives shall have received a
certificate, dated such Closing Date, of the President or
any Vice-President and a principal financial or accounting
officer of the Company in which such officers, to the best
of their knowledge after reasonable investigation, shall
state that: the representations and warranties of the
Company in this Agreement are true and correct; the Company
has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement
has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the
Additional Registration Statement (if any) satisfying the
requirements of subparagraphs (1) and (3) of Rule 462(b) was
filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b)
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<PAGE>
under the Act, prior to the time the Prospectus was printed
and distributed to any Underwriter; and, subsequent to the
dates of the most recent financial statements in the
Prospectus, there has been no material adverse change,
nor any development or event involving a prospective
material adverse change, in the condition (financial or
other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole except
as set forth in or contemplated by the Prospectus or as
described in such certificate.
(m) The Representatives shall have received letters,
dated such Closing Date, from each of Arthur Andersen, LLP,
Eide Helmeke PLLP and Hansen, Plahm & Co. which meets the
requirements of subsection (a), (b) or (c) of this Section,
as the case may be, except that the specified date referred
to in such subsection will be a date not more than three
days prior to such Closing Date for the purposes of this
subsection.
(n) On the First Closing Date a letter from each
stockholder and executive officer of the Company, in which
each such person agrees not to sell, contract to sell or
otherwise dispose of any Class A Common Stock or securities
convertible into Common Stock (except Class A Common Stock
issued pursuant to currently outstanding options) for a
period of 180 days after the date of such letter without the
prior written consent of CS First Boston.
(o) Such further information, certificates and
documents as you may reasonably request.
(p) A certificate of the Stockholder dated such
Closing Date, as the case may be, to the effect that the
representations and warranties of the Stockholder set forth
in Section 3 of this Agreement are true and correct as of
such Closing Date.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
requests. CS First Boston may in its sole discretion waive on behalf of the
Underwriters compliance with any conditions to the obligations of the
Underwriters hereunder, whether in respect of an Optional Closing Date or
otherwise.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon
the omission or
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<PAGE>
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such
loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any
of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information furnished by any Underwriter
consists of the information described as such in subsection (c) below.
(b) The Stockholder will indemnify and hold harmless
each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided,
however, that the Stockholder will not be liable in any such
case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement
or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company
by any Underwriter through the Representatives specifically
for use therein, it being understood and agreed that the
only such information furnished by any Underwriter consists
of the information described as such in subsection (c)
below.
Without limiting the full extent of the Company's
agreement to indemnify each Underwriter, as herein provided,
the Stockholder shall be liable under the indemnity
agreements contained in paragraph (b) of this Section only
for an amount not exceeding $[15.0] million, the amount of
the S Corporation distribution to be received by the
Stockholder from the net proceeds of the Offered Securities,
plus the amount of the retained earnings paid to the
Stockholder from February 1, 1996 through the First Closing
Date, in the form of a dividend or distribution all of which
is set forth in the Prospectus.
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<PAGE>
(c) Each Underwriter will severally and not jointly
indemnify and hold harmless the Company and the Stockholder
against any losses, claims, damages or liabilities to which
the Company or the Stockholder may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration
Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the
Company by such Underwriter through the Representatives
specifically for use therein, and will reimburse any legal
or other expenses reasonably incurred by the Company and the
Stockholder in connection with investigating or defending
any such loss, claim, damage, liability or action as such
expenses are incurred, it being understood and agreed that
the only such information furnished by any Underwriter
consists of the following information in the Prospectus
furnished on behalf of each Underwriter: the last paragraph
at the bottom of the cover page concerning the terms of the
offering by the Underwriters, the legend concerning
over-allotments and, stabilizing on the inside front cover
page and, the concession and reallowance figures appearing
in the paragraph under the caption "Underwriting" and the
information contained in the _____ and _____ paragraphs
under the caption "Underwriting"
(d) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under
subsection (a), (b) or (c) above, notify the indemnifying
party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party
otherwise than under subsection (a), (b) or (c) above. In
case any such action is brought against any indemnified
party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it
may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall
not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from
the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under
this Section for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any
settlement of any
- 31 -
<PAGE>
pending or threatened action in respect of which any indemnified party
is or could have been a party and indemnity could have been sought
hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on
any claims that are the subject matter of such action.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party
under subsection (a), (b) or (c) above, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities
referred to in subsection (a), (b) or (c) above (i) in such proportion
as is appropriate to reflect the relative benefits received by the
Company and the Stockholder on the one hand and the Underwriters on
the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Stockholder on the one hand and
the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Stockholder on
the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the
Stockholder bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company, the Stockholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (e)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations in this subsection (e) to contribute are
several in proportion to their respective underwriting obligations and
not joint.
- 32 -
<PAGE>
(f) The obligations of the Company and the Stockholder
under this Section shall be in addition to any liability
which the Company and the Stockholder may otherwise have and
shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters
under this Section shall be in addition to any liability
which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if
any, who controls the Company within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
default in their obligations to purchase Offered Securities hereunder on either
the First or any Optional Closing Date and the aggregate number of shares of
Offered Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase does not exceed 10% of the total number of shares of Offered
Securities that the Underwriters are obligated to purchase on such Closing Date,
CS First Boston may make arrangements satisfactory to the Company for the
purchase of such Offered Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by such Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Offered Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur exceeds
10% of the total number of shares of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CS First Boston and the Company for the purchase of such Offered Securities by
other persons are not made within 36 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Underwriter
or the Company, except as provided in Section 10 (provided that if such default
occurs with respect to Optional Securities after the First Closing Date, this
Agreement will not terminate as to the Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability
for its default.
10. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of the Stockholder, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Stockholder, the
Company or any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 9 or if for any
reason the purchase of the Offered Securities by the Underwriters is not
consummated, the Company shall remain responsible for the expenses to be paid or
reimbursed by it pursuant to Section 6 and the respective obligations of the
Company, the Stockholder and the Underwriters pursuant to Section 8 shall remain
in effect, and if any Offered Securities have been
- 33 -
<PAGE>
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 6 shall also remain in effect. If the purchase of the
Offered Securities by the Underwriters is not consummated for any reason other
than solely because of the termination of this Agreement pursuant to Section 9
or the occurrence of any event specified in clause (iii), (iv) or (v) of Section
7(e), the Company and the Stockholder will, jointly and severally, reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
Offered Securities.
11. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o CS First Boston Corporation, Park Avenue Plaza, New
York, N.Y. 10055, Attention: Investment Banking Department--Transactions
Advisory Group, or, if sent to the Company or the Stockholder, will be mailed,
delivered or telegraphed and confirmed to it at 28529 South University Drive,
Fargo, North Dakota 58109, Attention: President; provided, however, that any
notice to an Underwriter pursuant to Section 8 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
12. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8, and no other
person will have any right or obligation hereunder.
13. REPRESENTATION OF UNDERWRITERS. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CS First Boston will
be binding upon all the Underwriters.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
* * *
- 34 -
<PAGE>
If the foregoing is in accordance with the Representative's
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement among the
Company, the Stockholder and the several Underwriters in accordance with its
terms.
Very truly yours,
RDO EQUIPMENT CO.
By:
----------------------------------------
Its:
---------------------------------------
---------------------------------------------
Ronald D. Offutt
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
CS First Boston Corporation
Dain Bosworth Incorporation
Acting on behalf of themselves and as the
Representatives of the several Underwriters.
By CS First Boston Corporation
By:
--------------------
Its:
-----------------------
- 35 -
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Securities
- ----------- ---------------
CS First Boston Corporation. . . . . . . . . . . .
Dain Bosworth Incorporated . . . . . . . . . . . .
---------------
Total . . . . . . . . . . . . . . . .
---------------
---------------
<PAGE>
CERTIFICATE OF INCORPORATION
OF
RDO EQUIPMENT CO. - DELAWARE
ARTICLE
I.
The name of this corporation is RDO Equipment Co. - Delaware (the
"Corporation").
ARTICLE
II.
The address of its registered office in the State of Delaware is 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name of its
registered agent is The Corporation Trust Company.
ARTICLE
III.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE
IV.
The aggregate number of shares of stock which the Corporation shall have
authority to issue is ____________ Million (__________) shares, of which
__________ Million (__________) shares shall be designated Class A Common Stock,
$.01 par value ("Class A Common Stock"), __________ Million (__________) shares
shall be designated Class B Common Stock, $.01 par value ("Class B Common
Stock"), and __________ Million (__________) shares shall be designated
preferred stock, $.01 par value ("Preferred Stock").
1. COMMON STOCK. The Class A Common Stock and the Class B Common Stock
shall be identical in all respects and shall have equal rights and privileges,
except as otherwise provided in this Article IV.
2. PREFERRED STOCK. The Preferred Stock may be issued from time to time
in one or more series, each of which series shall have such distinctive
designation or title and such number of shares as shall be fixed by the Board of
Directors prior to the issuance of any shares thereof. Each such series of
Preferred Stock shall have such voting powers, full or limited, or no voting
powers, and such preferences and relative, participating, optional or other
special rights, and such qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for the
issue of such series of Preferred Stock as may be adopted from time to time by
the Board of Directors prior to the issuance of any shares thereof pursuant to
the authority hereby expressly vested in it. The Board of Directors is further
authorized to increase or decrease (but not below the number of shares
outstanding) the number of shares of any series of Preferred Stock subsequent to
the issuance of shares of that series. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status of which they had prior to the adoption of the resolution originally
<PAGE>
fixing the number of shares of such series. Except as may be provided in the
resolution or resolutions of the Board of Directors creating any series of
Preferred Stock, the shares of the Class A Common Stock and Class B Common Stock
shall have the exclusive right to vote for the election and removal of directors
and for all other purposes.
3. DIVIDENDS ON COMMON STOCK. Dividends may be paid on either or both
the Class A Common Stock and Class B Common Stock as and when declared by the
Board of Directors of the Corporation out of funds of the Corporation legally
available for the payment of dividends, except that so long as any shares of
Class B Common Stock are outstanding:
(a) No dividend (other than a dividend payable in shares of the
Corporation in the manner provided in paragraph 3(b) below) shall be
declared or paid upon either class of Common Stock unless such dividend, at
the same rate per share, is simultaneously declared and paid upon both
classes of Common Stock.
(b) Stock dividends declared and paid on the Class A Common Stock
shall be payable solely in shares of Class A Common Stock and stock
dividends declared and paid on the Class B Common Stock shall be payable
solely in shares of Class B Common Stock. No stock dividend may be
declared or paid on the Class A Common Stock unless a stock dividend
payable in shares of Class B Common Stock, proportionately on a per share
basis, is simultaneously declared and paid on the Class B Common Stock. No
stock dividend may be declared or paid on the Class B Common Stock unless a
stock dividend payable in shares of Class A Common Stock, proportionately
on a per share basis, is simultaneously declared and paid on the Class A
Common Stock.
4. TREATMENT OF COMMON STOCK ON LIQUIDATION. The holders of Class A
Common Stock and Class B Common Stock shall be entitled to participate ratably
on a per share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
5. VOTING RIGHTS. Holders of Class A Common Stock are entitled to one
vote per share and holders of Class B Common Stock are entitled to four votes
per share on all matters to be voted on by the stockholders of the Corporation.
Except as otherwise provided in paragraph 14 of this Article IV or as otherwise
required by applicable law, holders of Class A Common Stock and Class B Common
Stock shall vote together as one class on all matters to be voted on by the
stockholders of the Corporation.
6. TRANSFER OF CLASS B COMMON STOCK. No person holding shares of Class B
Common Stock may transfer, and the Corporation shall not register the transfer
of such shares of Class B Common Stock, whether by sale, assignment, exchange,
gift, bequest, appointment or otherwise, except to a "Permitted Transferee."
The term "Permitted Transferee" shall mean any trust that is established by
Ronald D. Offutt ("Offutt") for estate planning purposes that provides for
distribution to Offutt's beneficiaries of shares of Class B Common Stock upon
Offutt's death, provided that Offutt retains voting control with respect to such
shares of Class B Common Stock until his death.
(a) If any shares of Class B Common Stock are acquired by any person
who is not a Permitted Transferee, all shares of Class B Common Stock then
held by such person shall be deemed, without further act on the part of any
person, to be converted into shares of Class A Common Stock, and stock
certificates formerly representing such shares of Class B Common Stock
shall thereupon and thereafter be deemed to represent the like number of
shares of Class A Common Stock.
2
<PAGE>
(b) Notwithstanding anything to the contrary set forth in this
Article IV, Offutt may pledge his shares of Class B Common Stock to a
pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee; provided, however, that (i)
Offutt at all times retains voting control with respect to such pledged
shares until an event of foreclosure or similar action, and (ii) such
shares shall not be transferred to or registered in the name of any such
pledgee and shall remain subject to the provisions of this paragraph (b).
In the event of foreclosure or other similar action by the pledgee, such
pledged shares of Class B Common Stock shall be deemed, without further act
on the part of any person, to be converted into shares of Class A Common
Stock and transferred to the pledgee.
(c) Shares of Class B Common Stock shall be registered in the names
of the beneficial owners thereof and not in "street" or "nominee" name.
For this purpose, a "beneficial owner" of any shares of Class B Common
Stock shall mean a person who, or an entity which, possesses the power,
either singly or jointly, to direct the voting or disposition of such
shares. The Corporation shall note or cause to be noted on the
certificates for shares of Class B Common Stock, the existence of the
restrictions on transfer and registration of transfer imposed by this
paragraph 6.
7. OPTIONAL CONVERSION OF CLASS B COMMON STOCK.
(a) Each share of Class B Common Stock may, at any time, be
converted, at the option of the holder thereof, into one fully paid and
nonassessable share of Class A Common Stock. Such right shall be exercised
by the surrender of the certificate representing such shares of Class B
Common Stock to be converted at the office of the Corporation or its
transfer agent (the "Transfer Agent") during normal business hours
accompanied by a written notice of the election by the holder thereof to
convert and (if so required by the Corporation or the Transfer Agent) an
instrument of transfer, in a form satisfactory to the Corporation and the
Transfer Agent, duly executed by such holder or such holder's duly
authorized attorney, together with any funds in the amount of any
applicable transfer tax (unless provision satisfactory to the Corporation
is otherwise made therefor), if required pursuant to paragraph 7(c) below.
(b) As promptly as practical after the surrender for conversion of a
certificate representing shares of Class B Common Stock in the manner
provided in paragraph 7(a) above and the payment of funds in any amount
required by the provisions of paragraphs 7(a) and 7(c), the Corporation
shall deliver or cause to be delivered at its office or at the office of
the Transfer Agent to or upon the written order of the holder of such
certificate, a certificate or certificates representing the number of fully
paid and nonassessable shares of Class A Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior to the close
of business on the date of the surrender of the certificate representing
shares of Class B Common Stock, and all rights of the holder of such shares
of Class B Common Stock as such holder shall cease at such time and the
person or persons in whose name or names the certificate or certificates
representing the shares of Class A Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders of
such shares of Class A Common Stock at such time; provided, however, that
any such surrender and payment on any date when the stock transfer books of
the Corporation shall be closed shall constitute a transfer to the person
or persons in whose name or names the certificate or certificates
representing shares of Class A Common Stock are to be issued as the
recordholder or holders thereof for all purposes
3
<PAGE>
effective immediately prior to the close of business on the next succeeding
day on which such stock transfer books are open.
(c) The issuance of certificates for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without
charge for any stamp or similar tax in respect to such issuance. However,
if any such certificate is to be issued in a name other than that of the
holder of the share or shares of Class B Common Stock converted, the person
or persons requesting the issuance thereof shall pay to the Corporation the
amount of any tax which may be payable in respect of any transfer involved
in such issuance, or shall establish to the satisfaction of the Corporation
that any such tax has been paid.
8. MANDATORY CONVERSION OF CLASS B COMMON STOCK. Upon the death of
Offutt or the transfer of shares of Class B Common Stock to any person other
than a Permitted Transferee, then, without further act on the part of any
person, each share of Class B Common Stock issued and outstanding (in the case
of Offutt's death) or each share of Class B Common Stock transferred to a person
other than a Permitted Transferee (in the case of such a transfer) shall be
converted to one fully paid and nonassessable share of Class A Common Stock.
Upon any such conversion, stock certificates formerly representing outstanding
shares of Class B Common Stock shall thereupon and thereafter be deemed to
represent a like number of shares of Class A Common Stock, and any outstanding
right to receive Class B Common Stock shall automatically become the right to
receive a like number of shares of Class A Common Stock.
9. NO CONVERSION OF CLASS A COMMON STOCK. The holders of Class A Common
Stock shall not be entitled to convert shares of Class A Common Stock into
shares of Class B Common Stock.
10. REPURCHASES OF COMMON STOCK. Subject to any applicable provisions of
this Article IV, the Corporation may, at any time or from time to time, purchase
or otherwise acquire shares of its Common Stock of either class in any manner
now or hereafter permitted by law, publicly or privately, or pursuant to any
agreement.
11. SUBDIVISION OR COMBINATION OF COMMON STOCK. The shares of Common
Stock of either class shall not be subdivided by a stock split, reclassification
or otherwise or combined by reverse stock split, reclassification or otherwise
unless, at the same time, the shares of Common Stock of both classes are
proportionately, on a per share basis, so subdivided or combined.
12. COVENANT TO RESERVE CLASS A COMMON STOCK. The Corporation covenants
that it will at all times reserve and keep available, solely for the purpose of
issuance upon conversion of the outstanding shares of Class B Common Stock, such
number of shares of Class A Common Stock as shall be issuable upon the
conversion of all such outstanding shares of Class B Common Stock; provided,
however, that nothing contained in this paragraph 12 shall be construed to
preclude the Corporation from satisfying its obligations with respect to the
conversion of the outstanding shares of Class B Common Stock by delivery of
shares of Class A Common Stock which are held in the treasury of the
Corporation. The Corporation covenants that if any shares of Class A Common
Stock required to be reserved for purposes of conversion hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares of Class A Common Stock may be issued upon
conversion, the Corporation will use reasonable efforts to cause such shares to
be duly registered or approved, as the case may be. The Corporation covenants
that all shares of Class A Common Stock which shall be issued upon conversion of
shares of Class B Common Stock, will, upon issue, be fully paid and
nonassessable and not entitled to any preemptive rights.
4
<PAGE>
13. TREATMENT OF COMMON STOCK ON CONSOLIDATION OR MERGER. In the event of
a merger or consolidation of the Corporation with or into another entity
(whether or not the Corporation is the surviving entity), the holders of each
class of Common Stock shall be entitled to receive the same per share
consideration as the per share consideration, if any, received by any holder of
each other class of Common Stock in such merger or consolidation.
14. LIMITATION ON ISSUANCE OF CLASS B COMMON STOCK. Following the initial
issuance of shares of Class B Common Stock to Offutt in exchange for all
outstanding shares of Class A Common Stock then held by Offutt, such Class B
Common Stock shall be issued by the Corporation only (i) in payment of a stock
dividend on then outstanding shares of Class B Common Stock as provided in
paragraph 3(b) of this Article IV or (ii) in connection with a stock split,
reclassification or other subdivision of then outstanding shares of Class B
Common Stock as provided in paragraph 11 of this Article IV, unless such further
issuance shall have been approved by the holders of a majority of the voting
power of the shares of Class A Common Stock and Class B Common Stock, each
voting separately as a class.
15. STATUS OF REACQUIRED CLASS B COMMON STOCK. Shares of Class B Common
Stock converted, exchanged, purchased, retired or surrendered to the
Corporation, or which have been issued and reacquired by the Corporation in any
manner, shall be retired and shall not thereafter be reissued. At such time as
a certificate that identifies the shares to be retired, states that reissuance
of such shares is prohibited and recites the retirement of such shares shall be
executed, acknowledged and filed in accordance with applicable law, then,
without further act on the part of any person, this Certificate of Incorporation
of the Corporation shall be deemed to be amended so as to reduce accordingly the
number of authorized shares of Class B Common Stock.
16. ISSUANCE OF STOCK. Except as provided in paragraph 14 above, shares
of capital stock of the Corporation may be issued by the Corporation from time
to time in such amounts and proportions and for such consideration as may be
fixed and determined from time to time by the Board of Directors and as shall be
permitted by law. Except as may be provided in the resolution or resolutions of
the Board of Directors creating any series of Preferred Stock, no holder of
shares of the capital stock of the Corporation shall be entitled to any
preemptive right to subscribe to any new or additional shares of capital stock
of the Corporation or securities convertible into shares of capital stock,
whether now or hereafter authorized.
17. UNCLAIMED DIVIDENDS. Any and all right, title, interest and claim in
or to any dividends declared by the Corporation, whether in cash, stock or
otherwise, that are unclaimed by the stockholder entitled thereto for a period
of six years after the close of business on the payment date, shall be deemed to
be extinguished and abandoned, and such unclaimed dividends in the possession of
the Corporation, its transfer agents or other agents or depositories, shall at
such time become the absolute property of the Corporation, free and clear of any
and all claims of any persons whatsoever.
18. AMENDMENT AND WAIVER. No amendment or waiver of any provision of this
Article IV shall be effective without the prior approval of the holders of a
majority of the voting power of the shares of Class A Common Stock and Class B
Common Stock, each voting separately as a class. Notwithstanding the foregoing,
unless otherwise required by applicable law, an amendment to this Article IV to
increase the number of authorized shares of Class B Common Stock solely in
connection with payment of a stock dividend on then outstanding shares of Class
B Common Stock as provided in paragraph 3(b) of this Article IV or in connection
with a stock split, reclassification or other subdivision of then outstanding
shares of Class B Common Stock as provided in paragraph 11 of this Article IV
shall
5
<PAGE>
only require the prior approval of the holders of a majority of the voting power
of the shares of Class B Common Stock, voting separately as a class.
ARTICLE
V.
The name and mailing address of the incorporator is:
NAME MAILING ADDRESS
---- ----------------
Gary M. Nelson Oppenheimer Wolff & Donnelly
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
ARTICLE
VI.
Any action required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
voting stock of the Corporation having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded.
ARTICLE
VII.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
bylaws of the Corporation.
ARTICLE
VIII.
The Corporation shall indemnify, to the full extent authorized or
permitted by law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification than permitted prior to
such amendment), any person who was or is made or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; provided, however, that the Corporation
shall not indemnify any director or officer in connection with any action by
such director or officer against the Corporation unless the Corporation shall
have consented to such action. The Corporation may, to the extent authorized
from time to time by the Board of Directors, provide rights to
indemnification to employees and agents of the Corporation similar to those
conferred in this Article VIII to directors and officers of the Corporation.
No amendment or repeal of this Article VIII shall apply
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to or have any effect on any right to indemnification provided hereunder with
respect to any acts or omission occurring prior to such amendment or repeal.
ARTICLE
IX.
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director, except to the extent
provided by applicable law (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which such director derived
an improper personal benefit. If the General Corporation Law of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of Delaware as so amended. No amendment to or
repeal of this Article X shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment
or repeal.
ARTICLE
X.
The Corporation reserves the right to amend, alter, change, or repeal
any provisions contained in this Certificate of Incorporation in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE
XI.
Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
The undersigned being the incorporator hereinbefore named, for the
purpose of forming a Corporation pursuant to the General Corporation Law of
the State of Delaware, does hereby make this Certificate, hereby declaring
and certifying that this is his act and deed and the facts herein stated are
true, and accordingly has hereunto set his hand this ______ day of
________________, 1996.
-----------------------
Gary M. Nelson
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BYLAWS
OF
RDO EQUIPMENT CO.
A Delaware corporation
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
Section 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either the Chairman, if there be one, or
the President and shall be called by any such officer at the request in writing
of a majority of the Board of Directors or at the request in writing of
stockholders holding a majority of the voting power represented by the issued
and outstanding capital stock of the Corporation. Such request shall state the
purpose or purposes of the proposed meeting. Written notice of a Special
Meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder entitled
to vote at such meeting.
Section 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the voting power
represented by the issued and outstanding Class A Common Stock and Class B
Common Stock, taken together as a single class, and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business; provided, however,
that, with respect to any matter on which any class of stock is entitled to vote
separately as a class, the holders of a majority of the voting power
<PAGE>
represented by the issued and outstanding shares of such class, present in
person or represented by proxy, shall constitute a quorum for purposes of such
matter. If, however, such quorum shall not be present or represented at any
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
Section 5. VOTING. When a quorum is present at any meeting, the vote
of the holders of a majority of the voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of law or of the
Certificate of Incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Except to the extent required by law or the Certificate of Incorporation,
holders of Class A Common Stock and Class B Common Stock shall vote together as
a single class. Each holder of Class A Common Stock shall at every meeting of
the stockholders be entitled to one vote in person or by proxy for each share of
Class A Common Stock held by such stockholder, and each holder of Class B Common
Stock shall at every meeting of the stockholders be entitled to four votes in
person or by proxy for each share of Class B Common Stock held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
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Section 9. NOTICE OF STOCKHOLDER PROPOSALS. At an Annual Meeting of
Stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been brought before the Annual Meeting of
Stockholders by, or at the direction of, the Board of Directors or by any
stockholder of the Corporation who complies with the notice procedures set forth
in this Section 9. For a proposal to have been properly brought by a
stockholder before an Annual Meeting of Stockholders, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive offices of the Corporation not less than sixty nor
more than ninety days prior to the scheduled Annual Meeting of Stockholders,
regardless of any postponements, deferrals or adjournments of such meeting to a
later date; provided, however, that if less than seventy days' notice or prior
public disclosure of the date of the scheduled Annual Meeting of Stockholders is
given or made, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the tenth day following the
earlier of the day on which such notice of the date of the scheduled Annual
Meeting of Stockholders was mailed or the day on which such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the Annual Meeting of
Stockholders (i) a brief description of the proposal desired to be brought
before the Annual Meeting of Stockholders and the reasons for conducting such
business at the Annual Meeting of Stockholders, (ii) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business and any other stockholders known by such stockholder to be supporting
such proposal, (iii) the class and number of shares of the Corporation's stock
which are beneficially owned by the stockholder on the date of such stockholder
notice and by any other stockholders known by such stockholder to be supporting
such proposal on the date of such stockholder notice, and (iv) any financial
interest of the stockholder in such proposal. If the presiding officer of the
Annual Meeting of Stockholders determines that a stockholder proposal was not
made in accordance with the terms of this Section 9, such officer shall so
declare at the Annual Meeting of Stockholders and any such proposal shall not be
acted upon at the Annual Meeting of Stockholders.
Section 10. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 10 shall
be eligible for election to the Board of Directors of the Corporation.
Nominations of persons for election to the Board of Directors may be made by, or
at the direction of, the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at a meeting of
stockholders who complies with the notice procedures set forth in this Section
10. For a nomination to have been properly brought by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Corporation not
less than sixty nor more than ninety days prior to the scheduled Annual Meeting
of Stockholders, regardless of any postponements, deferrals or adjournments of
such meeting to a later date; provided, however, that if less than seventy days'
notice or prior public disclosure of the date of the scheduled meeting of
stockholders is given or made, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the tenth day
following the earlier of the day on which such notice of the date of the
scheduled meeting of stockholders was mailed or the day on which such public
disclosure was made. As to each person whom the stockholder proposes to
nominate for election or re-election to the Board of Directors, such notice
shall set forth (i) the name, age, business address and residence address of
such person, (ii) the principal occupation or employment of such person, (iii)
the class and number of shares of the Corporation that are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written consent to serving as a
director if elected). As to the stockholder giving the notice, such notice
shall set forth the
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name and address, as they appear on the Corporation's books, of the stockholder
proposing such nomination and any other stockholders known by such stockholder
to be supporting such nomination and the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such nomination on the date of such stockholder
notice. If the presiding officer of the meeting of stockholders determines that
a stockholder nomination was not made in accordance with the terms of this
Section 10, such officer shall so declare at the meeting of stockholders and any
such nomination shall be disregarded and shall not be acted upon at the meeting
of stockholders.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors
shall consist of not less than one member, the exact number of which shall
initially be fixed by the Incorporator and thereafter from time to time by the
Board of Directors. Except as provided in Section 2 of this Article, directors
shall be elected by a plurality of the votes cast at Annual Meetings of
Stockholders, and each director so elected shall hold office until the next
Annual Meeting and until his successor is duly elected and qualified, or until
his earlier resignation or removal. Any director may resign at any time upon
notice to the Corporation. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.
Section 3. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or a majority of the directors.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone, telegram or facsimile on twenty-four (24)
hours' notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 5. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
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Section 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board if Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 9. COMPENSATION. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 10. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining
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the presence of a quorum at a meeting of the Board of Directors or of a
committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law, the
Certificate of Incorporation or these Bylaws The officers of the Corporation
need not be stockholders of the Corporation nor, except in the case of the
Chairman of the Board of Directors, need such officers be directors of the
Corporation.
Section 2. ELECTION. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Unless determined otherwise by the
Board of Directors, the Chairman of the Board shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may from time to time exercise such other powers
as from time to time may be assigned to him by these Bylaws or by the Board of
Directors.
Section 5. PRESIDENT. The President shall, subject to the control of
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. He shall execute all bonds, mortgages, contracts and other instruments
of the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed
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and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there is no Chairman of the
Board of Directors, or if the Board of Directors otherwise determines, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
Section 6. VICE PRESIDENTS. At the request of the President or in his
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
Section 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, under whose supervision he shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed, are properly kept or filed, as
the case may be.
Section 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
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Section 9. ASSISTANT SECRETARIES. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 10. ASSISTANT TREASURERS. Assistant Treasurers, if there be
any; shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors, including any duties
and powers assigned by these Bylaws to any other officer of the Corporation.
The Board of Directors may delegate to any other officer of the Corporation the
power to choose such other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
Section 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President, and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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Section 4. TRANSFERS. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by facsimile, telegram, telex or cable.
Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
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Section 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. CORPORATE SEAL. The Corporation shall have no corporate
seal.
ARTICLE VIII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify, to the full extent authorized or permitted by
law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification than permitted prior to such
amendment), any person who was or is made or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; provided, however, that the Corporation
shall not indemnify any director or officer in connection with any action by
such director or officer against the Corporation unless the Corporation shall
have consented to such action. No amendment or repeal of this Article VIII
shall apply to or have any effect on any right to indemnification provided
hereunder with respect to any acts or omission occurring prior to such
amendment or repeal.
Section 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification to employees and agents of the Corporation
similar to those conferred in this Article VIII to directors and officers of the
Corporation.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed, in whole or in part, or
new Bylaws may be adopted by the stockholders or by the Board of Directors;
provided, however, that notice of such alteration, amendment, repeal or adoption
of new Bylaws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. All such amendments must be approved by
either the holders of a majority of the voting power represented by the issued
and outstanding capital stock of the Corporation entitled to vote thereon or by
a majority of the Board of Directors.
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EXHIBIT 10.1
AGREEMENT
This Agreement is made this ____ day of September, 1996 by and between Ronald
D. Offutt (Offutt), an individual; RDO Equipment Co. (RDOEC), a corporation
duly organized and existing under the laws of the State of North Dakota; John
Deere Company - A Division of Deere & Company (JD-Ag), a corporation duly
organized and existing under the laws of the State of Delaware; and John
Deere Industrial Equipment Company (JDIEC), a corporation duly organized and
existing under the laws of the State of Delaware. JD-Ag and JDIEC are
collectively referred to herein as "Deere."
Whereas RDOEC has acquired the JDIEC dealership assets of Mega Equipment Co.
and desires to obtain an appointment as a JDIEC dealer for the area of
responsibility formerly assigned to Mega Equipment Co.; and
Whereas RDOEC and Offutt desire to conduct a public offering of RDOEC common
stock, which requires the prior approval of Deere under dealer agreements now
in effect between RDOEC and Deere; and
Whereas the size and geographic diversity of RDOEC's Deere dealership
operations as presently constituted make them unlike Deere's other North
American dealers; and
Whereas addition of the Mega Equipment Co. area of responsibility to RDOEC's
dealership operations, a public offering of RDOEC stock, or both would make
RDOEC's Deere dealership operations even more unlike any of Deere's other
North American dealers, and would expose Deere to additional and unique
business risks; and
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Whereas the uniqueness of RDOEC's circumstances and the additional risks
involved for Deere warrant the application, to RDOEC, of performance
requirements beyond those imposed on other Deere dealers, as well as certain
modifications to the dealer agreements now in effect between RDOEC and Deere;
and
Whereas Deere is willing to appoint RDOEC an industrial dealer for the Mega
Equipment Co. area of responsibility, and to approve a public offering of
RDOEC stock for the benefit of RDOEC and its shareholders, both upon
agreement of the parties to the terms hereof; and
Whereas RDOEC and Offutt are willing to agree to and be bound by the terms
hereof, regardless of whether a public offering of RDOEC stock occurs, in
order to obtain an appointment as a JDIEC dealer for the Mega Equipment Co.
area of responsibility;
Now Therefore, in consideration of the premises and mutual covenants and
agreements contained herein, the parties hereto agree as follows:
1. Restrictions on Equity:
a. RDOEC will have an equity to assets ratio of 30% or greater:
(1) no later than 31 January 1997 if a public offering of RDOEC stock
does not occur on or before that date;
(2) within 120 days following any public offering of RDOEC stock; and
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(3) immediately following any further expansion of RDOEC's industrial
or agricultural area of responsibility.
The balance sheet effect of any distribution to shareholders occurring
or to occur in connection with a public offering of RDOEC stock shall
be included in the calculation of RDOEC's equity to assets ratio for
the purposes of section 1.a(2) above.
b. RDOEC will not pay any dividends, effect any stock repurchase, or make
any other distributions to shareholders (excluding, for purposes of
this section 1.b only, the distribution of tax-paid Subchapter S
earnings planned to occur in connection with the contemplated initial
public offering of RDOEC common stock) if:
(1) RDOEC's equity to assets ratio is below 30%; or
(2) RDOEC's equity to assets ratio would fall below 30% as a result
of such dividend, repurchase, or distribution.
c. Unless specifically approved in advance in writing by Deere, RDOEC
will not make any acquisitions or initiate new business activities if:
(1) RDOEC's equity to assets ratio is below 30%; or
(2) RDOEC's equity to assets ratio would fall below 30% as a result
of such actions.
d. Any business operation that RDOEC desires to capitalize at less than a
30% equity to assets ratio will be
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contained in a corporation separate from RDOEC. RDOEC will remain the
Deere dealership corporation.
e. RDOEC will not guarantee or otherwise be liable for any debt or other
obligation of any affiliated company, provided, however, that this
sentence shall not apply to financing arrangements arising from the
procurement, from RDOEC's dealerships by a company affiliated with RDOEC,
of goods and services offered to the public by RDOEC in the ordinary
course of RDOEC's business. All intercompany transactions between RDOEC
and affiliated companies will be conducted on an arms-length basis, on
reasonable commercial terms. RDOEC will maintain its assets, bank
accounts, and credit facilities separately from the assets, bank
accounts, and credit facilities of affiliated companies, and RDOEC's
assets and funds (and records relating thereto) will not be commingled
with those of any affiliated company.
f. For the purposes of this Agreement (whether with reference to JDIEC,
JD-Ag, or otherwise), RDOEC's equity to assets ratio will be
calculated in accordance with JDIEC's Industrial Dealer Terms Schedule
(as in effect from time to time) and with such adjustments to equity
or assets as Deere deems appropriate in its sole discretion, including
without limitation the subtraction of assets and equity associated
with any subsidiaries of RDOEC (whether wholly or partially owned).
2. Restrictions on Share Ownership:
a. Offutt will own or control in excess of 50% of the outstanding voting
power of RDOEC (or whatever greater percentage is required to control
corporate actions that require a shareholder vote). In addition,
Offutt will own RDOEC common stock representing at least 35% of RDOEC's
shareholders' equity.
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b. RDOEC will advise Deere whenever RDOEC becomes aware that a
shareholder owns or controls 5% or more of the outstanding shares of
any class of stock of RDOEC.
c. Offutt will not privately sell any RDOEC shares to a person or entity
not approved by Deere. However, Offutt may:
(1) sell any of his shares in RDOEC in broker's transactions, to
market makers as contemplated by SEC Rule 144, or in an
underwritten public offering; or
(2) permit the exercise of RDOEC stock options granted by Offutt to
Paul T. Horn and Allan F. Knoll prior to the date of this
Agreement
as long as Offutt continues to satisfy the requirements set forth in
section 2.a above following the sale or exercise of options.
d. RDOEC will not privately sell any RDOEC shares to a person or entity
not approved by Deere. However, RDOEC may sell any RDOEC shares in an
underwritten public offering or in connection with stock options for
employees of RDOEC, as long as Offutt continues to satisfy the
requirements set forth in section 2.a above following the sale.
e. Deere will have the right to terminate RDOEC's dealer appointments,
effective immediately, in the event Offutt ceases to comply with either
requirement set forth in section 2.a above, provided, however, that
section 5 below will govern Deere's right of termination on the death of
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Offutt. Termination under this section 2.e may be executed, at Deere's
sole discretion, on an overall basis or by individual area of
responsibility.
3. JD-Ag Performance Criteria:
a. JD-Ag will have the right to terminate RDOEC's agricultural dealer
appointments if RDOEC's equity to assets ratio, based on RDOEC's
fiscal year-end audit, is less than 25%. Such termination will require
one year advance written notice, and at JD-Ag's sole discretion may be
executed on an overall basis or by individual area of responsibility.
Should JD-Ag give notice of termination under this section 3.a, RDOEC
will have the right to cure its equity to assets ratio deficiency
through the injection of fresh capital, in the amount deemed necessary
by JD-Ag to raise the year-end percentage to 25%, within 180 days
following RDOEC's fiscal year end; however, JD-Ag's approval will be
required if RDOEC wishes to cure its equity to assets ratio deficiency
by any other means, including without limitation reducing its asset
levels or through earnings retained during the cure period.
b. Annually, by a deadline specified by JD-Ag, RDOEC will submit and
secure JD-Ag's approval of a comprehensive business plan (for each
individual area of responsibility) containing:
(1) specific objectives for market share (whole goods and parts),
Customer Satisfaction Index (CSI), and equity (as well as any
other metric criteria which JD-Ag may prescribe for dealers
generally) for the plan year which, in each instance, represent
at a minimum meaningful
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progress toward the metric level specified by JD-Ag for each
criterion;
(2) specific action plans designed to achieve the metric criteria
objectives specified in the plan and, within a reasonable period
of time, the metric levels specified by JD-Ag; and
(3) such other elements or metrics as are set forth in JD-Ag's
then-effective Signature Program, or which JD-Ag may elect to
require in dealer business plans generally.
c. Failure by RDOEC to submit acceptable business plans or failure to
make meaningful progress toward the objectives in the plans, as
determined by JD-Ag in its sole discretion, will constitute grounds for
termination of RDOEC's agricultural dealer appointments for the area
of responsibility involved. Termination pursuant to this provision will
require one year advance written notice. JD-Ag will have no obligation
to rescind a notice of termination given under this section 3.c even
if RDOEC cures the failure(s) in the area of responsibility involved
during the year after the notice is given.
d. The termination rights provided for JD-Ag in sections 3.a and 3.c
above and elsewhere in this Agreement are in addition to, and shall in
no way affect or limit, the termination rights of JD-Ag under RDOEC's
agricultural dealer agreements or any other agreement between RDOEC
and JD-Ag. Nothing in sections 3.a and 3.c above shall preclude
immediate termination, or termination on less than one year advance
notice, of RDOEC's agricultural dealer appointments in any
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situation in which another provision in this Agreement or any other
agreement affords JD-Ag a right to terminate immediately or on less
than one year advance notice.
4. Termination of JDIEC Dealer Appointments:
a. In lieu of its existing right of termination under section 3(b) of
RDOEC's industrial dealer agreements, JDIEC may terminate RDOEC's
industrial dealer appointments as follows:
(1) Overall Market Share
(a) For each of its assigned areas of responsibility, RDOEC will
maintain, on a monthly basis, rolling 12-month overall
"Deere share" market share at a level greater than the level
corresponding to the 50th percentile of all of JDIEC's U.S.
dealers. Market share will be determined based upon the
criteria and methodology then in use by JDIEC and evaluated
monthly as information becomes available. The areas of
responsibility assigned to RDOEC will be excluded from the
calculations for the purpose of determining the 50th
percentile of JDIEC's U.S. dealers.
(b) JDIEC will have the right to terminate RDOEC's dealer
appointments for a given area of responsibility upon the
third instance (or any subsequent instance) in which RDOEC
fails, in that area of responsibility, to satisfy the
performance
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requirement set forth in section 4.a(1)(a) above, whether
the instances occur in consecutive months or otherwise. Such
termination will require one year advance written notice.
JDIEC will have no obligation to rescind a notice of
termination given under this section 4.a(1)(b) even if RDOEC
satisfies the performance requirement set forth in section
4.a(1)(a) above in the area of responsibility involved
during the year after the notice is given.
(c) If in a given area of responsibility RDOEC did not satisfy
the performance requirement set forth in section 4.a(1)(a)
above for any of the 12-month periods ending May, June, or
July 1996, a failure by RDOEC to satisfy that performance
requirement in such area of responsibility for any rolling
12-month period ending July 1999 or earlier will not be
counted for the purpose of JDIEC's right of termination
under section 4.a(1)(b) above. Should RDOEC acquire a
dealership which, for any of the 12-month periods ending
with the month of acquisition or with one of the two months
immediately preceding the month of acquisition, did not
satisfy the performance requirement set forth in section
4.a(1)(a) above, a failure by RDOEC to satisfy that
performance requirement, in the area of responsibility
previously assigned to such acquired dealership, for any
rolling 12-month
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period ending within the first three years of RDOEC's
operations there will not be counted for the purpose of
JDIEC's right of termination under section 4.a(1)(b) above.
(2) Total Core Product Market Share
(a) For each of its assigned areas of responsibility, RDOEC will
maintain, on a monthly basis, rolling 12-month total core
product "Deere share" market share at a level greater than
the level corresponding to the 50th percentile of all of
JDIEC's U.S. dealers. Market share will be determined based
upon the criteria and methodology then in use by JDIEC and
evaluated monthly as information becomes available. The
areas of responsibility assigned to RDOEC will be excluded
from the calculations for the purpose of determining the
50th percentile of JDIEC's U.S. dealers.
(b) JDIEC will have the right to terminate RDOEC's dealer
appointments for a given area of responsibility upon the
third instance (or any subsequent instance) in which RDOEC
fails, in that area of responsibility, to satisfy the
performance requirement set forth in section 4.a(2)(a)
above, whether the instances occur in consecutive months or
otherwise. Such termination will require one year advance
written notice. JDIEC will have no
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obligation to rescind a notice of termination given under
this section 4.a(2)(b) even if RDOEC satisfies the
performance requirement set forth in section 4.a(2)(a) above
in the area of responsibility involved during the year after
the notice is given.
(c) If in a given area of responsibility RDOEC did not satisfy
the performance requirement set forth in section 4.a(2)(a)
above for any of the 12-month periods ending May, June, or
July 1996, a failure by RDOEC to satisfy that performance
requirement in such area of responsibility for any rolling
12-month period ending July 1999 or earlier will not be
counted for the purpose of JDIEC's right of termination under
section 4.a(2)(b) above. Should RDOEC acquire a dealership
which, for any of the 12-month periods ending with the month
of acquisition or with one of the two months immediately
preceding the month of acquisition, did not satisfy the
performance requirement set forth in section 4.a(2)(a) above,
a failure by RDOEC to satisfy that performance requirement,
in the area of responsibility previously assigned to such
acquired dealership, for any rolling 12-month period ending
within the first three years of RDOEC's operations there will
not be counted for the purpose of JDIEC's right of termination
under section 4.a(2)(b) above.
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(3) Absorption
(a) For each of its assigned areas of responsibility, RDOEC will
maintain, on a monthly basis, a rolling 12-month product
support absorption percentage at a level greater than the
level corresponding to the 50th percentile of all of JDIEC's
U.S. dealers. Product support absorption percentage will be
determined based upon the criteria and methodology then in
use by JDIEC and evaluated monthly as information becomes
available. The areas of responsibility assigned to RDOEC
will be excluded from the calculations for the purpose of
determining the 50th percentile of JDIEC's U.S. dealers.
(b) JDIEC will have the right to terminate RDOEC's dealer
appointments for a given area of responsibility upon the
third instance (or any subsequent instance) in which RDOEC
fails, in that area of responsibility, to satisfy the
performance requirement set forth in section 4.a(3)(a)
above, whether the instances occur in consecutive months or
otherwise. Such termination will require one year advance
written notice. JDIEC will have no obligation to rescind a
notice of termination given under this section 4.a(3)(b)
even if RDOEC satisfies the performance requirement set
forth in section 4.a(3)(a) above in the area of
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responsibility involved during the year after the notice is
given.
(c) If in a given area of responsibility RDOEC did not satisfy
the performance requirement set forth in section 4.a(3)(a)
above for any of the 12-month periods ending May, June, or
July 1996, a failure by RDOEC to satisfy that performance
requirement in such area of responsibility for any rolling
12-month period ending July 1999 or earlier will not be
counted for the purpose of JDIEC's right of termination
under section 4.a(3)(b) above. Should RDOEC acquire a
dealership which, for any of the 12-month periods ending
with the month of acquisition or with one of the two months
immediately preceding the month of acquisition, did not
satisfy the performance requirement set forth in section
4.a(3)(a) above, a failure by RDOEC to satisfy that
performance requirement, in the area of responsibility
previously assigned to such acquired dealership, for any
rolling 12-month period ending within the first three years
of RDOEC's operations there will not be counted for the
purpose of JDIEC's right of termination under section
4.a(3)(b) above.
(4) Equity to Assets Ratio:
JDIEC will have the right to terminate RDOEC's dealer
appointments if RDOEC's equity to assets
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ratio, based on RDOEC's fiscal year-end audit, is less than 25%.
Such termination will require one year advance written notice,
and at JDIEC's sole discretion may be executed on an overall
basis or by individual area of responsibility. Should JDIEC give
notice of termination under this section 4.a(4), RDOEC will have
the right to cure its equity to assets ratio deficiency through
the injection of fresh capital, in the amount deemed necessary by
JDIEC to raise the year-end percentage to 25%, within 180 days
following RDOEC's fiscal year end; however, JDIEC's approval will
be required if RDOEC wishes to cure its equity to assets ratio
deficiency by any other means, including without limitation
reducing its asset levels or through earnings retained during the
cure period.
(5) Business Plans and Progress Toward JDIEC Metrics:
(a) RDOEC's stated goal is to be recognized as the premier Deere
dealer group, and both RDOEC and Deere reasonably expect
RDOEC to perform consistently at the level of Deere's
highest performing dealers. RDOEC therefore commits to
strive toward and, ultimately, achieve and maintain market
shares, absorption, and equity at the metric levels
specified by JDIEC and prescribed for JDIEC dealers
generally. Toward that end, RDOEC agrees to the following
specific requirements:
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(i) Annually, by the deadline specified by JDIEC for
submission of dealer business plans, RDOEC will submit
and secure JDIEC's approval of a comprehensive annual
business plan (for each individual area of
responsibility) containing (1) specific objectives for
market share (overall and by core product group),
absorption, and equity (as well as any other metric
criteria which JDIEC may prescribe for dealers
generally) for the plan year which, in each instance,
represent at a minimum meaningful progress toward the
metric level specified by JDIEC for each criterion; (2)
specific action plans designed to achieve the metric
criteria objectives specified in the plan and, within a
reasonable period of time, the metric levels specified
by JDIEC; and (3) such other elements or metrics as are
set forth in JDIEC's then-effective Mark of Excellence
Program Guide, or which JDIEC may elect to require of
dealers generally.
(ii) RDOEC will substantially accomplish each material action
plan contained in each business plan approved by JDIEC.
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(iii) RDOEC will, at a minimum, make meaningful progress
each year toward JDIEC's metrics, including without
limitation those related to market share (overall and
each core product group), absorption, and equity.
(b) Failure by RDOEC to satisfy any of the specific requirements
set forth in section 4.a(5)(a) above, as determined by JDIEC
in its sole discretion, will constitute grounds for
termination, with one year advance written notice, of
RDOEC's dealer appointments for the area of responsibility
involved. JDIEC will have no obligation to rescind a notice
of termination given under this section 4.a(5)(b) even if
RDOEC satisfies the specific requirements set forth in
section 4.a(5)(a) above in the area of responsibility
involved during the year after the notice is given. With
respect to the requirement in section 4.a(5)(a)(iii) above,
in determining whether RDOEC has failed to make meaningful
progress toward JDIEC's market share metrics in a particular
year, JDIEC will take into account actions directly
attributable to JDIEC to the extent such actions cause a
loss of market share in that year by RDOEC, provided the
connection between JDIEC's actions and RDOEC's loss of
market share is evidenced by a substantial loss of market
share in
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that year by JDIEC's U.S. dealers generally.
(6) Breach of Agreement
JDIEC will have the right to terminate RDOEC's dealer
appointments, effective immediately, in the event of a not
inconsequential breach by RDOEC or Offutt of this Agreement,
RDOEC's industrial dealer agreements, or any other agreement
between RDOEC or Offutt and JDIEC, provided, however, that
termination for noncompliance with the requirements of sections
4.a(1)(a), 4.a(2)(a), 4.a(3)(a), and 4.a(5)(a)(i)-(iii) above
will be governed by sections 4.a(1)(b), 4.a(2)(b), 4.a(3)(b), and
4.a(5)(b) above, respectively. Such termination may, at JDIEC's
sole discretion, be executed on an overall basis or by individual
area of responsibility.
b. Nothing in sections 4.a(1) through 4.a(6) of this Agreement shall
preclude immediate termination of RDOEC's dealer appointments in any
situation in which another provision in this Agreement or any other
agreement affords JDIEC a right of immediate termination. By way of
illustration (and not limitation), nothing in section 4.a(6) of this
Agreement shall require that a particular breach of agreement by RDOEC
or Offutt be "not inconsequential" if some other provision of this
Agreement or another agreement affords JDIEC a right of termination
following the breach without requiring that the breach be not
inconsequential.
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c. The termination rights provided for JDIEC in section 4.a above and
elsewhere in this Agreement are in addition to, and shall in no way
affect or limit, the termination rights of JDIEC under RDOEC's
industrial dealer agreements (other than the termination right
provided for JDIEC in section 3(b) of those dealer agreements).
d. In lieu of RDOEC's existing right of termination under section 3(b) of
its industrial dealer agreements, RDOEC may terminate its JDIEC dealer
appointments by giving one year advance written notice to JDIEC.
5. Termination on Death of Offutt:
a. Deere will not exercise its right, under section 2(b) of the dealer
agreements in effect between RDOEC and Deere, to terminate RDOEC's
dealer appointments, effective immediately, upon the death of Offutt
if the following conditions are satisfied at the time of Offutt's
death:
(1) RDOEC has in place an ownership succession plan that has been
approved in writing by JD-Ag and JDIEC.
(2) RDOEC, JD-Ag, and JDIEC have entered into a written agreement
which:
(a) identifies events which, from Offutt's death forward, will
constitute changes in the control of RDOEC; and
(b) provides JD-Ag and JDIEC an additional right to terminate
RDOEC's dealer
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appointments, effective immediately, if such an event occurs
without the prior written approval of JD-Ag and JDIEC.
(3) Neither RDOEC nor Offutt has breached any obligation under
RDOEC's dealer agreements, this Agreement, or any other agreement
with JD-Ag or JDIEC, and no grounds for termination of an RDOEC
dealer appointment exist under any agreement between RDOEC and
and JD-Ag or JDIEC.
(4) RDOEC and each of its locations are under the management of
personnel who have demonstrated performance capabilities, are
acceptable to Deere in its sole discretion, and who will continue
to manage RDOEC and its locations after the death of Offutt.
(5) Each area of responsibility assigned to RDOEC under its dealer
agreements justifies, in Deere's sole discretion, the
continuation of a Deere dealership assigned only that area.
Should Deere determine that a particular area of responsibility
does not justify the continuation of a dealership, RDOEC shall
retain, for a period of three years following the death of
Offutt, a right of first refusal to locate a dealership in the
affected area of responsibility if in that period Deere rescinds
its decision, provided, however, that such right of first refusal
shall terminate if RDOEC breaches an agreement with JD-Ag or
JDIEC, or if grounds arise for termination of any of RDOEC's dealer
appointments.
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(6) Offutt is in compliance with the requirements set forth in
section 2.a above.
b. Deere may at its sole discretion evaluate compliance with the
conditions set forth in this section 5 and take action, if any, on an
overall basis or by individual area of responsibility.
6. Arbitration:
a. Any controversy or claim, whether based on contract, tort, statute,
common law, or other legal theory, between RDOEC or Offutt and JD-Ag,
JDIEC, or Deere Credit, Inc. shall be resolved by binding arbitration
pursuant to this section 6 and the then-current Commercial Rules and
supervision of the American Arbitration Association. The duty to
arbitrate shall extend to any officer, employee, shareholder,
principal, agent, trustee in bankruptcy or otherwise, affiliate,
subsidiary, third-party beneficiary, or guarantor of a party hereto
making or defending any claim which would otherwise be arbitrable
hereunder.
b. The arbitration shall be held in Chicago before a panel of three
arbitrators who are knowledgeable regarding, and have experience as
arbitrators of, commercial disputes. The decision and award of a
majority of the panel shall be final and binding, and judgment thereon
may be entered in any court having jurisdiction thereof. The panel
shall not have the power to award punitive or exemplary damages, or
any damages excluded
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by, or in excess of any damage limitations expressed in, any agreement
between the parties to the dispute.
c. Each party to the dispute shall bear its own attorney's fees
associated with the arbitration, and other costs and expenses of the
arbitration shall be borne as provided by the rules of the American
Arbitration Association.
d. If court proceedings to stay litigation or compel arbitration are
necessary, the party who unsuccessfully opposes such proceedings shall
pay all associated costs, expenses, and attorney's fees which are
reasonably incurred by the other party.
e. Neither a party to the dispute, a witness, or the panel may disclose
the contents or results of any arbitration hereunder without the prior
written consent of all parties to the dispute, unless and then only to
the extent required to enforce or challenge the award, as required by
law (including without limitation applicable securities laws and
regulations) or as a result of legal process, or as necessary for
financial and tax reports and audits.
f. Deere may seek judicial remedies, such as (but not limited to)
attachment, replevin, and garnishment, deemed necessary by Deere in
its sole discretion for the enforcement of Deere's rights regarding
any security for the indebtedness of RDOEC, and such action by Deere
shall not constitute a waiver of Deere's rights or a breach of Deere's
obligations under this section 6. For the purposes of this section 6.f
only, "Deere" shall include Deere Credit, Inc. in addition to JD-Ag
and JDIEC.
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g. If any part of this section 6 is held to be unenforceable, its
unenforceability shall not affect the duty to arbitrate hereunder or
any other part of this section 6.
7. Letters of Credit:
a. Deere will accept letters of credit as a substitute or partial
substitute for Offutt's personal guaranties of the indebtedness of
RDOEC (including without limitation wholesale obligations and
obligations under any retail finance or leasing agreement) if the
letters are issued by a bank acceptable to Deere in favor of Deere and
such other beneficiaries as Deere may direct, the form of the letters
is acceptable to Deere, the amount of the letters as issued meets
Deere's guidelines in effect at the time of issuance, and the amount
of the letters is adjusted when and as requested by Deere. Deere may
request an adjustment of the letters' amount whenever such an
adjustment is necessary to meet Deere's guidelines (as in effect from
time to time), or if in Deere's sole discretion an adjustment is
warranted in light of circumstances deemed by Deere to be unusual.
b. Cancellation or nonrenewal of any letter of credit issued in Deere's
favor, or a failure to adjust the amount of such a letter when and as
required by Deere, shall be grounds for immediate termination of
RDOEC's dealer appointments. Termination under this section 7.b may be
executed, at Deere's sole discretion, on an overall basis or by
individual area of responsibility.
8. General Provisions:
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a. As used in this Agreement, the term "area of responsibility" means:
(1) with regard to RDOEC's JD-Ag dealerships, an individual
dealership location; and
(2) with regard to RDOEC's JDIEC dealerships, a geographic region now
or hereafter treated by JDIEC as a separate dealership trade area
in its dealer agreements with RDOEC.
b. In the event JDIEC gives its approval for a rent-to-rent business
operated by or affiliated with RDOEC or Offutt at a location outside
the areas of responsibility assigned to RDOEC by JDIEC, such
rent-to-rent business will not utilize any John Deere industrial
equipment at that location other than such John Deere industrial
equipment as it may acquire from the JDIEC dealer whose assigned area of
responsibility includes such location.
c. Deere shall have input into the selection and removal of all RDOEC
management personnel down to and including the managers of RDOEC's
individual locations.
d. RDOEC shall obtain written approval from Deere prior to discussing
(directly or indirectly) with any dealer a possible purchase of a
dealership that would add to RDOEC's area of responsibility. Deere
shall have the right to reject such a request or to disapprove
additions to RDOEC's area of responsibility in its sole discretion.
e. With respect to its JDIEC dealerships, RDOEC will not carry
competitive products (whole goods or parts),
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including without limitation products which do not compete with a
JDIEC product as of the date of this Agreement but which become
competitive in the future due to the offering of new products by JDIEC
(whether as a result of new product development, acquisition, or
otherwise). This commitment shall also bind any subsidiary of RDOEC
(whether wholly or partially owned), as well as any other entity in
which Offutt owns or controls a 25% or greater interest. However, this
commitment shall not preclude the distribution in Minnesota, through a
business separated from RDOEC's JDIEC dealership in accordance with
JDIEC's competitive lines policy, of the Vermeer product line carried
by RDOEC in Minnesota on the date of this Agreement, if in the future
JDIEC offers a product which competes with a Vermeer product carried by
RDOEC in Minnesota on the date of this Agreement.
f. Any grounds for termination of RDOEC's dealer appointments under this
Agreement, RDOEC's dealer agreements (as modified by this Agreement),
or any other agreement between RDOEC and JD-Ag or JDIEC will be
sufficient grounds for termination for the purposes of any applicable
law requiring grounds (or certain grounds) for termination, regardless
of the terminology used in such law to describe the grounds required
thereunder.
g. If any of RDOEC's dealer appointments are terminated, all of RDOEC's
indebtedness to Deere in connection with the terminated appointments
which is not due and payable prior to the effective date of
termination shall be due and payable as of the effective date of
termination.
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h. RDOEC, Offutt, and Deere will maintain the confidentiality of one
another's confidential information, unless and then only to the extent
disclosure is required by law (including without limitation applicable
securities laws and regulations) or as a result of legal process.
Nothing in this section 8.h or in section 6.e above shall prohibit
the exchange of information between RDOEC and Offutt, or the exchange
of information within the Deere & Company organization.
i. Nothing contained in this Agreement shall be construed as a waiver or
modification of any terms, conditions, or rights contained in any
existing agreement between JD-Ag or JDIEC and RDOEC or Offutt except
to the extent such terms, conditions, or rights are in conflict with
this Agreement, in which event this Agreement shall supersede the
existing agreements, but only to the extent of the conflict.
j. Each party to this Agreement represents and warrants that it has taken
all action required to authorize it to enter into this Agreement, and
each party further represents that it has neither relied upon nor been
induced by any representation, statement, or disclosure of the other
party, but has relied upon its own knowledge and judgment in entering
into the Agreement.
k. This Agreement shall be effective and binding regardless of whether a
public offering of RDOEC stock occurs. Because of RDOEC's unique position
within Deere's dealer organizations, each provision hereof shall be given
full effect in accordance with its terms regardless of how or whether
Deere addresses the provision's subject matter with other Deere dealers.
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l. This Agreement cannot be modified, nor any party's rights hereunder
waived, except in writing, and no waiver of any provision hereof shall
preclude enforcement of any other provision hereof, or subsequent
enforcement of the provision waived. This Agreement cannot be assigned
without the prior written consent of the parties, which consent may be
withheld with or without cause.
m. Reincorporation of RDOEC in Delaware or another jurisdiction shall not
affect its rights and obligations under this Agreement.
JOHN DEERE COMPANY - A DIVISION OF DEERE & COMPANY
By:
--------------------------------------------------
Title:
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JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
By:
--------------------------------------------------
Title:
-----------------------------------------------
RDO EQUIPMENT CO.
By: /s/ Ronald D. Offutt
--------------------------------------------------
Title: President
-----------------------------------------------
/s/ Ronald D. Offutt
- -----------------------------------------------------
RONALD D. OFFUTT, INDIVIDUALLY
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EXHIBIT 10.2
JOHN DEERE
AGRICULTURAL
DEALER AGREEMENT
Dealer RDO Equipment Co.
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Town
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State
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[LOGO]
<PAGE>
[LOGO]
JOHN DEERE COMPANY
AUTHORIZED AGRICULTURAL DEALER
AGREEMENT
The Dealer whose signature appears on the last page hereby applies to the
undersigned John Deere Company (the "Company") for appointment as a John
Deere Authorized Agricultural Dealer for its Agricultural Line, and agrees
that the relationship between him and the Company will be governed by the
Terms of Appointment on the succeeding pages of this booklet. When it
executes this Agreement, the Company accepts the Dealer's application and
also agrees to be bound by the Terms of Appointment. This Agreement shall be
effective upon execution by the Company and shall as of that date supersede
any prior Agricultural Dealer Agreement between the parties hereto.
The Company distributes certain John Deere agricultural machines and
equipment, certain of its JDM and certain allied agricultural machines, which
together are classified by the Company as its Agricultural Line. These items,
and attachments and service parts for them, are collectively referred to as
"Goods." While the Company also distributes other types of equipment, this
Agreement pertains only to Goods. The Dealer is an independent retail
merchant who purchases Goods for resale for the principal benefit of the
Dealer. It is agreed that except as otherwise provided herein, individual
orders, sales and shipments of Goods are governed by the Company's published
Conditions of Sale in effect from time to time.
The Dealer accepts as his area of responsibility the town in which his place
of business is located and vicinity.
<PAGE>
TERMS OF APPOINTMENT / 1
TERMS OF APPOINTMENT
1. OBLIGATIONS OF THE PARTIES
During the period of the Dealers' appointment as a John Deere Authorized
Agricultural Dealer, the parties accept the following obligations and duties.
(a) The Company agrees to accept orders placed by the Dealer for Goods which
the Company contemplates will be shipped during the period of appointment,
subject to the Company's Conditions of Sale. Even though an order has been
accepted, the Company has the right to refuse to ship Goods and shall have no
liability to the Dealer for such refusal or for any delay or other failure to
ship or deliver Goods as provided in the Conditions of Sale or Section 4
hereof.
(b) The Company agrees that the Dealer will have the benefit of any Finance
Plans, Lease Plans, Floor Plans, Parts Return Programs. Sales or Incentive
Programs or similar plans or programs which it, from time to time, makes
available to other Authorized Agricultural Dealers. Such plans or programs
may contain standards, conditions or requirements of uniform application
which the Dealer must meet in order to use or benefit from them. State or
local laws or regulations may require variations from standard plans or
programs.
(c) Without limiting the right of the Company to choose those with whom it
deals, the Company may sell, loan or lease Goods as follows without restriction:
(i) To Federal, state and local governments.
(ii) To educational institutions and agricultural experiment stations.
(iii) To its competitors (for test purposes).
(iv) To equipment manufacturers.
(v) To its own employees.
(vi) Repossessed Goods (new or used)
(vii) To accounts classified by the Company as national accounts.
(d) The Dealer agrees to use his best efforts to promote, sell and service
Goods. The Dealer further agrees to achieve sales objectives and market
penetration within Dealer's Area of Responsibility satisfactory to the
Company and will maintain:
(i) A place of business approved by the Company, with adequate space
and facilities devoted to sales, service, display and storage of
Goods, with appropriate identification for a Dealer selling Goods;
(ii) Competent management and a sufficient staff of well trained
personnel devoted to the sale and service of Goods and will
cooperate with the Company by sending such personnel to
conferences and training schools provided by the Company;
(iii) Adequate working capital and capitalization;
(iv) Service equipment, an adequate stock of service parts and those
appropriate special tools necessary to promptly fulfill the
warranty obligations of both the Dealer and the Company, product
improvement programs and the non-warranty service needs of users
of Goods in his Area of Responsibility.
(e) The purpose of the Dealer's obligations provided for in Section 1 (d) is
to assure that best efforts and adequate resources are being committed to the
sale of Goods and to the performance of this Agreement. If the Dealer
undertakes to carry another major product line or engage in another major
business activity, either of which involves an important commitment of effort
and resources, the Dealer agrees to make such separation of the personnel,
facilities, capital and other resources devoted to that business as is
satisfactory to the Company.
(f) The Dealer agrees to thoroughly canvass his area of responsibility, to
actively promote the sale of all Goods which are usable in his area of
responsibility, and to maintain an inventory of Goods in proportion to the
sales possibilities in such area.
(g) The Dealer agrees to cooperate with the Company in implementing those
programs recommended by the Company with respect to sales, service and parts
promotion, advertising, record keeping, and parts management which the Dealer
agrees will be beneficial to his operations.
<PAGE>
TERMS OF APPOINTMENT / 2
(h) The Dealer agrees to participate in the Company's Transfer and
Reaquisition Program described in the Dealers Terms Schedule. The Dealer
acknowledges that the intent of this program, and his participation in it
from time to time, is to facilitate overall dealer retail sales and to assist
in maintaining dealer inventories and the Company's receivables at reasonable
levels and that each such effect is to the mutual benefit of the Dealer and
the Company.
(i) In order that a satisfactory level of dealer performance may be obtained,
the Dealer agrees to cooperate with the Company in periodic reviews of the
performance of his obligations under this Agreement and to take appropriate
action to correct deficiencies discussed in such reviews.
(j) The Dealer agrees to maintain his principal place of business at the
location set forth on the signature page of this Agreement, and will not,
either directly or indirectly, establish, maintain, or operate a facility at
any other location for displaying, selling, renting, leasing, or servicing of
new or used goods, without the prior written approval of the Company.
2. IMMEDIATE CANCELLATION FOR CAUSE
While it is the hope and expectation of the parties that this Agreement will
create a mutually profitable and satisfactory relationship, the success of an
equipment dealership depends to a substantial degree on the ability, energy
and integrity of the individual or group of associates who operate it.
Adequate financial resources are also essential. The Company may, therefore,
immediately cancel the Dealer's appointment by giving notice to the Dealer at
any time after the happening of any of the following:
(a) Death of an individual proprietor, partner, major shareholder, or the
manager of the dealership;
(b) Withdrawal of an individual proprietor, partner, major shareholder, or
the manager of the dealership or a substantial reduction in interest of a
partner or major shareholder, without the prior written consent of the
Company;
(c) Closeout or sale of a substantial part of the Dealer's business related
to the handling of Goods, the commencement of dissolution or liquidation of
the Dealer if a partnership or corporation, or a change, without the prior
written approval of the Company, in the location of the Dealer's principal
place of business under this Agreement;
(d) Default by the Dealer under any Chattel Mortgage or other Security
Agreement between the Dealer and the Company;
(e) Revocation or discontinuance of any guaranty of the Dealer's present or
future obligations to the Company.
The Dealer shall promptly notify the Company in writing of the occurrence of
any of the events enumerated in Subsection (a) or (b).
3. TERMINATION ON SPECIFIED DATE
Unless the Dealer's appointment is canceled under Section 2, it shall
continue until it is terminated by one or both of the parties as provided in
this Section 3. The Dealer's appointment may be terminated at any time:
(a) by the mutual written consent of the parties, with the effective date of
such termination to be such as may be mutually agreed upon; or
(b) by written notice given by the Company to the Dealer at least one
hundred eighty (180) days prior to the effective date specified in such
notice if the Company determines that the Dealer's area of responsibility
does not afford sufficient sales potential to continue to reasonably support
an authorized dealer or if the Company believes the Dealer is not fulfilling
the requirements of his appointment despite the opportunity to correct or to
take appropriate action toward correcting deficiencies in his operations
which have been called to his attention by the Company; or
(c) by written notice given by the Dealer to the Company at least one
hundred eighty (180) days prior to the effective date specified in such
notice; or
(d) by the execution of a new Authorized Dealer Agreement between the
parties which is intended to supersede this Agreement, or by the Dealer's
failure to execute a new Authorized Dealer Agreement within 30 days after it
has been offered by the Company.
<PAGE>
TERMS OF APPOINTMENT / 3
4. EFFECT OF CANCELLATION OR TERMINATION OF APPOINTMENT
Cancellation of the Dealer's appointment under Section 2, or termination of
such appointment under Section 3, means that the obligations and duties of
the parties under Section 1 no longer apply. In either event, the Company may
refuse to fill accepted orders which have not been shipped at the time of
such cancellation or termination. The Company may, but shall not be obligated
to, accept orders for Goods which the Company contemplates will be shipped
after the cancellation or the effective date of termination of the Dealer's
appointment. Acceptance, shipment and terms applicable to such accepted
orders will be subject to the Conditions of Sale then in effect. Submission
or acceptance of orders and shipment or acceptance of goods does not have the
effect of renewing or reinstating the obligations of Section 1 and shall not
be construed as an extension or renewal of the period of appointment or as a
recision of any notice of cancellation or termination. If the Dealer's period
of appointment is canceled or terminated and no new Authorized Dealer
Agreement is entered into, neither party shall be entitled to any
compensation or reimbursement for loss of prospective profits, anticipated
sales or other losses occasioned by the termination of the relationship,
except as provided in this Agreement. If the Dealer's appointment is canceled
or terminated, the Company may negotiate and/or enter a Dealer Agreement with
another party for the Dealer's area of responsibility.
5. DEATH OF DEALER: COOPERATION WITH SURVIVORS
If the Dealer's appointment is canceled because of the death of one of the
persons enumerated in Section 2(a), it is agreed:
(a) That in order to facilitate orderly settlement of the estate of the
deceased and allow the heirs and/or surviving associates (partners or
shareholders) of the deceased who have or will obtain a controlling interest
in the dealership to rearrange their affairs and determine whether they wish
to liquidate or to continue to operate the dealership, the Company will, for
a period of at least 180 days after such death, be willing to make shipments
of orders previously received and accept new orders from the Dealer
corporation or Dealer's estate and/or surviving partners, as the case may be.
The Company's obligations under this Section to accept orders and make
shipment shall be subject to the provisions of Section 1(a) and the Company's
Conditions of Sale then in effect. Such obligations are also subject to the
Company's being satisfied that the person executing any new order is legally
authorized to do so and that, with regard to the new order or the shipment,
the Dealer corporation or Dealer's estate and/or surviving partners are
legally bound by these Terms of Appointment, the Conditions of Sale, the
Chattel Mortgage or the Security Agreement executed by the Dealer and any
filed Financing Statements executed in connection therewith.
(b) That if such heirs and/or surviving associates wish to continue
operating the dealership, the Company will cooperate with them in their
effort to arrange to do so, and will offer to execute a new Dealer Agreement
with the Dealer corporation or the heirs (or the Dealer's estate, if
appropriate due to anticipated length of administration) and/or the surviving
partners if it believes them to be capable of carrying out the obligations
thereunder, and if the Company believes that the area of responsibility
assigned to the Dealer affords sufficient sales potential to continue to
support an authorized Dealer. The Company will inform the heirs and/or
surviving associates in writing as promptly as possible as to whether or not
the Company elects to offer a new Dealer Agreement to them, and if the
Company so elects, the major conditions, including credit or financial
conditions, if any, under which the Company would deem them capable of
carrying out the obligations of the Dealer
<PAGE>
TERMS OF APPOINTMENT / 4
Agreement. Any written commitment by the Company to the Dealer which
identifies the person(s) who will be acceptable to the Company to operate
the dealership will be honored by the Company, provided the conditions set
forth herein and any other major conditions specified by the Company are met.
(c) That the Company shall have discharged its obligations under Subsections
(a) and (b) any may discontinue shipments to the Dealer corporation, Dealer's
estate, or surviving partners, as the case may be, under any of the following
conditions:
(i) The Company informs the Dealer corporation or the heirs and/or
surviving partners of the deceased in writing (by notification
sent to the Dealer corporation, the Dealer's estate, the heirs,
or one of the surviving partners, as is appropriate in the
circumstances) that it will not execute a new Dealer Agreement and
180 days shall have elapsed since such death.
(ii) The Company receives written notification that the Dealer
corporation or the heirs and/or surviving partners of the deceased
do not wish to enter into a new Dealer Agreement.
(iii) The heirs and/or surviving associates of the deceased cannot
agree on appropriate arrangements for carrying on the business.
(iv) Any of the events enumerated in Subsections (d) and (e) of
Section 2 has occurred or shall occur.
6. REPURCHASE OF GOODS
If any of the following events occur, the Company agrees to buy and the
Dealer agrees to sell Goods as provided in Section 7:
(a) The Dealer's appointment is canceled under Section 2 (and in the case of
cancellation because of death of one of the persons enumerated in Section
2(a), one of the conditions enumerated in Section 5(c) has occurred).
(b) The Dealer's appointment is terminated under Section 3(a), 3(b) or 3(c);
or
(c) The Dealer has not executed a new Authorized Dealer Agreement within 30
days after it has been offered by the Company.
The Company shall be relieved of this obligation if a default occurs or has
occurred under any Chattel Mortgage or Security Agreement between the Company
and the Dealer, and the Company elects to exercise its rights under such
Chattel Mortgage or Security Agreement to take possession of Goods.
7. TERMS OF REPURCHASE
Except where otherwise provided by the laws of the state where the Dealer is
located, if the Company becomes obligated to repurchase Goods under Section
6, then the Company will buy and the Dealer will sell (or may sell subject to
Subsection (c)) free and clear of all liens and encumbrances the following
Goods, provided they were either originally purchased by the Dealer from the
Company or purchased from other dealers with the written approval of the
Company, and are listed in the Company's published price list for that
category of Goods, in effect on the date of cancellation or termination of
the Dealer's appointment.
(a) All current complete machines and attachments in the Dealer's possession
unsold (which category excludes all items listed in the JDM Price List or the
John Deere Parts Price List) which are new, unused, complete and in good
condition. The prices to be paid for such items will be the invoice prices
(but not more than current dealer prices), plus freight from the factory to
the Dealer's location at truckload (24,000#) rates for items on which freight
was paid by the Dealer, less any discounts from invoice price which have been
allowed and less the reduction in value, if any, resulting from deterioration.
(b) All current parts in the Dealer's possession unsold which are new,
unused, in
<PAGE>
TERMS OF APPOINTMENT / 5
good condition and are resalable as new parts without repackaging or
reconditioning. The price to be paid for such items will be the current
wholesale price as listed in the John Deere Parts Price List, less a discount
of:
(i) 15% on items on the current returnable list furnished by the
Company under the parts return program; and
(ii) 50% on all other items
(c) Such current JDM products in the Dealer's possession unsold which the
Dealer may elect to sell to the Company and which are new, unused, in good
condition and are resalable as new products without repackaging or
reconditioning. The Company shall have no obligation to repurchase such
products unless the Dealer furnishes the Company with a list of the products
which he wishes to sell to the Company within thirty (30) days after the
effective date of cancellation or termination of his appointment. The price
to be paid for such products will be the current wholesale price listed in
the JDM Price List less a discount of:
(i) 50% on products identified by an asterisk;
(ii) 15% on items listed as returnable under the Company's parts
return policy; and
(iii) 25% on all other JDM products.
At the written request of the Company, the Dealer will list, tag, pack, load
and transport all repurchased Goods to the nearest location regularly
maintained by the Company for the storage of such Goods or to such closer
location as may be designated by the Company or pay for the cost of
transportation to such location. The risk of loss shall be on the Dealer
until the vehicle transporting such Goods reaches the designated destination.
Should the Dealer fail to fulfill the above obligation within 60 days after
he has been requested to do so, the Company may enter the Dealer's premises,
perform these duties and charge the Dealer's account for any expenses
incurred in so doing.
The Company may pay for repurchased Goods in cash or by giving the Dealer
credit to be applied to any indebtedness then owed by the Dealer to the
Company or to any other company having a corporate affiliation with the
Company whether or not such indebtedness is then due and payable. If there is
still a balance owing by the Dealer after the price of the repurchased Goods,
less any Company incurred expenses of recovery, including all reasonable
attorney's fees and legal expenses, has been credited to the Dealer, such
balance shall be immediately due and payable to the Company regardless of the
original terms of payment thereon.
Amounts payable to the Dealer under this Section will not be paid until the
Dealer has complied with all applicable laws governing bulk transfers of
inventory. Any volume discount paid or payable to the Dealer shall be subject
to adjustment, in accordance with the Company's Schedule of Volume Discount
(Agricultural), for Goods repurchased by the Company.
8. PREPARATION OF GOODS, WARRANTY AND POSTDELIVERY SERVICE
(a) The Company's published Service Administration Manual (hereafter called
"Manual") designates John Deere New Equipment Warranties applicable to
various types of sales and some leases of new Goods and to certain used
Goods. As to all transactions specified in the Manual, the Dealer agrees to
extend the designated warranties to retail purchasers and lessees, and to use
retail purchase orders, delivery receipts, lease agreements and other forms
specified in the Manual. The Dealer agrees to be solely responsible for any
warranties given by him to his customers which exceed the warranty provided
by the Company and for any liability in cases where the Dealer has failed to
use the prescribed forms in the manner specified.
(b) The Dealer agrees to properly assemble and prepare all new Goods sold,
leased, or rented by him and shall perform such inspections, adjustments and
service prior to delivery to users as required in the Manual to insure proper
operation of the Goods. The Dealer agrees to instruct users in the proper
use, safe operation, and maintenance of such Goods, to review the warranty
provisions, and
<PAGE>
TERMS OF APPOINTMENT / 6
to furnish each user with the appropriate operator's manuals furnished by the
Company. The Dealer will also perform the postdelivery inspections and
adjustments, prescribed in the Manual, on such Goods.
(c) The Dealer agrees and is authorized to perform all warranty service on
new Goods and on used Goods for which the Company becomes obligated pursuant
to the John Deere New Equipment Warranties, including Goods not sold, leased
or rented by him, if presented with proper evidence that the Goods are
entitled to warranty service under the John Deere New Equipment Warranties.
The Dealer shall also perform product improvements on such Goods when
requested to do so by the Company. Warranty service and product improvements
will be performed in the manner and for the compensation specified in the
Manual in effect at the time the service is performed. The Dealer will
notify the Company of all warranty claims in accordance with the Manual.
9. VOLUME DISCOUNT
Subject to the terms and conditions of the Schedule of Volume Discount
(Agricultural) issued by the Company, the Company will pay or credit to the
Dealer on or after 30 November a volume discount computed in accordance with
the Schedule.
10. USE OF TRADEMARKS, NAMES AND SIGNS
The Dealer agrees not to use the names "John Deere" or "Deere" or any other
trade names or trademarks owned by the Company or any of its affiliated
corporations as a part of his firm, trading or corporate name, and shall not
display or use such trade names or trademarks except in a form or manner
approved by the Company. The Dealer further agrees that if he ceases to be an
Authorized Dealer, he will remove all signs bearing such trade names and
trademarks used in connection with any business conducted by him and will
remove from his vehicles any distinctive John Deere vehicle identification.
11. MAILING LIST FOR THE FURROW
The Dealer agrees to supply to the Company and keep current as to names and
addresses, a mailing list of all full-time farmers in his area of
responsibility. The Dealer should also include in his mailing list part-time
farmers who have income from other sources, absentee owners, schools,
bankers, agricultural representatives, and others who may influence
agricultural equipment purchases in his area of responsibility. This mailing
list shall become the sole property of the Company and the Company shall have
no liability to the Dealer for any use it makes of such mailing list. The
Dealer authorizes the Company to mail THE FURROW to those on the mailing
list. The Company will furnish THE FURROW (both regular and special editions)
free of charge but the Dealer agrees to reimburse the Company for postage.
The Company shall advise the Dealer in advance of any other use it makes of
such list during the Dealer's period of appointment.
12. DEALER NOT AN AGENT
The Dealer is not an employee, agent or representative of the Company for any
purpose other than giving the Company's warranty as provided in Section 8; he
has no other authority to bind the Company by any representations,
statements, agreements, or in any manner whatsoever. In performing service
work as provided in Section 8, the Dealer is an independent contractor and
assumes full responsibility for such work.
13. AMENDMENT OF AGREEMENT
This Agreement cannot be altered or amended, or any of its provisions waived,
on behalf of the Company except in writing by a duly authorized officer of
the Company. The Company may amend these Terms of Appointment at any time
without the consent of the Dealer if the same amendment is made to the Terms
of Appointment of all other Authorized Agricultural Dealer Agreements with
the Company. Any such amendment shall be effective on the date specified in a
notice mailed to all Authorized Agricultural Dealers, which date shall be at
least one hundred eighty (180) days following the date of such mailing.
14. ASSIGNMENT
This Agreement cannot be assigned by the Dealer without the prior written
consent of the Company.
15. METHOD OF GIVING NOTICE
Without limitation on any other method of giving notice, the deposit of
written notice in the United States mails, in an envelope certified or
registered with postage prepaid and addressed to the Dealer at the address
shown herein, or to the
<PAGE>
TERMS OF APPOINTMENT / 7
Company at the office designated herein, shall constitute notice pursuant to
this Agreement.
16. SECURITY IN GOODS
The Dealer has or concurrently herewith will execute in favor of the Company
a Chattel Mortgage or other Security Agreement on his inventory of John Deere
Goods and certain other items as outlined therein. The Dealer will execute
such additional Security Agreements and Financing Statements, and amendments
and additions thereto or to existing instruments, as the Company requests, in
order that it may have at all times a first lien on Goods in the Dealer's
possession securing his indebtedness to the Company.
17. ENTIRE AGREEMENT
No promise or representation not contained herein was an inducement to either
party or was relied on by either party in entering into this Agreement. The
Dealer understands that, except as provided in Section 13, no agent or
employee of the Company has authority to vary or add to the provisions of
this Agreement, or make any representation going beyond its provisions.
<PAGE>
JOHN DEERE AUTHORIZED AGRICULTURAL DEALER AGREEMENT
The Dealer agrees to operate only from the following authorized location:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
RDO Equipment Co.
- -------------------------------------------------------------------------------
Dealer (Firm Name)
- -------------------------------------------------------------------------------
Address
/X / Corporation By:
/ / Partnership -------------------------------------------
/ / Proprietorship Title:
----------------------------------------
(Authorized officer, owner or partner)
Date:
----------
-----------------------------------------------------------------
Signature
of Other -----------------------------------------------------------------
Partner(s)
-----------------------------------------------------------------
Received, subject to acceptance at the Company's Office
in Minneapolis, MN
---------------
JOHN DEERE COMPANY
By: Title:
--------------------------- ---------------------------
Accepted:
JOHN DEERE COMPANY
-----------------------------------------------------------------
(Address) (City) (State)
By: Title:
--------------------------- ---------------------------
Date:
----------
<PAGE>
EXHIBIT 10.2
JOHN DEERE
DEALER GUARANTY
<PAGE>
To: JOHN DEERE COMPANY - A DIVISION OF DEERE & COMPANY OR
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
- -----------------------------------------------
(Street Address)
- -----------------------------------------------
(City) (State)
GUARANTY
In consideration of your past and/or future extension of credit to
RDO Equipment Co.
- -------------------------------------------------------------------------------
of
----------------------------------------------------------------------------
its successors and assigns (hereinafter called "principal debtor"), for the
financing of goods, wares, merchandise and services, the undersigned
guarantor(s) hereby (jointly and severally if signed by two guarantors)
unconditionally guarantee(s) payment of whatever sums said principal debtor
shall at any time owe you or any company affiliated with you, whether
heretofore or hereafter incurred, including interest, finance charges or
service charges thereon, and including reasonable attorneys' fees and all
court costs incurred in collecting such sums; and you shall be under no
obligation of due diligence to enforce any claims against the principal
debtor or of otherwise exhausting any of your remedies against the principal
debtor, any other obligor or any other guarantor(s), or of enforcing any
rights against any collateral for said indebtedness prior to enforcing
payment hereunder by the undersigned guarantor(s).
This guaranty is to take effect without notice on its acceptance, which
is hereby waived, and is to be a continuing guaranty in full force and effect
until the effective date of a written notice of revocation delivered to you
either personally or by Registered or Certified Mail. It is understood and
agreed that the effective date of any such revocation shall be 90 days after
your receipt of such notice, and that such revocation shall not discharge the
obligation of the undersigned guarantor(s) with respect to indebtedness
incurred by the principal debtor prior to said effective date of revocation.
You are hereby authorized to change the time and manner of payment of
any indebtedness of said principal debtor; to take and make changes in notes,
security or other obligations therefor; to add or release additional
guarantors; to obtain or release additional guaranties, to take such action
as you deem advisable for the enforcement, collection, or compromising of
such indebtedness or any part thereof, or enforcing any security interest
therefor; and to grant renewals or extensions of the time of payment of any
such indebtedness, all without notifying or obtaining the consent of the
undersigned guarantor(s) or in any way affecting the liability of the
undersigned guarantor(s) under this guaranty. If this guaranty is signed by
two guarantors, you are hereby authorized to release one of the undersigned
guarantors without discharging the other.
Protest and demand upon the principal debtor, notice to the undersigned
guarantor(s) or defaults of the principal debtor, notice to the undersigned
guarantor(s) of your extension of credit from time to time to the principal
debtor, and notice of the sale of any collateral are all hereby waived.
<PAGE>
GUARANTY
PAGE 2
The undersigned guarantor(s) hereby consent and agree that your books
and records showing the account, obligations and indebtedness of the
principal debtor shall be admissible in evidence and shall be binding upon
the undersigned guarantor(s) for the purpose of establishing the items
therein set forth, and shall constitute prima facie proof thereof. The
undersigned guarantor(s) hereby also agree to provide full and complete
personal financial information at such times as the Company may request.
This guaranty shall inure to the benefit of your successors and assigns
and shall be binding upon the personal representatives, administrators,
executors, heirs, legatees, successors and assigns of the undersigned
guarantor(s).
The foregoing constitutes the complete guaranty agreement, there being
no other representations or warranties made, and such guaranty cannot be
altered, changed or amended in any way except by an instrument in writing
signed by your duly authorized officer.
BY AFFIXING SIGNATURE(S) HERETO, THIS CERTIFIES THAT THE UNDERSIGNED HAS
(HAVE) READ THIS GUARANTY AGREEMENT IN ITS ENTIRETY AND EXECUTE(S) IT FOR THE
CONSIDERATIONS THEREIN EXPRESSED.
Dated at this day of ,
--------- --- --------- --
Witnesses: Guarantor(s):
/s/ Ronald D. Offutt (SEAL)
- -------------------------------------- --------------------------------------
Name Name
- -------------------------------------- --------------------------------------
Address Address
(SEAL)
- -------------------------------------- --------------------------------------
Name Name
- -------------------------------------- --------------------------------------
Address Address
<PAGE>
EXHIBIT 10.3
JOHN DEERE
INDUSTRIAL
DEALER AGREEMENT
[LOGO]
<PAGE>
[LOGO]
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
AUTHORIZED INDUSTRIAL DEALER AGREEMENT
FORESTRY EQUIPMENT
The Dealer whose signature appears on the next page hereby applies to the
John Deere Industrial Equipment Company (the "Company") for appointment as an
Authorized Industrial Dealer for the Forestry Equipment Line and agrees that
the relationship between him and the Company will be governed by the Terms of
Appointment on the succeeding pages of this booklet. When it executes this
Agreement, the Company accepts the Dealer's application and also agrees to be
bound by the Terms of Appointment. This Agreement shall be effective upon
execution by the Company and shall as of that date supersede any prior
Industrial Dealer Agreement between the parties hereto for the Forestry
Equipment Line.
The Company distributes certain John Deere industrial machines and equipment,
and certain allied industrial machines, which together are classified by the
Company as its Forestry Equipment Line. These items, and attachments and
service parts for them, as well as certain of the Company's JDM products
which may be offered for sale to the Dealer, are collectively referred to as
"Goods". While the company also distributes other types of equipment, this
Agreement pertains only to Goods.
The Dealer is an independent retail merchant who purchases Goods for resale
for the principal benefit of the Dealer. It is agreed that except as
otherwise provided herein, individual orders, sales and shipments of Goods
are governed by the Company's published Conditions of Sale in effect from
time to time.
<PAGE>
[LOGO]
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
AUTHORIZED INDUSTRIAL DEALER AGREEMENT
UTILITY EQUIPMENT
The Dealer whose signature appears on the next page hereby applies to the
John Deere Industrial Equipment Company (the "Company") for appointment as an
Authorized Industrial Dealer for the Utility Equipment Line and agrees that
the relationship between him and the Company will be governed by the Terms of
Appointment on the succeeding pages of this booklet. When it executes this
Agreement, the Company accepts the Dealer's application and also agrees to be
bound by the Terms of Appointment. This Agreement shall be effective upon
execution by the Company and shall as of that date supersede any prior
Industrial Dealer Agreement between the parties hereto for the Utility
Equipment Line.
The Company distributes certain John Deere industrial machines and equipment,
and certain allied industrial machines, which together are classified by the
Company as its Utility Equipment Line. These items, and attachments and
service parts for them, as well as certain of the Company's JDM products
which may be offered for sale to the Dealer, are collectively referred to as
"Goods". While the Company also distributes other types of equipment, this
Agreement pertains only to Goods.
The Dealer is an independent retail merchant who purchases Goods for resale
for the principal benefit of the Dealer. It is agreed that except as
otherwise provided herein, individual orders, sales and shipments of Goods
are governed by the Company's published Conditions of Sale in effect from
time to time.
<PAGE>
[LOGO]
JOHN DEERE
INDUSTRIAL EQUIPMENT COMPANY
AUTHORIZED INDUSTRIAL DEALER AGREEMENT
CONSTRUCTION EQUIPMENT
The Dealer whose signature appears on the next page hereby applies to the
John Deere Industrial Equipment Company (the "Company") for appointment as an
Authorized Industrial Dealer for the Construction Equipment Line and agrees
that the relationship between him and the Company will be governed by the
Terms of Appointment on the succeeding pages of this booklet. When it executes
this Agreement, the Company accepts the Dealer's application and also agrees
to be bound by the Terms of Appointment. This Agreement shall be effective
upon execution by the Company and shall as of that date supersede any prior
Industrial Dealer Agreement between the parties hereto for the Construction
Equipment Line.
The Company distributes certain John Deere industrial machines and equipment,
and certain allied industrial machines, which together are classified by the
Company as its Construction Equipment Line. These items, and attachments and
service parts for them, as well as certain of the Company's JDM products
which may be offered for sale to the Dealer, are collectively referred to as
"Goods". While the Company also distributes other types of equipment, this
Agreement pertains only to Goods.
The Dealer is an independent retail merchant who purchases Goods for resale
for the principal benefit of the Dealer. It is agreed that except as
otherwise provided herein, individual orders, sales and shipments of Goods
are governed by the Company's published Conditions of Sale in effect from
time to time.
<PAGE>
JOHN DEERE AUTHORIZED INDUSTRIAL DEALER AGREEMENT/2.
CONSTRUCTION EQUIPMENT
THE DEALER ACCEPTS AS HIS AREA OF RESPONSIBILITY THE FOLLOWING:
AND AGREES TO OPERATE ONLY FROM THE FOLLOWING AUTHORIZED LOCATION(S):
THE DEALER'S AREA OF RESPONSIBILITY MAY BE ENLARGED AT ANY TIME WITH THE
WRITTEN CONSENT OF THE DEALER. UPON NOT LESS THAN 120 DAYS WRITTEN NOTICE TO
THE DEALER, THE AREA OF RESPONSIBILITY MAY BE REDUCED BY THE COMPANY.
Dealer (Firm Name): RDO Equipment Co.
Address:
X Corporation By:
- --- ---------------------------------------------
Partnership
- ---
Proprietorship Title:
- --- ------------------------------------------
(Authorized Officer, Owner or Partner)
Date:
--------------------
Signature of Other
Partner(s) -----------------------------------------
-----------------------------------------
RECEIVED, SUBJECT TO ACCEPTANCE AT THE
COMPANY'S OFFICE IN MOLINE IL.
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
By:
--------------------------------------
Title:
-----------------------------------
ACCEPTED:
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
400 - 19th Street, Moline, IL
-----------------------------
(Address) (City) (State)
By:
--------------------------------------
Title:
-----------------------------------
Date:
-------------
<PAGE>
TERMS OF APPOINTMENT/1
TERMS OF APPOINTMENT
1. OBLIGATION OF THE PARTIES
During the period of the Dealer's appointment as a John Deere Authorized
Industrial Dealer, the parties accept the following obligations and duties:
(a) The Company agrees to accept orders placed by the Dealer for Goods which
the Company contemplates will be shipped during the period of appointment,
subject to the Company's Conditions of Sale. However, the Company shall have
no liability to the Dealer for delay, failure or refusal to ship as provided
in the Conditions of Sale or Section 4 hereof.
(b) The Company agrees that the Dealer will have the benefit of any Finance
Plans, Lease Plans, Floor Plans, Parts Return Programs or similar plans or
programs which it, from time to time, makes available to other Authorized
Dealers. Such plans or programs may contain standards or requirements of
uniform application which the Dealer must meet in order to use them. State or
local laws or regulations may require variations from standard plans or
programs.
(c) Without limiting the right of the Company to choose those with whom it
deals, the Company may sell, loan or lease Goods as follows without
restriction:
(i) To Federal, state and local governments.
(ii) To accounts classified by the Company as national accounts.
(iii) To purchasers for export.
(iv) To educational institutions.
(v) To its competitors (for test purposes).
(vi) To equipment manufacturers.
(vii) To its own employees.
(vii) Repossessed Goods (new or used).
(d) The Dealer agrees to maintain a modern, suitable place of business with
adequate space and facilities for sales, service, display and storage, with
appropriate identification for a dealer selling Goods, and to provide
adequate working capital to fulfill his obligations under this Agreement.
(e) The Dealer agrees to provide competent management and a sufficient staff
of personnel which is adequately trained to carry out his obligations under
this Agreement and, in particular, will cooperate with the Company by sending
such personnel to attend conferences and training schools provided by the
Company.
(f) The Dealer agrees to thoroughly canvass his Area of Responsibility, to
actively promote the sale of all Goods which are usable in his Area of
Responsibility, and to maintain an inventory of Goods in proportion to the
sales possibilities in such area. However, the Dealer's Area of
Responsibility is not an exclusive territory.
(g) The Dealer agrees to provide service equipment, an adequate stock of
service parts and those appropriate special tools necessary to promptly
fulfill the warranty obligations of both the Dealer and the Company, product
improvement and modification programs and the non-warranty service needs of
users of Goods in his Area of Responsibility.
(h) The Dealer agrees to cooperate with the Company in implementing those
programs recommended by the Company with respect to sales promotion,
advertising, record keeping, and parts management which the Dealer agrees
will be beneficial to his operations.
(i) In order that a satisfactory level of dealer performance may be obtained,
the Dealer agrees to cooperate with the Company in periodic reviews of the
performance of his obligations under this Agreement and to take appropriate
action to correct deficiencies discussed in such reviews.
(j) The Dealer agrees to maintain his place of business at the location(s)
set forth on the signature page of this Agreement, and will not, either
directly or indirectly, establish, maintain, or operate a facility at any
other location for displaying, selling, renting, leasing, or servicing of new
or used goods, without the prior written approval of the Company.
<PAGE>
TERMS OF APPOINTMENT/2
2. IMMEDIATE TERMINATION FOR CAUSE
While it is the hope and expectation of the parties that this Agreement will
create a mutually profitable and satisfactory relationship, the success of an
equipment dealership depends to a substantial degree on the ability, energy
and integrity of the individual or group of associates who operate it.
Adequate financial resources are also essential. The Company may, therefore,
immediately terminate the Dealer's appointment by giving notice to the Dealer
at any time after the happening of any of the following:
(a) Death of an individual proprietor, partner, major shareholder, or the
manager of the dealership;
(b) Withdrawal of an individual proprietor, partner, major shareholder, or
the manager of the dealership or a substantial reduction in interest of a
partner or major shareholder, without the prior written consent of the
Company;
(c) Closeout or sale of a substantial part of the Dealer's business related
to the handling of Goods, the commencement of dissolution or liquidation of
the Dealer if a partnership or corporation, or a change, without the prior
written approval of the Company, in the location of the Dealer's principal
place of business under this Agreement;
(d) Default by the Dealer under any Chattel Mortgage or other Security
Agreement between the Dealer and the Company;
(e) Revocation or discontinuance of any guaranty of the Dealer's present or
future obligations to the Company;
The Dealer shall promptly notify the Company in writing of the occurrence of
any of the events enumerated in Subsection (a) or (b).
3. TERMINATION ON SPECIFIED DATE
Unless the Dealer's appointment is terminated under Section 2, it shall
continue until it is terminated by one or both of the parties as provided in
this Section 3. The Dealer's appointment may be terminated at any time:
(a) by the mutual written consent of the parties, with the effective date of
such termination to be such as may be mutually agreed upon; or
(b) by written notice by either the Company or the Dealer to the other party
given at least one hundred twenty (120) days prior to the effective date
specified in such notice; or
(c) by the execution of a new Dealer Agreement between the parties which is
intended to supersede this Agreement.
The Company may, after an effective date of termination is established,
negotiate and/or enter into a Dealer Agreement with another party for the
Dealer's Area of Responsibility.
4. EFFECT OF TERMINATION OF APPOINTMENT
Termination of the Dealer's appointment hereunder means that the obligations
and duties of the parties under Section 1 no longer apply, and that the
Company may decline to fill accepted orders placed before such termination.
Ordinarily, orders from the Dealer, which the parties contemplate will be
shipped after the effective date of termination of the period of appointment,
will not be accepted. Such orders may, however, be accepted by the Company.
Acceptance, shipment and terms applicable to such orders will be subject to
the Conditions of Sale then in effect. Submission or acceptance of orders and
shipment or acceptance of Goods does not have the effect of renewing or
reinstating the obligations of Section 1 and shall not be construed as an
extension or renewal of the period of appointment or as a recision of any
notice of termination. If the Dealer's appointment is terminated for any
reason, neither party shall be entitled to any compensation or reimbursement
for loss of prospective profits, anticipated sales or other losses occasioned
by the termination of the relationship, except as provided in this Agreement.
5. DEATH OF DEALER
If the Dealer's appointment is terminated because of the death of one of the
persons enumerated in Section 2(a) at a time when no other action has been
taken under Section 2 or 3 to terminate the Dealer's appointment, it is
agreed that:
<PAGE>
TERMS OF APPOINTMENT/3
COOPERATION WITH SURVIVORS
(a) In order to facilitate orderly settlement of the estate of the deceased
and allow the heirs and/or surviving associates (partners or shareholders) of
the deceased to rearrange their affairs and determine whether they wish to
liquidate or to continue to operate the dealership, the Company will, for a
period of at least 180 days after such death, be willing to make shipments of
orders previously received and accept new orders from the Dealer corporation
or Dealer's estate and/or surviving partners, as the case may be. The
Company's obligations under this Section 5 to accept orders and make shipment
shall be subject to the provisions of Section 1(a) and the Company's
Conditions of Sale then in effect. Such obligations are also subject to the
Company's being satisfied that the person executing any new order is legally
authorized to do so, and that, with regard to the new order or the shipment,
the Dealer corporation or Dealer's estate and/or surviving partners are
legally bound by these Terms of Appointment, the Conditions of Sale, Chattel
Mortgage or the Security Agreement executed by the Dealer and any filed
Financing Statements executed in connection therewith.
(b) If the heirs and/or surviving associates wish to continue operating the
dealership, the Company will cooperate with them in their effort to arrange to
do so, and will offer to execute a new Dealer Agreement with the Dealer
corporation or the heirs (or the Dealer's estate, if appropriate due to the
anticipated length of administration) and/or the surviving partners if it
believes them to be capable of carrying out the obligations thereunder. The
Company will inform the heirs and/or surviving associates in writing, as
promptly as possible, as to whether or not the Company elects to offer a new
Agreement to them and, if the Company so elects, the major conditions,
including credit or financial conditions, if any, under which it would deem
them capable of carrying out such obligations.
(c) The Company shall have discharged its obligations under Subsections (a)
and (b) and may discontinue shipments to the Dealer corporation, Dealer's
estate, or surviving partners, as the case may be, under any of the
following conditions:
(i) The Company informs the Dealer corporation or the heirs and/or the
surviving partners of the deceased in writing (by notification sent to the
Dealer corporation, the Dealer's estate, the heirs, or one of the surviving
partners, as is appropriate in the circumstances) that it will not execute a
new Dealer Agreement and 180 days shall have elapsed since such death.
(ii) The Company receives written notification that the Dealer
corporation or the heirs and/or the surviving partners of the deceased do not
wish to enter into a new Dealer Agreement.
(iii) The heirs and/or surviving associates of the deceased cannot agree
on appropriate arrangements for carrying on the business.
(iv) Any of the events enumerated in Subsections (d) and (e) of Section 2
has occurred or shall occur.
6. REPURCHASE OF GOODS
If the Dealer's appointment is terminated (and, in the case of termination
because of the death of one of the persons enumerated in Section 2(a), one of
the conditions enumerated in Section 5(c) has occurred), the Company agrees
to buy, and the Dealer agrees to sell, Goods as provided in Section 7. The
Company shall be relieved of this obligation to repurchase if a default
occurs or has occurred under any Chattel Mortgage or Security Agreement
between the Company and the Dealer, and the Company elects to exercise its
rights under such Chattel Mortgage or Security Agreement to take possession
of Goods.
7. TERMS OF REPURCHASE
If the Company becomes obligated to repurchase Goods under Section 6, then
the Company will buy and the Dealer will sell (or may sell subject to
Subsection (c)), free and clear of all liens and encumbrances, the following
Goods, provided they were either originally purchased by the Dealer from the
Company, or purchased from other dealers with the written approval of the
Company; and are listed in the Company's published price list for that
category of Goods which is in effect on the date of termination of the
Dealer's appointment:
<PAGE>
TERMS OF APPOINTMENT/4
(a) All current complete machines and attachments in the Dealer's possession
unsold (which description excludes all JDM products and all items listed in
the John Deere Parts Price List published by the Company) which are new,
unused, complete and in good condition. The prices to be paid for such items
will be the invoice prices (but not more than current dealer prices), plus
freight from the factory to the Dealer's location, less any discounts from
invoice price which have been allowed and less the reduction in value, if
any, resulting from deterioration.
(b) All current parts in the Dealer's possession unsold which are new,
unused, in good condition and are resalable as new parts without repackaging
or reconditioning. The prices to be paid for such items will be the Company's
current wholesale price, as listed in the John Deere Parts Price List, less a
discount of:
(i) 15% on items listed as returnable under the Company's parts return
policy, and
(ii) 50% on all other items.
(c) Such current JDM products in the Dealer's possession unsold which the
Dealer may elect to sell to the Company and which are new, unused, in good
condition and are resalable as new products without repackaging or
reconditioning. The Company shall have no obligation to repurchase such
products unless the Dealer furnishes the Company with a list of the products
which he wishes to sell to the Company within thirty (30) days after the date
of termination of his appointment. The price to be paid for such products
will be the current wholesale price listed in the JDM Price List less a
discount of:
(i) 50% on products identified by an asterisk;
(ii) 15% on items listed as returnable under the Company's parts return
policy; and
(iii) 25% on all other JDM products.
At the written request of the Company, the Dealer will list, tag, pack, load
and transport all repurchased Goods to the nearest location regularly
maintained by the Company for the storage of such Goods or to such closer
location as may be designated by the Company or pay for the cost of
transportation to such location. The risk of loss shall be on the Dealer
until the vehicle transporting such Goods reaches the designated destination.
Should the Dealer fail to fulfill the above obligation within 60 days after
he has been requested to do so, the Company may enter the Dealer's premises,
perform these duties and charge the Dealer's account for any expenses
incurred in so doing.
The Company may pay for repurchased Goods in cash or by giving the Dealer
credit to be applied to any indebtedness then owed by the Dealer to the
Company or to any other company having a corporate affiliation with the
Company whether or not such indebtedness is then due and payable. If there is
still a balance owing by the Dealer after the price of the repurchased Goods,
less any Company-incurred expenses of recovery, has been credited to the
Dealer, such balance shall be immediately due and payable to the Company
regardless of the original terms of payment thereon.
Amounts payable to the Dealer under this Section will not be paid until the
Dealer has complied with all applicable laws governing bulk transfers of
inventory. Any Annual Performance Bonus paid or payable to the Dealer shall
be subject to adjustment for Goods repurchased by the Company as provided in
the John Deere Industrial Dealers Terms Schedule.
8. PREPARATION OF GOODS, WARRANTY AND POSTDELIVERY SERVICE
Unless and until the Dealer's appointment has been terminated and the Company,
pursuant to written notice, has discontinued shipment of Goods to the Dealer,
the following provisions apply:
(a) The Company's published Service Administration Manual (hereafter called
"Manual"), as in effect from time to time, and/or bulletins issued by the
Company, designate the John Deere New Equipment Warranties (including, in
some cases, Extended Warranties) applicable to the sale and, in some cases,
to the lease of various types of new Goods and to certain used Goods. In
making sales, leases
<PAGE>
TERMS OF APPOINTMENT/5
and rentals of Goods, the Dealer agrees to follow instructions contained in
the Manual and bulletins and to use retail purchase orders, delivery
receipts, lease agreements and other forms specified therein. The Dealer
agrees to be solely responsible for any warranties given by him to his
customers which exceed the warranty provided by the Company and for any
liability in cases where the Dealer has failed to use the prescribed forms in
the manner specified.
(b) The Dealer will properly assemble and prepare all new Goods sold, leased,
or rented by him and shall perform such inspections, adjustments and service
prior to delivery to users as required in the Manual to insure proper
operation of the Goods. The Dealer will instruct users in the proper use and
maintenance of such Goods and will furnish each user with the appropriate
operator's manuals furnished by the Company. The Dealer will also perform the
postdelivery inspections and adjustments, prescribed in the Manual, on such
Goods.
(c) The Dealer agrees and is authorized to perform all warranty service on
new Goods and on used Goods for which the Company becomes obligated pursuant
to the John Deere New Equipment Warranties, including Goods not sold, leased
or rented by him, if presented with proper evidence that the Goods are
entitled to warranty service under the John Deere New Equipment Warranties.
The Dealer shall also perform modifications on such Goods when requested to
do so by the Company. Warranty service and modifications will be performed in
the manner and for the compensation specified in the Manual in effect at the
time the service is performed. The Dealer will notify the Company of all
warranty claims in accordance with the Manual.
9. USE OF TRADEMARKS, NAMES AND SIGNS
The Dealer agrees not to use the names "John Deere" or "Deere" or any other
trade names or trademarks owned by the Company or any of its affiliated
corporations as a part of his firm, trading or corporate name, and shall not
display or use such trade names or trademarks except in a form or manner
approved by the Company. The Dealer further agrees that if he ceases to be an
Authorized Dealer, he will remove all signs bearing such trade names and
trademarks used in connection with any business conducted by him and will
remove from his vehicles any distinctive John Deere vehicle identification.
10. USE OF PRICE LISTS, CATALOGS, AND MANUALS
It is understood and agreed that price lists, catalogs and service manual
pages furnished to the Dealer remain the property of the Company and are
merely loaned to the Dealer. The Dealer will keep them in good condition and
will return them to the Company at its request.
11. ADVERTISING MATERIAL
The Company will furnish to the Dealer free of charge, except for
transportation charges, which the Dealer hereby agrees to pay, promotional
items and printed advertising matter which have been prepared by the Company
for dealer use.
The Company is authorized to mail direct mail to those prospective purchasers
on any mailing list supplied by the Dealer which is in the possession of the
Company, which list the Dealer agrees to keep current as to names and
addresses by making additions and deletions and reporting changes. If the
Company has not been furnished with such a list, the Dealer agrees to furnish
it promptly and to keep the same current as provided above. The Dealer shall
reimburse the Company for handling and postage expenses for all pieces
mailed. The Company shall advise the Dealer in advance of any other use it
makes of such list during the Dealer's period of appointment.
Any such mailing list shall be the sole property of the Company and it shall
have no liability to the Dealer for any use it makes of such mailing list.
12. DEALER NOT AN AGENT
The Dealer is not an employee, agent or representative of the Company for any
purpose other than giving the Company's warranty as provided in Section 8; he
has no other authority to bind the Company by any representations,
statements, agreements, or in any manner whatsoever. In performing service
work as provided in Section 8, the Dealer is an independent contractor and
assumes full responsibility for such work.
<PAGE>
TERMS OF APPOINTMENT/6
13. AMENDMENT OF AGREEMENT
This Agreement cannot be altered or amended, or any of its provisions waived,
on behalf of the Company except in writing by a duly authorized officer of
the Company. The Company may amend these Terms of Appointment at any time
without the consent of the Dealer if the same amendment is made to the Terms
of Appointment of all other Authorized Industrial Dealer Agreements with the
Company. Any such amendment shall be effective on the date specified in a
notice mailed to all Authorized Industrial Dealers, which date shall be at
least one hundred twenty (120) days following the date of such mailing.
14. ASSIGNMENT
This Agreement cannot be assigned by the Dealer without the prior written
consent of the Company.
15. METHOD OF GIVING NOTICE
Without limitation on any other method of giving notice, the deposit of
written notice in the United States mails, in an envelope certified or
registered with postage prepaid and addressed to the Dealer at the address
shown herein, or to the Company at the office designated herein shall
constitute notice pursuant to this Agreement.
16. SECURITY IN GOODS
Dealer has or concurrently herewith will execute in favor of the Company a
Chattel Mortgage or other Security Agreement on his inventory of John Deere
Goods and certain other items as outlined therein. Dealer will execute such
additional Security Agreements and Financing Statements, and amendments and
additions thereto or to existing instruments, as the Company requests, in
order that it may have at all times a first lien on Goods in the Dealer's
possession securing his indebtedness to the Company.
17. ENTIRE AGREEMENT
No promise or representation not contained herein was an inducement to either
party or was relied on by either party in entering into this Agreement. The
Dealer understands that, except as provided in Section 13, no agent or
employee of the Company has authority to vary or add to the provisions of
this Agreement, or make any representation going beyond its provisions.
<PAGE>
JOHN DEERE
DEALER GUARANTY
[LOGO]
<PAGE>
To: JOHN DEERE COMPANY -- A DIVISION OF DEERE & COMPANY OR
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
400 - 19th Street
- -------------------------------------------
(Street Address)
Moline, IL
- -------------------------------------------
(City) (State)
GUARANTY
In consideration of your past and/or future extension of credit to
RDO Equipment Co.
- -------------------------------------------------------------------------------
of
- -------------------------------------------------------------------------------
its successors and assigns (hereinafter called "principal debtor"), for the
financing of goods, wares, merchandise and services, the undersigned
guarantor(s) hereby (jointly and severally if signed by two guarantors)
unconditionally guarantee(s) payment of whatever sums said principal debtor
shall at any time owe you or any company affiliated with you, whether
heretofore or hereafter incurred, including interest, finance charges or
service charges thereon, and including reasonable attorneys' fees and all
court costs incurred in collecting such sums; and you shall be under no
obligation of due diligence to enforce any claims against the principal
debtor or of otherwise exhausting any of your remedies against the principal
debtor, any other obligor or any other guarantor(s), or of enforcing any
rights against any collateral for said indebtedness prior to enforcing
payment hereunder by the undersigned guarantor(s).
This guaranty is to take effect without notice on its acceptance, which
is hereby waived, and is to be a continuing guaranty in full force and effect
until the effective date of a written notice of revocation delivered to you
either personally or by Registered or Certified Mail. It is understood and
agreed that the effective date of any such revocation shall be 90 days after
your receipt of such notice, and that such revocation shall not discharge the
obligation of the undersigned guarantor(s) with respect to indebtedness
incurred by the principal debtor prior to said effective date of revocation.
You are hereby authorized to change the time and manner of payment of
any indebtedness of said principal debtor; to take and make changes in notes,
security or other obligations therefor; to add or release additional
guarantors; to obtain or release additional guaranties, to take such action
as you deem advisable for the enforcement, collection, or compromising of
such indebtedness or any part thereof, or enforcing any security interest
therefor; and to grant renewals or extensions of the time of payment of any
such indebtedness, all without notifying or obtaining the consent of the
undersigned guarantor(s) or in any way affecting the liability of the
undersigned guarantor(s) under this guaranty. If this guaranty is signed by
two guarantors, you are hereby authorized to release one of the undersigned
guarantors without discharging the other.
Protest and demand upon the principal debtor, notice to the undersigned
guarantor(s) of defaults of the principal debtor, notice to the undersigned
guarantor(s) of your extension of credit from time to time to the principal
debtor, and notice of the sale of any collateral are all hereby waived.
<PAGE>
GUARANTY
PAGE 2
The undersigned guarantor(s) hereby consent and agree that your books
and records showing the account, obligations and indebtedness of the
principal debtor shall be admissible in evidence and shall be binding upon
the undersigned guarantor(s) for the purpose of establishing the items
therein set forth, and shall constitute prima facie proof thereof. The
undersigned guarantor(s) hereby also agree to provide full and complete
personal financial information at such times as the Company may request.
This guaranty shall inure to the benefit of your successors and assigns
and shall be binding upon the personal representatives, administrators,
executors, heirs, legatees, successors and assigns of the undersigned
guarantor(s).
The foregoing constitutes the complete guaranty agreement, there being
no other representations or warranties made, and such guaranty cannot be
altered, changed or amended in any way except by an instrument in writing
signed by your duly authorized officer.
BY AFFIXING SIGNATURE(S) HERETO, THIS CERTIFIES THAT THE UNDERSIGNED HAS
(HAVE) READ THIS GUARANTY AGREEMENT IN ITS ENTIRETY AND EXECUTE(S) IT FOR THE
CONSIDERATIONS THEREIN EXPRESSED.
Dated at _______________________________________ this ________ day of
_____________________, 19 __.
GUARANTY OF INDEBTEDNESS AT ALL LOCATIONS OF PRINCIPAL DEBTOR. INITIAL: RDO
DATE: 11/27/95
Witnesses: Guarantor(s):
/s/ Ronald D. Offutt (SEAL)
------------------------------ --------------------------------
Name Name (Ronald D. Offutt)
------------------------------ --------------------------------
Address Address
(SEAL)
------------------------------ --------------------------------
Name Name
------------------------------ --------------------------------
Address Address
<PAGE>
JOHN DEERE
INDUSTRIAL
SALES AND SERVICE CENTER
AGREEMENT
[LOGO]
<PAGE>
Sales and Service Center Agreement/1
JOHN DEERE INDUSTRIAL
SALES AND SERVICE CENTER AGREEMENT
1. PARTIES.
The parties to this Agreement are the undersigned "Dealer" and the John Deere
Industrial Equipment Company ("Company"). Dealer either:
(a) is a party to an Authorized Industrial Dealer Agreement now in
effect with the Company, or
(b) has executed an Authorized Industrial Dealer Agreement which is
awaiting approval by the Company,
under which he is, or will be on such approval, an Authorized John Deere
Industrial Dealer at (principal location) 12500 Dupont Avenue South,
Burnsville, MN. The business conducted by the Dealer at such location is
hereafter referred to as the "authorized dealership."
2. BUILDING.
Dealer owns or leases or will arrange to own or lease, if this Sales and
Service Center Agreement is approved by the Company, a building located at
1910 Lorray Drive, North Mankato, MN. If Dealer is not already occupying such
building he will, if this Sales and Service Center Agreement is approved,
arrange to enter into occupancy and be ready to commence business from the
building, on or before ___________________________________________________.
3. SALES AND SERVICE CENTER APPOINTMENT.
When Dealer occupies and is ready to commence business from the building
described in Section 2, the Company will recognize such location as an
Authorized John Deere Industrial Sales and Service Center with authority to
store, sell and service those items of John Deere industrial machinery and
equipment handled by the Dealer under his Authorized Construction, Utility
and Forestry Agreement(s). Any prior Sales and Service Center Agreement for
such a location is superseded hereby as of the date this Agreement is
executed by the Company. If Dealer's appointment as an Authorized Dealer is
terminated, then the authorization of the above location as a Sales and
Service Center shall automatically terminate concurrently therewith. In any
other case:
(a) the Company may terminate the authorization of the above location
as a Sales and Service Center upon 30 days written notice to Dealer, or
(b) Dealer may discontinue operation of the Sales and Service Center
upon 30 days written notice to the Company.
4. NAME.
The business of the Sales and Service Center will be conducted under the
firm, trading or corporate name which Dealer uses in his authorized
dealership, and this name shall be displayed in a form or manner approved by
the Company. If this Sales and Service Center authorization is terminated,
the Dealer will not use the words "Deere", "John Deere" or "John Deere Sales
and Service Center" in connection with any business conducted by him from
such location.
5. RELATION TO AUTHORIZED DEALERSHIP.
(a) The primary function of the Sales and Service Center is to enable
the Dealer to more effectively serve his Area of Responsibility.
(b) The Company's published Conditions of Sale in effect at time of
shipment shall govern all purchases from the Company for the Sales and
Service Center. Except to the extent that this Sales and Service Center
Agreement imposes different or additional obligations on either party, the
Sales and Service Center shall be part of the authorized dealership and
governed by the terms of the Authorized Agreement(s) as specified in Section
3 hereof. Any Security Agreement, or Chattel Mortgage Security Agreement
between Dealer and the Company applies to all Goods (as defined therein)
located at the Sales and Service Center as well as to Goods located at
Dealer's principal location or elsewhere.
<PAGE>
Sales and Service Center Agreement/2
6. DEALER NOT AN AGENT.
Execution of this Sales and Service Center Agreement does not constitute
Dealer an agent or representative of the Company for any purpose, or confer
on him any authority to act for or bind the Company by any representations,
statements, agreements, or contracts, or in any manner whatsoever.
Address of Dealer
-----------------------------------------------------------
RDO Equipment Co.
-----------------------------------------------------------
Dealer (Firm Name)
X Corporation By
- ----- -----------------------------------------------
Partnership Title
- ----- --------------------------------------------
Proprietorship (Authorized officer, owner or partner)
- -----
Date
---------------------
-----------------------------------------------
Signature of
Other Partner(s) -----------------------------------------------
-----------------------------------------------
Received, subject to acceptance at the
Company's office in Moline, IL
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
By
--------------------------------------------
Title
------------------------------------------
Accepted:
JOHN DEERE INDUSTRIAL EQUIPMENT COMPANY
400 - 19th Street, Moline, IL
-----------------------------------------------
(Address) (City) (State)
By
---------------------------------------------
Title
------------------------------------------
Date
-------------
<PAGE>
ID No. 221 EXHIBIT 10.4
AG CAPITAL COMPANY
LOAN AGREEMENT AMENDMENT
Glyndon, Minnesota
August 19, 1996
The Loan Agreement between Ag Capital Company, "AGCAPCO", and RDO Equipment
Co., a North Dakota corporation, d/b/a in certain locations as McLean County
Implement, Inc. and Red River Implement, Inc., "BORROWER", dated July 25,
1996, hereinafter referred to as "Loan Agreement", is hereby amended as
follows:
The "REPAYMENT" section of the Loan Agreement regarding Seasonal Loan,
Note No. 23650, shall be amended as follows:
Seasonal Loan, Note No. 23650, of not to exceed $13,060,000, shall mature
and all outstanding principal shall be payable on June 1, 1997.
Except as expressly modified by the terms of this Loan Agreement
Amendment, all of the terms and conditions of the Loan Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement this
19th day of August, 1996.
AGCAPCO: Ag Capital Company
By
------------------------
Thomas K. Espel, Manager
AGREED AND ACCEPTED
BORROWERS: RDO Equipment Co., a North Dakota corporation
d/b/a in certain locations as McLean County Implement, Inc.
and Red River Implement, Inc.)
By
------------------------
Ronald D. Offutt, President
By
------------------------
Allan F. Knoll, Secretary
August 19, 1996 1 LOAN AGREEMENT AMENDMENT
<PAGE>
ID No. 221
AG CAPITAL COMPANY
LOAN AGREEMENT
THIS AGREEMENT, made and entered into by and between Ag Capital Company, a
Delaware corporation whose address is P.O. Box 7070, Fargo, North Dakota
58109-7070, hereinafter called "AGCAPCO;" and, RDO Equipment Co., a North
Dakota corporation, whose address is 2829 South University Drive, P.O. Box
7160, Fargo, North Dakota 58109-7160, d/b/a in certain locations as McLean
County Implement, Inc., and Red River Implement, Inc., hereinafter called
"BORROWER";
WITNESSETH THAT, AGCAPCO agrees to make the following New Loans to BORROWER,
to acknowledge Transferred Loans, and to consolidate Present Loans hereunder,
subject to all the security, terms and conditions of this Loan Agreement:
NEW LOANS
$13,245,000.00 - Seasonal Loan, Note No. 23650
8,500,000.00 - Bridge Loan, Note No. 23640
--------------
$21,745,000.00 - TOTAL NEW LOANS
TRANSFERRED LOANS
(Transferred from PROffutt, Ltd.)
$ 771,538.62 - Term Loan, Note No. 5800
234,081.25 - Term Loan, Note No. 10050
68,047.52 - Term Loan, Note No. 12690
389,722.88 - Term Loan, Note No. 12700
362,680.71 - Term Loan, Note No. 17610
837,907.03 - Term Loan, Note No. 20050
--------------
$ 2,663,978.01 - TOTAL TRANSFERRED LOANS
PRESENT LOANS
$ 40,358.69 - Term Loan, Note No. 4550
99,825.30 - Term Loan, Note No. 4560
15,000.00 - Term Loan, Note No. 4580
223,281.83 - Term Loan, Note No. 4910
884,971.77 - Term Loan, Note No. 20020
--------------
$ 1,263,437.59 - TOTAL PRESENT LOANS
TOTAL LOANS
$ 40,358.69 - Term Loan, Note No. 4550
99,825.30 - Term Loan, Note No. 4560
15,000.00 - Term Loan, Note No. 4580
223,281.83 - Term Loan, Note No. 4910
771,538.62 - Term Loan, Note No. 5800
234,081.25 - Term Loan, Note No. 10050
68,047.52 - Term Loan, Note No. 12690
389,722.88 - Term Loan, Note No. 12700
362,680.71 - Term Loan, Note No. 17610
837,907.03 - Term Loan, Note No. 20050
884,971.77 - Term Loan, Note No. 20020
13,245,000.00 - Seasonal Loan, Note No. 23650
8,500,000.00 - Bridge Loan, Note No. 23640
--------------
$25,672,415.60 - TOTAL LOANS
July 25, 1996 1 LOAN AGREEMENT
<PAGE>
PURPOSE: The proceeds of the loans hereunder shall be used to assist in
financing BORROWER's current asset needs, specifically new industrial
equipment inventories other than John Deere, assist in meeting operating
expenses; fund fixed assets; fund acquisition of assets in Fort Worth, Irving
and Waco, Texas; fund acquisition of land and buildings from PROffutt Limited
Partnership, and for no other purpose.
NOTE NO. DESCRIPTION
4550 Washburn Ag Retail Store (McLean County Implement, Inc.)
4560 Grand Forks Industrial Retail Store
4580 Equipment Note
4910 Breckenridge Ag Retail Store (Red River Implement, Inc.)
5800 Burnsville Industrial Retail Store
10050 Fargo Industrial Retail Store
12690 Minot Industrial Retail Store
12700 Sauk Rapids Industrial Retail Store
17610 Flagstaff Industrial Retail Store
20020 Casselton Ag Retail Store
20050 San Diego Industrial Retail Store
23640 Bridge Loan
23650 Seasonal Note
INTEREST: Unless fixed rates are selected according to the FIXED RATE
ADVANCES AND MATURITIES section of this agreement, all outstanding loan
balances hereunder shall bear interest at a rate of interest as follows:
Term Loan, Note No. 4550: 7.99% (Fixed to 8/15/96)
Term Loan, Note No. 4580: Prime
Term Loan, Note No. 4560: 9.90% (Fixed to maturity)
Term Loan, Note No. 4910: 9.70% (Fixed to maturity)
Term Loan, Note No. 5800: 8.60% (Fixed to maturity)
Term Loan, Note No. 10050: 8.60% (Fixed to maturity)
Term Loan, Note No. 12690: 8.60% (Fixed to maturity)
Term Loan, Note No. 12700: 8.60% (Fixed to maturity)
Term Loan, Note No. 17610: 8.93% (Fixed to maturity)
Term Loan, Note No. 20020: 7.58% (Fixed to 7/31/96)
Term Loan, Note No. 20050: 7.97% (Fixed to 1/1/03)
Bridge Loan, Note No. 23640: Prime
Seasonal Loan, Note No. 23650: Prime
("Prime" shall be the highest Prime rate reported in the WALL STREET JOURNAL,
Midwest Edition, as it adjusts daily. If such rate is not published in the
WALL STREET JOURNAL, Midwest Edition, or the publication ceases to be
published, then AGCAPCO will set the interest rate by using a comparable
index or reference rate.)
Interest on all loans shall be payable monthly with principal, according to
the REPAYMENT section of this agreement, except Note No. 4580, which shall be
payable quarterly, according to the REPAYMENT section of this agreement.
NOTES AND SECURITY: Advances made hereunder, and any sums henceforth lent to
BORROWER by AGCAPCO, shall be evidenced by a promissory note or notes
acceptable to AGCAPCO, and shall be secured by existing security, and new
security which includes a first security interest in all Accounts, assumed
Real Estate Mortgages in the original amount of the real estate loans for
Burnsville and Sauk Rapids, Minnesota; Fargo and Minot, North Dakota;
Flagstaff, Arizona; and San Diego, California; and a new security interest in
all assets purchased or owned and located in Texas as a result of the
purchase of Mega Equipment Company.
July 25, 1996 2 LOAN AGREEMENT
<PAGE>
All property under lien to AGCAPCO as security for loans hereunder, or as
security for loans hereafter made, shall be security to the extent thereof for
all loans made by AGCAPCO to BORROWER.
PREPAYMENT PENALTIES: Prepayment of principal may be subject to prepayment
expense. Such expense shall be based on the difference between AGCAPCO's cost
of like funds to maturity at the time of the prepayment and the existing
fixed lending rate to BORROWER. Such expense shall be calculated to preserve
AGCAPCO's yield and cover any costs incurred by AGCAPCO in funding, note
placement and/or note sale arrangements. (PLEASE SPECIFICALLY ACKNOWLEDGE
YOUR UNDERSTANDING OF THE PREPAYMENT PENALTY BY INITIALLING HERE: )
-- --
LIMITATION ON ADVANCES: The total seasonal loan outstanding under this or
any loan agreement between AGCAPCO and BORROWER shall not exceed the amount
shown in the above heading.
Advances on Seasonal Loan, Note No. 23650, shall be limited to $12,000,000,
unless required to fund drafts drawn on letter of credit specifically
approved by AGCAPCO.
Further, advances on Seasonal Loan, Note No. 23650, shall be limited to 90%
of new whole goods inventories from suppliers other than John Deere net of
floor planning and unpaid accounts payable on such inventories, and 90% of
accounts receivable net of the allowance for doubtful accounts, based on
monthly collateral reports in such form as acceptable to AGCAPCO.
Advances on Bridge Loan, Note No. 23640, shall not be permitted prior to
completion of Letter of Intent and execution of documentation contemplated by
the Letter of Intent dated July 11, 1996, for the purchase of assets of Mega
Equipment Company.
FIXED RATE ADVANCES AND MATURITIES: It is agreed the interest rate may at
BORROWER's option be fixed on any term loan indebtedness not already subject
to a fixed rate of interest ("fixed rate amount") under this agreement as
follows:
1. Fixed rate amounts shall be in $100,000 increments, unless otherwise
agreed by AGCAPCO.
2. Each fixed rate amount and each selected maturity date will be
treated as a separate indebtedness for interest rate purposes.
3. Each term loan fixed rate amount and selected maturity date must be
approved by AGCAPCO and compatible with BORROWER's overall term loan
repayment schedule.
4. BORROWER may receive next day interest rate quotes if a firm request
is placed and accepted by AGCAPCO before 12:00 p.m. (Central) on any
business day.
5. Upon maturity of each fixed term amount, BORROWER may convert the
fixed rate amount to a new fixed interest rate and maturity date
acceptable to AGCAPCO, or convert the fixed rate amount to the
variable term loan rate, or repay the fixed rate amount.
6. Each fixed rate amount shall be summarized in a written notice of
confirmation (the "confirmation") to BORROWER. Each confirmation
shall reference and confirm at least the following:
a. Applicable Note No.
b. The fixed rate amount
c. The rate of interest
d. The effective date
e. The maturity date
July 25, 1996 3 LOAN AGREEMENT
<PAGE>
7. BORROWER agrees that the confirmation shall verify the understanding
reached by the parties, and that BORROWER shall be bound by the
confirmation without its signature; provided, however, if there is
an error in the confirmation, BORROWER shall notify AGCAPCO of the
error within five days after receipt of the confirmation and an
appropriate correction will be made.
8. If there is a question on the interest rate applicable to the fixed
rate amount, the rate as established by AGCAPCO for such amount
shall be controlling.
CONDITIONS: While this loan agreement is in effect, BORROWER agrees to comply
with the following conditions:
a. INSURANCE: BORROWER will obtain normal business and casualty insurance,
as required by AGCAPCO, with financially sound insurers, in amounts
sufficient to protect AGCAPCO, with a loss payable clause in favor of
AGCAPCO.
b. FINANCIAL INFORMATION: BORROWER will furnish AGCAPCO with monthly
financial statements, collateral reports, and annual unqualified audits,
and such other information as AGCAPCO may request relative to
BORROWER's business, and permit such examination of its books and
records as AGCAPCO may specify. BORROWER also agrees that parties
preparing such financial information are authorized to release to
AGCAPCO such financial information as AGCAPCO may request.
c. BUDGET: BORROWER will provide an operating budget and cashflow forecast
to AGCAPCO within 90 days of fiscal year-end.
d. APPLICATION OF PAYMENTS: AGCAPCO, as its discretion, may apply payments
to the reduction of any of the indebtedness outstanding between AGCAPCO
and BORROWER.
e. NEGATIVE PLEDGE: BORROWER will not mortgage, pledge, assign, grant
security interests, or otherwise encumber any assets pledged to AGCAPCO,
to any other party, nor will it guarantee the obligations of any other
party, without the prior written consent of AGCAPCO.
f. MAINTENANCE OF COLLATERAL: BORROWER will maintain all collateral pledged
to AGCAPCO in good, saleable condition, and in compliance with all
applicable laws, regulations, and orders, and apply payments from sales
of collateral which occur outside the ordinary course of business, to
outstanding loan balances.
g. DISPOSAL OF ASSETS: BORROWER will not sell, lease, transfer, or dispose
of any material part of its assets without written consent of AGCAPCO,
other than in the ordinary course of business.
h. PAYMENT OF TAXES, OTHER OBLIGATIONS: BORROWER will pay all federal,
state and local taxes, license fees or similar charges, and all accounts
payable or other obligations, as they become due.
i. TOTAL DEBT TO NET WORTH: BORROWER will maintain a maximum ratio of total
debt to net worth of 5.5 to 1.0.
j. CURRENT RATIO: BORROWER will maintain a minimum ratio of current assets
to current liabilities of 1.1 to 1.0.
REPAYMENT: Without limiting the right of AGCAPCO to demand payment in full or
in part in the event of a default hereunder, the indebtedness arising from
the loans hereunder shall be repaid as follows:
JULY 25, 1996 4 LOAN AGREEMENT
<PAGE>
1. Term Loan, Note No. 4550, with a present balance of $40,358.69, shall
be repaid in equal monthly payments of principal and interest of
$1,200. AGCAPCO reserves the right to adjust the principal and interest
payment based on an original amortization of 7 years, and changes in
interest rates. This note matures and all outstanding principal and
interest shall be payable October 1, 1999.
2. Term Loan, Note No. 4560, with a present balance of $99,825.30, shall
be repaid in equal monthly payments of principal and interest of
$2,045.00. This note matures and all outstanding principal and interest
shall be payable February 15, 2001.
3. Term Loan, Note No. 4580, with a present balance of $15,000.00, shall
be repaid in quarterly principal payments of $15,000 each July,
October, January and April. AGCAPCO reserves the right to adjust the
principal and interest payment based on an original amortization of
15 years, and changes in interest rates. This note matures and all
outstanding principal and interest shall be payable October 1, 1996.
4. Term Loan, Note No. 4910, with a present balance of $223,281.83, shall
be repaid in equal monthly payments of principal and interest of
$4,567.33. This note matures and all outstanding principal and interest
shall be payable October 1, 2001.
5. Term Loan, Note No. 5800, with a present balance of $771,538.62, shall
be repaid in level monthly principal and interest payments of $9,400.00
The note matures and all outstanding principal and interest shall be
payable June 28, 2002.
6. Term Loan, Note No. 10050, with a present balance of $234,081.25 shall
be repaid in level monthly principal and interest payments of
$2,900.00. The note matures and all outstanding principal and interest
shall be payable June 28, 2002.
7. Term Loan, Note No. 12690, with a present balance of $68,047.52 shall
be repaid in level monthly principal and interest payments of
$1,000.00. The note matures and all outstanding principal and interest
shall be payable June 28, 2002.
8. Term Loan, Note No. 12700, with a present balance of $389,722.88, shall
be repaid in level monthly principal and interest payments totaling
$4,000.00. The note matures and all outstanding principal and interest
shall be payable June 28, 2002.
9. Term Loan, Note No. 17610, with a present balance of $362,680.71,
shall be repaid in equal monthly principal and interest payments of
$3,400.00. The note matures and all outstanding principal and interest
shall be payable on August 1, 2005.
10. Term Loan, Note No. 20020, with a present balance of $884,971.77, shall
be repaid in equal monthly payments of principal and interest of
$8,370. AGCAPCO reserves the right to adjust the principal and interest
payment based on an original amortization of 15 years, and changes in
interest rates. The note matures and all outstanding principal and
interest shall be payable February 1, 2006.
11. Term Loan, Note No. 20050, with a present balance of $837,907.03 shall
be repaid in equal monthly principal and interest payments of $8,110.
AGCAPCO reserves the right to adjust the principal and interest
payment based on an original amortization of 15 years, and changes in
interest rates. The note matures and all outstanding principal and
interest shall be payable on February 1, 2006.
12. Bridge Loan, Note No. 23460, with an original balance of $8,500,000,
shall mature and all outstanding principal and interest shall be
payable December 1, 1996.
JULY 25, 1996 5 LOAN AGREEMENT
<PAGE>
13. Seasonal Loan, Note, No. 23650, of not to exceed $13,245,000, shall
mature and all outstanding principal and interest shall be payable on
September 1, 1996.
LATE FEE PENALTY: Payments received by AGCAPCO 15 calendar days after the
scheduled repayment date are subject to a late payment penalty equal to 1% of
the past due amount but not less than $25.00 per late payment, subject to the
maximum amount allowable by North Dakota Law.
EXPIRATION: The unadvanced portion of any commitment hereunder shall be
canceled as indicated below; provided, however, AGCAPCO may, at its option,
and without notice, extend the expiration date on the loans specified in the
agreement and the maturity date of the seasonal loan without the consent of
BORROWER.
Seasonal Loan, Note No. 23650: June 1, 1997
Bridge Loan, Note No. 23640: December 1, 1996
REINSTATEMENT: In order to facilitate repayments and reborrowings under this
loan agreement, AGCAPCO is hereby authorized to reinstate all sums repaid on
the seasonal loan through the expiration date specified in this agreement,
provided, however, that the total amount outstanding hereunder shall not
exceed the face amount of the seasonal loan; and provided, further, that the
right of BORROWER to such reinstatement may be denied and canceled at any
time at the option of AGCAPCO.
DEFAULT PROVISION: If BORROWER shall fail to pay when due any amount on any
of the loans hereunder, or on any other indebtedness of BORROWER secured
hereby, or shall fail to observe or perform any of the provisions or
representations of this agreement, or of any notes, security agreements, or
mortgages entered into in connection with this loan agreement, or upon
commencement of any bankruptcy or insolvency proceedings involving BORROWER,
or should AGCAPCO in good faith deem itself insecure, BORROWER shall be in
default hereunder. When BORROWER is in default, interest shall continue at
the normal rate and AGCAPCO may declare by written notice to BORROWER that
all such loans and other indebtedness are immediately due and payable, and
AGCAPCO may terminate its commitments and any reinstatement rights hereunder,
proceed to enforce payment under any guarantees and to exercise any or all of
the rights afforded to AGCAPCO by law or agreement. Upon demand, BORROWER
shall pay to AGCAPCO all attorney's fees and costs incurred by AGCAPCO in
protecting or enforcing its rights under this agreement or collateral
securing this loan, including reasonable attorney's fees incurred by AGCAPCO
in a bankruptcy or receivership proceeding or in enforcing any judgment
against BORROWER.
SAVINGS CLAUSE: It is expressly agreed between the parties to this agreement
that if any covenant, condition or restriction contained in this agreement,
or any portion thereof is deemed invalid or void, such invalidity or voidness
shall in no way affect any other covenant, term, condition or restriction in
this agreement.
GOVERNING LAW: The terms and conditions of this agreement shall be governed
as to validity, interpretation, effect and in all respects by the laws and
decisions of the State of North Dakota.
ACCEPTANCE: This loan agreement is the full agreement between the parties. It
may not be modified except in writing, and shall not become effective unless
BORROWER shall, within 30 days from date, signify its acceptance of the terms
and conditions hereof by signing and returning a copy of this agreement to
AGCAPCO.
APPROVED by Ag Capital Company this 25th day of July, 1996.
AGCAPCO: Ag Capital Company
By /s/ Thomas K. Espel
--------------------------------
Thomas K. Espel, Manager
JULY 25, 1996 6 LOAN AGREEMENT
<PAGE>
AGREED AND ACCEPTED
BORROWER: RDO Equipment Co., a North Dakota corporation
(d/b/a McLean County Implement, Inc. and Red River
Implement, Inc.)
By: /s/ Ronald D. Offutt
-------------------------------
Ronald D. Offutt, President
July 31, 1996
By: /s/ Allan F. Knoll
--------------------------------
Allan F. Knoll, Secretary
July 30, 1996
JULY 25, 1996 7 LOAN AGREEMENT
<PAGE>
ID NO. 221
SEASONAL NOTE NO. 23650
$13,245,000.00 RDO EQUIPMENT CO.
A NORTH DAKOTA CORPORATION
D/B/A MCLEAN COUNTY IMPLEMENT, INC., AND RED RIVER IMPLEMENT, INC.
FARGO, NORTH DAKOTA
JULY 25, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
Ag Capital Company, a Delaware corporation (the "Lender"), at its office in
Fargo, North Dakota, or at such other place as any present or future holder
of this Note may designate from time to time, the principal sum of (i)
$13,245,000.00, or (ii) the aggregate unpaid principal amount of all advances
of credit made by the Lender to the undersigned pursuant to this Note as
shown in the records of any present or future holder of this Note, whichever
is less, plus interest thereon from the date of each advance in whole or in
part included in such amount until this Note is fully paid. Interest will be
computed on the basis of the actual number of days elapsed and a 365-day
year, at a variable rate of Prime ("Prime" shall be the highest Prime rate
reported in the WALL STREET JOURNAL, Midwest Edition, as it adjusts daily. If
such rate is not published in the WALL STREET JOURNAL, Midwest Edition, or
the publication ceases to be published, then AGCAPCO will set the interest
rate by using a comparable index or reference rate.) as such Rate is defined
in that certain Loan Agreement dated July 25, 1996 by and between the
undersigned and the Lender (hereinafter, the "Loan Agreement") or at such
other rate as may be determined pursuant to the terms of such Loan Agreement.
Interest is payable on the first day of each calendar month and at maturity.
Payments received fifteen (15) or more calendar days after the scheduled
repayment date are subject to a late payment penalty equal to 1% of the past
due amount but not less than $25.00 per late payment, subject to the maximum
amount allowable by North Dakota law. This Note matures on June 1, 1997.
Advances of the principal amount shall be made as set forth in the
Loan Agreement.
Amounts may be advanced and readvanced under this Note at the
Lender's sole discretion, provided the principal balance outstanding shall
not exceed the amount first above written. Nothing contained in this Note or
any other agreement or writing shall limit or impair the right of the holder
hereof to demand payment of this Note at any time if there is a default under
the Loan Agreement or any other agreement between the undersigned and the
Lender. The undersigned acknowledge and understand that this Note is
cross-collateralized with all loans to Borrower, and it is agreed and
acknowledged by the undersigned that a default in any of the terms and
conditions of any loans to Borrower, shall constitute a default under this
Note. In the event there is a default by the undersigned in the terms and
conditions of any agreement with the Lender, the Lender shall be entitled to
exercise all remedies allowable by law and to accelerate all amounts then due
and owing under this Note.
The undersigned and each endorser, guarantor and surety of this Note
jointly and severally (i) agree to pay this Note; (ii) guarantee payment of
this Note; (iii) waive demand, presentment, protest, notice of dishonor and
notice of nonpayment of this Note; (iv) consent to any extension or renewal
of this Note without notice; (v) consent to the release of any of them by any
present or future holder of this Note with or without consideration or
notice; (vi) exonerate any present or future holder of this Note from any
duty or obligation to make demand on anyone for payment of any security or
delivery of any guaranty for this Note or to give notice to anyone of
nonpayment thereof or to collect or sell the same; (vii) consent to the
extension, renewal, exchange, subordination, surrender or release of any
security for this Note by any present or future holder of this Note with or
without consideration or notice; (viii) agree that no act, omission or thing,
except full payment of this Note.
JULY 25, 1996 1 SEASONAL NOTE NO. 23670
<PAGE>
which but for this provision could act as a release or impairment of their
liability, shall in any way release, impair, or affect the liability of any
of them; (ix) agree to pay on demand all costs and expenses of all present
and future holders of this Note in connection with this Note and any security
and guaranties for this Note, including without limitation reasonable
attorneys' fees, plus interest on such amounts at the rate set forth in this
Note; and (x) consent to the personal jurisdiction of the state and federal
courts located in the State of North Dakota in connection with any
controversy related in any way to this Note or any security or guaranty of
this Note, waive any argument that venue in such forums is not convenient,
and agree that any litigation initiated by any of them against the Lender or
any other present or future holder of this Note relating in any way to this
Note or any security or guaranty for this Note shall be venued in either the
District Court of North Dakota, or the United States District Court, District
of North Dakota. Interest on any amount under this Note shall continue to
accrue, at the option of any present or future holder of this Note, until
such holder receives final payment of such amount in collected funds in form
and substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid
unless in writing executed by the holder of this Note, and any such waiver
shall be effective only in the specific instance and for the specific purpose
given. All rights and remedies of all present and future holders of this Note
shall be cumulative and may be exercised singly, concurrently or
successively. The undersigned, if more than one, shall be jointly and
severally liable under this Note, and the term "undersigned," wherever used
in this Note, shall mean the undersigned or any one or more of them. This
Note shall be governed by and construed in accordance with the laws of the
State of North Dakota.
It is not Lender's or Borrower's intention or desire to breach any
applicable usury or maximum finance charge or interest rate law. Therefore,
if any interest rate, penalty, fee or cost provided for herein shall exceed
that which is allowed pursuant to any applicable statute or law, said amount
shall be deemed by the parties hereto to be modified so as to conform to and
equal the maximum amount allowed by said statute or law and any over payment
shall be applied against principal as of the date of such payment.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS
OF THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR
FUTURE HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL
CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
RDO Equipment Co., a North Dakota corporation
(d/b/a McLean County Implement, Inc. and Red River Implement, Inc.)
By: /s/ Ronald D. Offutt
- -----------------------------------
Ronald D. Offutt, President
July 31, 1996
By: /s/ Allan F. Knoll
- ------------------------------------
Allan F. Knoll, Secretary
July 31, 1996
JULY 25, 1996 2 SEASONAL NOTE NO. 23670
<PAGE>
ID NO. 221
SECURITY AGREEMENT
DATE: JULY 25, 1996
DEBTOR: RDO EQUIPMENT CO. SECURED
A NORTH DAKOTA CORPORATION PARTY: AG CAPITAL COMPANY
ADDRESS: P.O. BOX 7160 ADDRESS: P.O. BOX 2271
FARGO, ND 58109-7160 FARGO, ND 58108
1. SECURITY INTEREST. To secure the payment and performance of each and every
debt, liability and obligation of every type and description which the Debtor
may now or at any time owe to the Secured Party, whether now existing or
hereafter arising, direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, independent,
joint, several or joint and several, including, but not limited to those
notes under Loan Agreement, dated July 25, 1996, (all such debts, liabilities
and obligations being herein collectively referred to as the "Obligations"),
the Debtor grants the Secured Party a security interest (the "Security
Interest") in the following property (the "Collateral"):
Machinery and equipment, rental inventories, new inventories other
than those supplied by John Deere, and attachments to those inventories,
and non-John Deere parts, now owned or hereafter acquired;
All accounts, including but not limited to land contract for deed
rights, other rights to payment, and general intangibles of the Debtor,
investments, together with all rights, liens, security interests and
other interests which the Debtor may at any time have by law or
agreement against any account debtor or obligor, and any proceeds of the
above, whether now owned or hereafter acquired;
Assets owned or acquired by Debtor, located in Texas, including,
without limitation, all inventory, parts, used equipment, new
equipment, rental fleet, attachments, and work in process owned by Mega
Equipment Company wherever located together with the fixed assets of
the business which shall include, without limitation, all motor
vehicles, tools, shop equipment, supplies, furniture, computers, office
equipment, computer software, and fixtures, together with all
trademarks and tradenames (if any), customer lists and records,
and goodwill.
Proceeds of the above whether now owned or hereafter acquired.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Debtor represents,
warrants and agrees as follows:
a. The Debtor is a North Dakota corporation and the mailing address
of the Debtor's chief executive office is shown at the beginning of this
Agreement. The Debtor shall give the Secured Party prior written notice of
any change in such address or the Debtor's name. The Debtor has authority to
execute and perform this Agreement.
JULY 25, 1996 1 SECURITY AGREEMENT
<PAGE>
b. The Debtor is the owner of the Collateral, or will be the owner
of the Collateral hereafter acquired, free of all security interests, liens
and encumbrances. The Debtor shall not permit any security interest, lien or
encumbrance, other than the Security Interest and any other security interest
of the Secured Party, to attach to any Collateral without the prior written
consent of the Secured Party. The Debtor shall defend the Collateral against
the claims and demands of all persons other than the Secured Party, and shall
promptly pay all taxes, assessments and other government charges upon or
against the Debtor, and at the request of the Secured Party, shall furnish
the Secured Party with a statement or statements executed by all persons who
have or claim an interest in the real estate, in form acceptable to the
Secured Party, which statement or statements shall provide that such persons
consent to the Security Interest.
c. The Debtor shall not sell or otherwise dispose of any Collateral or
any interest therein without the prior written consent of the Secured Party,
except that, until the occurrence of an Event of Default or the revocation by
the Secured party of the Debtor's right to do so, the Debtor may sell any
Collateral constituting inventory in the ordinary course of business at
prices constituting the fair market value thereof. For purposes of this
Agreement, a transfer in partial or total satisfaction of a debt, obligation
or liability shall not constitute a sale or lease in the ordinary course of
business.
d. Each account, instrument, chattel paper, other right to payment and
general intangible constituting Collateral is, or will be when acquired, the
valid, genuine and legally enforceable obligation of the account debtor or
other obligor named therein or in the Debtor's records pertaining thereto as
being obligated to pay such obligation, subject to no defense, setoff or
counterclaim. The Debtor shall not, without the prior written consent of the
Secured Party, agree to any material modification or amendment of any such
obligation or agree to any cancellation or subordination of any such
obligation.
e. The Debtor shall (I) keep all tangible Collateral in good condition
and repair, normal depreciation excepted; (ii) from time to time replace
any worn, broken or defective parts thereof; (iii) promptly notify the
Secured Party of any loss of or material damage to any Collateral or of any
adverse change in the prospect of payment of any account, instrument, chattel
paper, other right to payment or general intangible constituting Collateral;
(iv) not permit any violation of any federal, state or local law; (v) keep
all tangible Collateral insured in such amounts, against such risks and in
such companies as shall be acceptable to the Secured Party, with clauses in
favor of the Secured party as LIENHOLDER/LOSS PAYEE to the extent of its
interest in form acceptable to the Secured Party (including without limitation
a provision for at least 10 days' prior written notice to the Secured Party
of any cancellation or modification of such insurance), and deliver policies or
certificates of such insurance to the Secured Party; (vi) at the Debtor's
principal place of business, keep accurate and complete records pertaining to
the Collateral and the Debtor's financial condition, business and property,
and submit to the Secured Party such periodic reports concerning the Collateral
and the Debtor's financial condition, business and property as the Secured
Party may from time to time request; (vii) at all reasonable times permit the
Secured Party and its representatives to examine and inspect any Collateral,
and to examine, inspect and copy the Debtor's records pertaining to the
Collateral and the Debtor's financial condition, business and property;
(viii) at the Secured Party's request, promptly execute, endorse and deliver
such financing statements and other instruments, documents, chattel paper and
writings and take such other actions deemed by the Secured Party to be
necessary or desirable to establish, protect,
JULY 25, 1996 2 SECURITY AGREEMENT
<PAGE>
perfect or enforce the Security Interest and the rights of the Secured Party
under this Agreement and applicable law including, but not limited to, pay
all costs of filing financing statements and other writings in all public
offices where filing is deemed by the Secured Party to be necessary or
desirable.
3. COLLECTION RIGHTS. At any time before or after an Event of Default, the
Secured party may, and at the request of the Secured Party the Debtor shall,
promptly notify any account debtor or obligor of any account, instrument,
chattel paper, other right to payment or general intangible constituting
Collateral that the same has been assigned to the Secured Party and direct
such account debtor or obligor to make all future payments to the Secured
Party.
4. LIMITED POWER OF ATTORNEY. If the Debtor at any time fails to perform or
observe any agreement herein, the Secured Party, in the name and on behalf
of the Debtor or, at its option, in its own name, may perform or observe such
agreement and take any action which the Secured Party may deem necessary or
desirable to cure or correct such failure. The Debtor irrevocably authorizes
Secured Party and grants the Secured Party a limited power of attorney in the
name and on behalf of the Debtor or, at its option, in its own name, to
collect, receive, receipt for, create, prepare, complete, execute, endorse,
deliver and file any and all financing statements, insurance applications,
remittances, instruments, documents, chattel paper and other writings, to
grant any extension to, compromise, settle, waive, notify, amend, adjust,
change and release any obligation of any account debtor, obligor, insurer or
other person pertaining to any Collateral, and to take any other action
deemed by the Secured Party to be necessary or desirable to establish,
perfect, protect or enforce the Security Interest. All of the Secured Party's
advances, charges, costs and expenses, including without limitation reasonable
attorneys' fees, in connection with the Obligations and in the protection and
exercise of any rights or remedies hereunder, together with interest thereon
at the highest rate then applicable to any of the Obligations, shall be
secured hereunder and shall be paid by the Debtor to the Secured Party on
demand.
5. EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default": (a) any default in the payment or
performance of any of the Obligations; or (b) any default under the terms of
this Agreement or any other note, obligation, agreement, mortgage or other
writing heretofore, herewith or hereafter given to or acquired by the Secured
Party to which the Debtor or any maker, endorser, guarantor or surety of any
of the Obligations or any other person providing security for any of the
Obligations or for any guaranty of any of the Obligations is a party; or (c)
the insolvency, death, dissolution, liquidation, merger or consolidation of
the Debtor or any such maker, endorser, guarantor, surety or other person; or
(d) any appointment of a receiver, trustee or similar officer of any property
of the Debtor or any such maker, endorser, guarantor, surety or other person;
or (e) any assignment for the benefit of creditors of the Debtor or any such
maker, endorser, guarantor, surety or other person; of (f) any commencement
of any proceeding under any bankruptcy, insolvency, dissolution, liquidation
or similar law by or against the Debtor or any such maker, endorser,
guarantor, surety or other person; or (g) the sale, lease or other
disposition (whether in one transaction or in a series of transactions) to
one or more persons other than in the ordinary course of business of all or a
substantial part of the assets of the Debtor or any such maker, endorser,
guarantor, surety or other person; or (h) the death, dissolution or
liquidation of any partner of the Debtor or any such maker, endorser,
guarantor, surety or other person; or (i) the entry of any judgment against
the Debtor or any such maker, endorser, guarantor, surety or other person
which is not
JULY 25, 1996 3 SECURITY AGREEMENT
<PAGE>
discharged in a manner acceptable to the Secured Party within 30 days after
such entry; or (j) the issuance or levy of any writ, warrant, attachment,
garnishment, execution or other process against any property of the Debtor or
any such maker, endorser, guarantor, surety or any other person; or (k) the
attachment of any tax lien to any property of the Debtor or any such maker,
endorser, guarantor, surety or other person; or (l) any statement,
representation or warranty made by the Debtor or any such maker, endorser,
guarantor, surety or other person (or any representative of the Debtor or any
such maker, endorser, guarantor, surety or other person) to the Secured Party
at any time shall be incorrect or misleading in any material respect when
made; or (m) there is a material adverse change in the condition (financial
or otherwise), business or property of the Debtor or any such maker, endorser,
guarantor, surety or other person; or (n) the Secured Party shall in good
faith believe that the prospect for due and punctual payment or performance
of any of the Obligations, this Agreement or any other note, obligation,
agreement or mortgage heretofore, herewith or hereafter given to or acquired
by the Secured Party in connection with any of the Obligations is impaired.
6. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter, the Secured Party may exercise any one or more of the following
rights and remedies: (a) declare all Obligations to be immediately due and
payable, and the same shall thereupon be immediately due and payable, without
presentment or other notice or demand, all of which are hereby waived by the
Debtor; (b) require the Debtor to assemble all or any part of the Collateral
and make it available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties; (c) exercise
and enforce any and all rights and remedies available upon default under this
Agreement, the Uniform Commercial Code, and any other applicable agreements
and laws. If notice to the Debtor of any intended disposition of Collateral
or other action is required, such notice shall be deemed reasonably and
properly given if mailed by regular or certified mail, postage prepaid, to
the Debtor at the address stated at the beginning of this Agreement or at the
most recent address shown in the Secured Party's records, at least 10 days
prior to the action described in such notice. The Debtor consents to the
personal jurisdiction of the state and federal courts located in the State of
North Dakota in connection with any controversy related to this Agreement,
the Collateral, the Security Interest or any of the Obligations, waives any
argument that venue in such forums is not convenient, and agrees that any
litigation initiated by the Debtor against the Secured Party in connection
with this Agreement, the Collateral, the Security Interest or any of the
Obligations shall be venued in either the District Court of North Dakota, or
the United States District Court, District of North Dakota.
7. MISCELLANEOUS. A carbon, photographic or other reproduction of this
Agreement is sufficient as a financing statement. This Agreement cannot be
waived, modified, amended, abridged, supplemented, terminated or discharged
and the Security Interest cannot be released or terminated, except by a
writing duly executed by the Secured Party. A waiver shall be effective only
in the specific instance and for the specific purpose given. A partial waiver
of any condition herein or breach hereof shall not be construed as a complete
waiver of such condition or breach. No delay or failure to act shall preclude
the exercise or enforcement of any of the Secured Party's rights or remedies.
All rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly, concurrently or enforcement of any one such right or
remedy shall not be a condition to or bar the exercise or enforcement of any
other. This Agreement shall be binding upon and inure to the benefit of the
Debtor and the Secured Party and their respective successors and assigns and
shall take effect when executed by the Debtor and delivered to the Secured
Party,
JULY 25, 1996 4 SECURITY AGREEMENT
<PAGE>
and the Debtor waives notice of the Secured Party's acceptance hereof. This
Agreement shall be freely assignable by the Secured Party. If any provision
or application of this Agreement is held unlawful or unenforceable in any
respect, such illegality or unenforceability shall not affect other
provisions or applications which can be given effect, and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation,
payment and performance of the Obligations. This Agreement shall be governed
by and construed in accordance with the laws of the State of North Dakota.
THE DEBTOR REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE DEBTOR HAS
READ ALL OF THIS AGREEMENT AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS
AGREEMENT. THE DEBTOR ALSO AGREES THAT COMPLIANCE BY THE SECURED PARTY WITH
THE EXPRESS PROVISIONS OF THIS AGREEMENT SHALL CONSTITUTE GOOD FAITH AND
SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
DEBTOR: RDO Equipment Co., a North Dakota corporation
(d/b/a McLean County Implement, Inc., and Red River Implement, Inc.)
By: /s/ Ronald D. Offutt
-----------------------------------
Ronald D. Offutt, President
July 31, 1996
By: /s/ Allan F. Knoll
-----------------------------------
Allan F. Knoll, Secretary
July 30, 1996
JULY 25, 1996 5 SECURITY AGREEMENT
<PAGE>
ID NO. 221
BRIDGE NOTE NO. 23640
$8,500,000.00
RDO EQUIPMENT CO.
A NORTH DAKOTA CORPORATION
d/b/a MCLEAN COUNTY IMPLEMENT, INC., AND RED RIVER IMPLEMENT, INC.
FARGO, NORTH DAKOTA
JULY 25, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Ag
Capital Company, a Delaware corporation (the "Lender"), at its office in
Fargo, North Dakota, or at such other place as any present or future holder
of this Note may designate from time to time, the principal sum of (i)
$8,500,000.00, or (ii) the aggregate unpaid principal amount of all advances
of credit made by the Lender to the undersigned pursuant to this Note as
shown in the records of any present or future holder of this Note, whichever
is less, plus interest thereon from the date of each advance in whole or in
part included in such amount until this Note is fully paid. Interest will be
computed on the basis of the actual number of days elapsed and a 365-day
year, at a variable rate of Prime as such Prime Rate is defined in that
certain Loan Agreement dated July 25, 1996 by and between the undersigned and
the Lender (hereinafter, the "Loan Agreement") or at such other rate as may
be determined pursuant to the terms of such Loan Agreement. Interest is
payable on the first day of each month and at maturity. Payments received
fifteen (15) or more calendar days after the scheduled repayment date are
subject to a late payment penalty equal to 1% of the past due amount but not
less than $25.00 per late payment, subject to the maximum amount allowable by
North Dakota law. This Note matures on December 1, 1996.
Nothing contained in this Note or any other agreement or writing shall
limit or impair the right of the holder hereof to demand payment of this Note
at any time if there is a default under the Loan Agreement or any other
agreement between the undersigned and the Lender. The undersigned acknowledge
and understand that this Note is cross-collateralized with all loans of
Borrower, and it is agreed and acknowledged by the undersigned that a default
in any of the terms and conditions of any loans to Borrower, shall constitute
a default under this Note. In the event there is a default by the undersigned
in the terms and conditions of any agreement with the Lender, the Lender
shall be entitled to exercise all remedies allowable by law and to accelerate
all amounts then due and owing under this Note.
The undersigned and each endorser, guarantor and surety of this Note
jointly and severally (i) agree to pay this Note; (ii) guarantee payment of
this Note; (iii) waive demand, presentment, protest, notice of dishonor and
notice of nonpayment of this Note; (iv) consent to any extension or renewal
of this Note without notice; (v) consent to the release of any of them by any
present or future holder of this Note with or without consideration or
notice; (vi) exonerate any present or future holder of this Note from any
duty or obligation to make demand on any one for payment of any security or
delivery of any guaranty for this Note or to give notice to anyone of
nonpayment thereof or to collect or sell the same; (vii) consent to the
extension, renewal, exchange, subordination, surrender or release of any
security for this Note by any present or future holder of this Note with or
without consideration or notice; (viii) agree that no act, omission or thing,
except full payment of this Note, which but for this provisions could act as
a release or impairment of their liability, shall in any way release, impair,
or affect the liability of any of them; (ix) agree to pay on demand all costs
and expenses of all present and future holders of this Note in connection
with this Note and any security and guaranties for this Note, including
without limitation reasonable attorneys' fees, plus interest on such amounts
at the rate set forth in this Note; and (x) consent to the personal
jurisdiction of the state and federal courts located in the State of North
Dakota in connection with any controversy related in any way to this Note or
any security or guaranty of this Note, waive any
July 25, 1996 1 Term Loan, Note No. 23640
<PAGE>
argument that venue in such forums is not convenient, and agree that any
litigation initiated by any of them against the Lender or any other present or
future holder of this Note relating in any way to this Note or any security
or guaranty for this Note shall be venued in either the District Court of
North Dakota, or the United States District Court, District of North Dakota.
Interest on any amount under this Note shall continue to accrue, at the
option of any present or future holder of this Note, until such holder
receives final payment of such amount in collected funds in form and
substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given.
All rights and remedies of all present and future holders of this Note shall
be cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under
this Note, and the term "undersigned," wherever used in this Note, shall mean
the undersigned or any one or more of them. This Note shall be governed by
the construed in accordance with the laws of the State of North Dakota.
It is not Lender's or Borrower's intention or desire to breach any
applicable usury or maximum finance charge or interest rate law. Therefore,
if any interest rate, penalty, fee or cost provided for herein shall exceed
that which is allowed pursuant to any applicable statute or law, said amount
shall be deemed by the parties hereto to be modified so as to conform to and
equal the maximum amount allowed by said statute or law and any over payment
shall be applied against principal as of the date of such payment.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS
OF THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR
FUTURE HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL
CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
RDO Equipment Co., a North Dakota corporation
(d/b/a McLean County Implement, Inc. and Red River Implement, Inc.)
By: /s/ Ronald D. Offutt
----------------------------
Ronald D. Offutt, President
July 31, 1996
By: /s/ Allan F. Knoll
----------------------------
Allan F. Knoll, Secretary
July 30, 1996
July 25, 1996 2 Term Loan, Note No. 23640
<PAGE>
EXHIBIT 10.5
ID NO. 496
AG CAPITAL COMPANY
LOAN AGREEMENT
--------------
THIS AGREEMENT, made and entered into by and between Ag Capital Company, a
Delaware corporation whose address is P.O. Box 7070, Fargo, North Dakota
58109-7070, hereinafter called "AGCAPCO;" and, Minnesota Valley Irrigation,
Inc., also known as Wisconsin Vegetable Storage Systems, Inc., a Minnesota
corporation, whose address is P.O. Box 509, Highway 10 East, Wadena,
Minnesota 56482, hereinafter called "BORROWER";
WITNESSETH THAT, AGCAPCO agrees to make the following New Loan to BORROWER,
subject to all the security, terms and conditions of this Loan Agreement:
LOAN
----
$2,500,000 -- Seasonal Loan, Note No. 24300
PURPOSE: The proceeds of the loan made hereunder shall be used to assist in
financing BORROWER's irrigation/ventilation equipment sales and related
services and for no other purpose.
INTEREST: All outstanding loan balances hereunder shall bear a variable rate
of interest as follows:
Seasonal Loan, Note No. 24300: Prime
"Prime" shall be the highest Prime rate reported in the WALL STREET
JOURNAL, Midwest Edition, as it adjusts daily. If such rate is not
published in the WALL STREET JOURNAL, Midwest Edition, or the
publication ceases to be published, then AGCAPCO will set the interest
rate by using a comparable index or reference rate.
Interest on all loans shall be payable on the 1st day of each calendar
month.
NOTES AND SECURITY: Advances made hereunder, and any sums henceforth lent to
BORROWER by AGCAPCO, shall be evidenced by a promissory note or notes
acceptable to AGCAPCO, and shall be secured by existing security, including
but not limited to the following:
A first security interest in current assets only, including inventory,
receivables, accounts, contract rights, chattel paper, documents,
instruments, general intangibles, and all proceeds of the above, now
owned or hereafter acquired.
All property under lien to AGCAPCO as security for loans hereunder, or as
security for loans hereafter made, shall be security to the extent thereof
for all loans made by AGCAPCO to BORROWER.
LIMITATION ON ADVANCES: The total principal amount of the seasonal loan
outstanding under this or any loan agreement between AGCAPCO and BORROWER
shall not exceed $2,500,000, the principal amount shown in the above heading.
AUGUST 26, 1996 1 LOAN AGREEMENT
<PAGE>
Advances on the Seasonal Loan, Note No. 24300, shall be limited as follows:
1. 80% of acceptable accounts receivable ("acceptable" shall be defined
as accounts less than 90 days old); and,
2. 80% of new and used wholegood and parts inventory in Minnesota and
Wisconsin, net of any unpaid account payable on such inventories;
based on a Borrowing Base Certificate to be submitted in such form and
frequency as required by AGCAPCO, but not less than monthly.
CONDITIONS: While this loan agreement is in effect, BORROWER agrees to comply
with the following conditions:
a. ORGANIZATION: BORROWER warrants that it is duly organized, existing and
in good standing, and will maintain its status as a business
corporation, under the laws of the state of Minnesota.
b. INSURANCE: BORROWER will obtain normal business and casualty insurance,
as required by AGCAPCO, with financially sound insurers, in amounts
sufficient to protect AGCAPCO, with a loss payable clause in favor of
AGCAPCO.
c. FINANCIAL INFORMATION: BORROWER will furnish AGCAPCO with acceptable
annual financial statements within 45 days of fiscal year-end, annual
tax returns, monthly financial statements, and such other information as
AGCAPCO may request relative to BORROWER's business, and permit such
examination of its books and records as AGCAPCO may specify. BORROWER
also agrees that parties preparing such financial information are
authorized to release to AGCAPCO such financial information as AGCAPCO
may request.
d. BUDGET: BORROWER will provide an operating budget and cash flow forecast
to AGCAPCO within the first 90 days of each fiscal year.
e. APPLICATION OF PAYMENTS: AGCAPCO, at its discretion, may apply payments
to the reduction of any of the indebtedness outstanding between AGCAPCO
and BORROWER.
f. NEGATIVE PLEDGE: BORROWER will not mortgage, pledge, assign grant
security interests, or otherwise encumber any assets, excluding any
encumbrances granted prior to the date of this agreement, to any other
party, nor will it guarantee the obligations of any other party, without
the prior written consent of AGCAPCO.
g. MAINTENANCE OF COLLATERAL: BORROWER will maintain all collateral pledged
to AGCAPCO in good, saleable condition, and free of all liens and
encumbrances, excluding liens and encumbrances granted prior to the date
of this agreement, and in compliance with all applicable laws,
regulations, and orders, and apply payments from sales of collateral to
outstanding loan balances.
AUGUST 26, 1996 2 LOAN AGREEMENT
<PAGE>
h. DISPOSAL OF ASSETS: BORROWER will not sell, lease, transfer, or dispose
of any material part of its assets without written consent of AGCAPCO,
other than in the ordinary course of business.
i. PAYMENT OF TAXES, OTHER OBLIGATIONS: BORROWER will pay all federal,
state and local taxes, license fees or similar charges, and all accounts
payable or other obligations, as they become due.
j. WORKING CAPITAL: BORROWER will attain net working capital according to
Generally Accepted Accounting Principles (GAAP) of $800,000 at all
times. ("Net working capital" shall be defined as current assets less
current liabilities.)
k. BORROWING BASE CERTIFICATE: BORROWER shall submit to AGCAPCO, at least
monthly, an inventory collateral report in such form as acceptable to
AGCAPCO.
REPAYMENT: Without limiting the right of AGCAPCO to demand payment in full or
in part in the event of a default hereunder, the indebtedness arising from
the loan hereunder shall be repaid as follows:
Seasonal Loan, Note No. 24300, of not to exceed $2,500,000, shall mature
and the outstanding principal balance shall be repaid by September 1, 1997.
LATE FEE PENALTY: Payments received by AGCAPCO 15 calendar days after the
scheduled due date shall be subject to a late payment penalty equal to 1% of
the past due amount but not less than $25.00 per late payment, subject to the
maximum amount allowable by North Dakota Law.
EXPIRATION: The unadvanced portion of any commitment hereunder shall be
canceled as indicated below; provided, however, AGCAPCO may, at its option,
and without notice, extend the expiration date on the loan specified in the
agreement and the maturity date of the seasonal loan without the consent of
BORROWER.
Seasonal Loan, Note No. 24300: September 1, 1997
REINSTATEMENT: In order to facilitate repayments and reborrowings under this
loan agreement, AGCAPCO is hereby authorized to reinstate all sums repaid on
the seasonal loan through the expiration date specified in this agreement,
provided, however, that the total principal amount outstanding hereunder shall
not exceed the face amount of the seasonal loan; and provided, further, that
the right of BORROWER to such reinstatement may be denied and canceled at any
time at AGCAPCO's sole discretion.
DEFAULT PROVISION: If BORROWER shall fail to pay when due any amount on any
of the loans hereunder, or on any other indebtedness of BORROWER secured
hereby, or shall fail to observe or perform any of the provisions or
representations of this agreement, or of any notes, security agreements, or
mortgages entered into in connection with this loan agreement, or upon
commencement of any bankruptcy or insolvency proceedings involving BORROWER,
or should AGCAPCO in good faith deem itself insecure, BORROWER shall be in
default hereunder. When BORROWER are in default, interest shall continue at
the normal rate and AGCAPCO may declare by written notice to BORROWER that
all such loans and other indebtedness are immediately due
AUGUST 26, 1996 3 LOAN AGREEMENT
<PAGE>
and payable, and AGCAPCO may terminate its commitments and any reinstatement
rights hereunder, proceed to enforce payment under any guarantees and to
exercise any or all of the rights afforded to AGCAPCO by law or agreement.
Upon demand, BORROWER shall pay to AGCAPCO all attorney's fees and costs
incurred by AGCAPCO in protecting or enforcing its rights under this
agreement or collateral securing this loan, including reasonable attorney's
fees incurred by AGCAPCO in a bankruptcy or receivership proceeding or in
enforcing any judgment against BORROWER.
SAVINGS CLAUSE: It is expressly agreed between the parties to this agreement
that if any covenant, condition or restriction contained in this agreement,
or any portion thereof is deemed invalid or void, such invalidity or voidness
shall in no way affect any other covenant, term, condition or restriction in
this agreement.
GOVERNING LAW: The terms and conditions of this agreement shall be governed
as to validity, interpretation, effect and in all respects by the laws and
decisions of the State of Minnesota.
ACCEPTANCE: This loan agreement is the full agreement between the parties. It
may not be modified except in writing, and shall not become effective unless
BORROWER shall, within 30 days from date, signify its acceptance of the terms
and conditions hereof by signing and returning a copy of this agreement to
AGCAPCO.
FURTHER ASSURANCES: Whenever reasonably requested by AGCAPCO, BORROWERS shall
promptly execute and deliver all other instruments, documents or assurances,
and promptly do all other things as may be necessary and reasonably required
in order to fully vest in AGCAPCO all rights, interests, powers, benefits or
privileges and advantages conferred or intended to be conferred by this
agreement and the notes, security agreements, and mortgages entered into in
connection with this agreement.
APPROVED by Ag Capital Company this 26th day of August, 1996.
AGCAPCO: Ag Capital Company
By
------------------------------
Thomas K. Espel, Manager
AGREED AND ACCEPTED
BORROWER: Minnesota Valley Irrigation, Inc.
also known as Wisconsin Vegetable Storage Systems, Inc.
By
------------------------------
Allan F. Knoll, Secretary
Date: August ___, 1996
AUGUST 26, 1996 4 LOAN AGREEMENT
<PAGE>
ID NO. 496
SEASONAL NOTE NO. 24300
$2,500,000 MINNESOTA VALLEY IRRIGATION, INC.
ALSO KNOWN AS WISCONSIN VEGETABLE STORAGE SYSTEMS, INC.
A MINNESOTA CORPORATION
WADENA, MINNESOTA
AUGUST 26, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Ag
Capital Company, a Delaware corporation (the "Lender"), at its office in
Fargo, North Dakota, or at such other place as any present or future holder
of this Note may designate from time to time, the principal sum of (i)
$2,500,000, or (ii) the aggregate unpaid principal amount of all advances of
credit made by the Lender to the undersigned pursuant to this Note as shown
in the records of any present or future holder of this Note, whichever is
less, plus interest thereon from the date of each advance in whole or in part
included in such amount until this Note is fully paid. Interest will be
computed on the basis of the actual number of days elapsed and a 365-day
year, at a variable rate of Prime ("Prime" shall be the highest Prime rate
reported in the WALL STREET JOURNAL, Midwest Edition, as it adjusts daily. If
such rate is not published in the WALL STREET JOURNAL, Midwest Edition, or
the publication ceases to be published, then AGCAPCO will set the interest
rate by using a comparable index or reference rate.) as such Prime Rate is
defined in that certain Loan Agreement dated August 26, 1996 by and between
the undersigned and the Lender (hereinafter, the "Loan Agreement"), or at
such other rate as may be determined pursuant to the terms of such Loan
Agreement. Interest is payable on the first day of each calendar month and at
maturity. Principal payments are due and payable in the amounts and at the
times specified in the Loan Agreement. Payments received fifteen (15) or more
calendar days after the scheduled repayment date are subject to a late
payment penalty equal to 1% of the past due amount but not less than $25.00
per late payment, subject to the maximum amount allowable by Minnesota law.
This Note matures and the outstanding principal balance and all unpaid
interest on this Note is due and payable by September 1, 1997.
Advances of the principal amount shall be made as set forth in the Loan
Agreement.
Amounts may be advanced and readvanced under this Note at the Lender's
sole discretion, provided the principal balance outstanding shall not exceed
the amount first above written. Nothing contained in this Note or any other
agreement or writing shall limit or impair the right of the holder hereof to
demand payment of this Note at any time if there is a default under the Loan
Agreement or any other agreement between the undersigned and the Lender. In
the event there is a default by the undersigned in the terms and conditions
of any agreement with the Lender, the Lender shall be entitled to exercise
all remedies allowable by law and to accelerate all amounts then due and
owing under this Note.
The undersigned and each endorser, guarantor and surety of this Note
jointly and severally (i) agree to pay this Note; (ii) guarantee payment of
this Note; (iii) waive demand, presentment, protest, notice of dishonor and
notice of nonpayment of this Note; (iv) consent to any extension or renewal
of this Note without notice; (v) consent to the release of any of them by any
present or future holder of this Note with or without consideration or
notice; (vi) exonerate any present or future holder of this Note from any
duty or obligation to make demand on anyone for payment of any security or
delivery of any guaranty for this Note or to give notice to anyone of
nonpayment thereof or to collect or sell the same; (vii) consent to the
extension, renewal, exchange, subordination, surrender or release of any
security for this Note by any
AUGUST 26, 1996 1 SEASONAL NOTE NO. 24300
<PAGE>
present or future holder of this Note with or without consideration or
notice; (viii) agree that no act, omission or thing, except full payment of
this Note, which but for this provision could act as a release or impairment
of their liability, shall in any way release, impair, or affect the liability
of any of them; (ix) agree to pay on demand all costs and expenses of all
present and future holders of this Note in connection with this Note and any
security and guaranties for this Note, including without limitation
reasonable attorneys' fees, plus interest on such amounts at the rate set
forth in this Note; and (x) consent to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related in any way to this Note or any security or guaranty of
this Note, waive any argument that venue in such forums is not convenient, and
agree that any litigation initiated by any of them against the Lender or any
other present or future holder of this Note relating in any way to this Note
or any security or guaranty for this Note shall be venued in either the
District Court of Minnesota, or the United States District Court, District of
Minnesota. Interest on any amount under this Note shall continue to accrue,
at the option of any present or future holder of this Note, until such holder
receives final payment of such amount in collected funds in form and
substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given.
All rights and remedies of all present and future holders of this Note shall
be cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under
this Note, and the term "undersigned," wherever used in this Note, shall mean
the undersigned or any one or more of them. This Note shall be governed by
and construed in accordance with the laws of the State of Minnesota.
It is not Lender's or Borrower's intention or desire to breach any
applicable usury or maximum finance charge or interest rate law. Therefore,
if any interest rate, penalty, fee or cost provided for herein shall exceed
that which is allowed pursuant to any applicable statute or law, said amount
shall be deemed by the parties hereto to be modified so as to conform to and
equal the maximum amount allowed by said statute or law and any over payment
shall be applied against principal as of the date of such payment.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS
OF THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR
FUTURE HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL
CONSTITUTE GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
Minnesota Valley Irrigation, Inc.
also known as Wisconsin Vegetable Storage Systems, Inc.
P.O. Box 509, Highway 10 East
Wadena, MN 56482
By By
-------------------------------- --------------------------------
Ronald D. Offutt, President Allan F. Knoll, Secretary
AUGUST 26, 1996 2 SEASONAL NOTE NO. 24300
<PAGE>
EXHIBIT 10.6
JOHN DEERE
AGRICULTURAL DEALER
FINANCE AGREEMENT
Dealer RDO Equipment Co.
-------------------------
Town Casselton
--------------------------
State North Dakota
--------------------------
[LOGO]
<PAGE>
APPLICATION
To: John Deere Company - A Division of Deere & Company
1415 28th St.
- ----------------------
West Des Moines, IA
- ----------------------
Gentlemen:
I (the undersigned Dealer, whether an individual, partnership, or
corporation) wish to participate in the John Deere Finance Plan for the
installment financing of retail sales of Agricultural Equipment as outlined in
the Terms and Conditions appearing on succeeding pages of this booklet.
This Application shall be effective on 1 August 1983, or as of the date it
is executed by me, whichever is later.
I understand that by signing this Application I do not obligate myself to
send installment contracts to you for credit to my account, but that if I do
send you eligible contracts for such credit, their acceptance will be governed
by the Terms and Conditions. I accept the obligations stated in the Terms and
Conditions as to all contracts I may send you hereafter. If you are presently
holding contracts or leases previously assigned to you by me, collection thereof
and all related charges to my reserve or other accounts will be as provided in
the Terms and Conditions in effect on the date such contracts were accepted.
I understand that you may accept or reject at your discretion any contracts
submitted by me, or may discontinue further acceptances at any time.
I agree that if you notify me of amendments to the Terms and Conditions,
such amendments will apply to any contracts I may send you after receiving such
notice without the execution by me of a new Application or other instrument
specifically adopting those amendments, but the Terms and Conditions applicable
to contracts submitted by me before notice of such amendment cannot be changed
without my consent.
When a written assignment or endorsement is required on a contract sent to
you for credit to my account, the failure on my part to execute such assignment
or endorsement shall not prevent such assignment or endorsement from being
effective, and I hereby authorize any of your employees designated by you to
execute such assignment or endorsement on my behalf.
If my signature as "Secured Party" is required on any Financing Statement
submitted with a contract or if my signature as "Seller" is required on a
Purchase Order submitted with a contract and such document has not been signed
by me, I hereby authorize any of your employees designated by you to sign such
Statement or Purchase Order on my behalf. Further, your acceptance of this
Application shall constitute authorization for me or my employees to sign
Financing Statements on your behalf as "Secured Party" where such a signature is
required as a condition of filing such Financing Statements.
Sincerely yours,
RDO Equipment Co.
---------------------------------
By Ronald Offutt
------------------------------
Pres.
---------------------------------
Date 1/3/94
----------------------------
Application accepted:
Date 15 Feb 1994
---------------------------
John Deere Company
By DE Lunke
-----------------------------
<PAGE>
JOHN DEERE FINANCE PLAN
TERMS AND CONDITIONS
SECTION 1 --
ACCEPTANCE AND CREDIT
1.1 Customers' installment obligations submitted for credit under the John
Deere Finance Plan (hereafter called "contracts") must meet the
requirements set out in the John Deere Retail Finance Manual or
supplemental bulletins thereto (hereafter called "Manual"). The Terms and
Conditions of this Agreement shall not apply, and the term "contracts"
shall not apply, to customers' installment obligations resulting from the
sale of Consumer Products unless such Consumer Products are part of the
same contract with items eligible for financing under the John Deere
Finance Plan for Agricultural Equipment. Unless otherwise specified
herein, the term "contract" shall include Retail Installment Sale Contracts
and Loan Contracts. The term "debtor" shall mean the Purchaser under a
Retail Installment Sale Contract and the Borrower under a Loan Contract.
1.2 If the Company accepts the contract for credit, the Dealer and the debtor
will be notified. All installment payments will be made directly to the
Company.
1.3 Contracts will include finance charge, computed as prescribed in the
Manual. If the contract includes more finance charge than provided in the
Manual, the excess will be endorsed as a credit to the debtor on the last
maturing installment. If the contract includes less finance charge than
provided in the Manual, the Company may accept it but the Dealer will be
charged for the shortage.
1.4 By submitting a contract for credit, the Dealer makes the following
representations and promises:
1.4.1 That the contract is genuine and that the debtor is of legal age.
1.4.2 That the contract and other documents submitted therewith accurately
reflect the transaction with respect to the selling price, down
payment, trade-in, trade-in allowance and other items shown thereon.
1.4.3 That the Dealer has not knowingly misrepresented any other
information respecting the contract or the transaction, and knows of
no misstatements or untruths in any financial or other information
furnished by the debtor.
1.4.4 That, at the time the contract (except contracts covering repair and
overhaul work) is sent to the Company, there are no liens or
encumbrances on the equipment superior to the lien of the contract
and that there are no liens or encumbrances on any equipment taken
in trade as part of the transaction. If the regular down payment
requirement is reduced because equipment already in the debtor's
possession is made subject to a security agreement or chattel
mortgage in favor of the Company (see Manual for examples of the use
of equity in such equipment), the Dealer warrants that there are no
liens or encumbrances on such equipment superior to that granted by
such Security Agreement or Chattel Mortgage.
1.4.5 If the debtor resides in a state which has enacted the Uniform
Commercial Code, that the Dealer has filed a Financing Statement
with the appropriate filing officer or officers within the period of
time necessary to assure priority over purchasers from and other
creditors of the debtor; and, for sales of equipment that are
classified under the law as "inventory", that all perfected secured
parties of record have received proper notice prior to the delivery
of the equipment.
If the debtor resides in the state of Louisiana, that the Dealer has
filed a Notice of Security Interest with the appropriate filing
officer as soon as possible after the contract is executed by the
debtor.
1.4.6 That no part of the down payment was advanced by the Dealer. It
shall not be considered a violation of this section, however, if the
Dealer collects the down payment according to the Dealer's normal
accounts
1
<PAGE>
receivable procedure within the 30-day billing cycle that follows
the date of sale.
1.4.7 That the contract is not subject to any defense, offset or
counterclaim.
If any representation or promise is untrue, the Company shall at any time
have the right to require the Dealer to purchase the contract and pay the
Company the unpaid balance thereon including any accrued interest and
earned finance charge, and the Dealer hereby promises to pay such amount on
demand. Upon payment of such amount by the Dealer, the Dealer shall
succeed to all the rights of the Company under the contract and the Company
shall assign the contract to the Dealer. At the option of the Company, the
contract may be delivered to the Dealer prior to payment by him of such
amount, but the Dealer grants the Company a security interest in the
contract and any equipment subject to such contract to secure such payment.
Any knowing misrepresentation concerning a contract or the related
transaction shall be deemed to be a falsification of a contract and
therefore a default under the Security Agreement or Chattel Mortgage
between the Dealer and the Company and will give the Company the right, at
its option, to either immediately cancel the Dealer's appointment as a John
Deere Authorized Agricultural Dealer or to suspend all of the Dealer's
participation privileges in the John Deere Finance Plan.
1.5 If a contract with an amount financed of $1500 or more is accepted by the
Company, the balance remaining after deducting the finance charge will be
credited to the Dealer as follows:
1.5.1 1% of the face amount of the contract (including the finance charge)
will be credited to the Dealer's reserve account described in
Section 2.
1.5.2 Occasionally, the Company may conclude that a debtor does not
qualify for credit in the full amount of the contract, but may be
willing to accept the contract for partial credit. If the Dealer
wishes to submit the contract on this basis, the excess will be
credited to the Dealer's contingent earnings account described in
Section 1.7.
1.5.3 The remainder (called the "net credit value") of the contract will
be credited to the Dealer's regular statement as provided in Section
1.5.4 or 1.5.5.
1.5.4 If the contract is a Loan Contract financing equipment on which an
amount is owed to the Company by the Dealer (called the "Dealer's
debt") and the net credit value is equal to or less than the
Dealer's debt, the debtor's obligation under the contract will be
accepted in substitution for the Dealer's debt to the extent of the
net credit value and any amount of the Dealer's debt remaining will
be due in accordance with the Company's Agricultural Dealers Terms
Schedule. If the net credit value of such a contract exceeds the
Dealer's debt, that portion of the obligation equal to the Dealer's
debt will be accepted in substitution for the Dealer's debt and the
excess will be used to offset other currently due indebtedness of
the Dealer to the Company. If such excess net credit value exceeds
such other indebtedness, the amount not required to offset such
other indebtedness will be credited to the Dealer's account or, upon
request by the Dealer, will be paid to the Dealer in cash.
1.5.5 If the contract is a Loan Contract on equipment on which no amount
is owed to the Company, or is a Retail Installment Sale Contract,
the net credit value will be used to offset currently due
indebtedness of the Dealer to the Company. If the net credit value
exceeds such indebtedness, the excess will be credited to the
Dealer's account or, upon request by the Dealer, will be paid to the
Dealer in cash.
1.6 If a contract with an amount financed of less that $1500 is accepted by the
Company, the balance remaining after deducting the finance charge will be
credited to the Dealer's account and used to offset currently due
indebtedness of the Dealer to the Company. If the net credit to the
account exceeds such indebtedness, the excess will be credited to the
Dealer's account or, upon request by the Dealer, will be paid to the
Dealer in cash.
2
<PAGE>
1.7 The amount credited to the contingent earnings account when a particular
contract was accepted will be paid to the Dealer when the net credit value
of the contract has been recovered by the Company or at such earlier time
as the Company agreed to at the time the contract was accepted. If a loss
is sustained with respect to a particular contract, the amount in the
contingent earnings account resulting from that contract will be used to
reduce the amount of loss charged to the reserve account. Interest will be
accrued on amounts credited to the contingent earnings account at the rate
of 8% per annum and paid to the Dealer at the time such amounts are paid to
him.
1.8 Occasionally, the Company may conclude, with respect to a contract with
an amount financed of $1500 or more, that a debtor does not qualify under
the Company's credit standards and, in such cases, the Company may require
the Dealer to execute an agreement to purchase the contract in the event of
default by the debtor as a condition to accepting the contract.
SECTION 2 --
DEALER'S RESERVE
2.1 When a contract is accepted by the Company under Section 1.5, 1% of its
face amount will be credited to the Dealer's reserve account. The reserve
account will also be credited with interest at 8% per annum on the average
of the month-end balances for each 12-month period ending 31 December,
unless the Company, by bulletin to the Dealer, specifies a different
percentage for reserves attributable to contracts with debtors residing in
states with financing rate limitations. In addition, the activity bonus
described in Section 5 will be credited to the reserve account as of the
close of business on 31 December each year.
2.2 If, at 31 December, the Dealer's reserve (including interest accrued
thereon and any activity bonus earned by the Dealer) exceeds 3% of the
balance then outstanding on all contracts accepted from the Dealer, the
reserve will be adjusted to 3% of such balance and the excess will be
applied to currently due indebtedness of the Dealer to the Company or to
any other company affiliated with the Company. Any part of such excess
which remains after all currently due indebtedness of the Dealer has been
satisfied will be paid to the Dealer in cash. No adjustment will be made
which reduces the reserve account below $1000. If the Dealer wishes to do
so, he may forego the adjustment to which he is entitled as of a particular
31 December. In such event, no adjustment will be made until the
succeeding 31 December at which time the adjustment the Dealer is then
entitled to will be determined in the regular manner.
2.3 If any contract with an amount financed of $1500 or more (excluding
contracts which are the subject of an agreement to purchase under Section
1.8 and contracts for repair and overhaul work) accepted from the Dealer is
not collected in full, the loss will be charged to the reserve account,
together with expenses incurred by the Company in repossessing and
disposing of equipment, the cost of discharging any mechanic's or other
lien on the equipment where necessary to obtain possession or realize on
the collateral, and legal expenses incurred either in getting possession of
equipment, foreclosing the security interest therein or attempting to
collect any deficiency or balance owing (all of which may be referred to
herein as "repossession costs"). If, on any 31 December, total losses
charged against the Dealer's reserve account during the preceding 12 months
exceed the total amount credited to the reserve account during the period
(including interest accrued thereon and any activity bonus earned by the
Dealer) plus any balance as of the close of business 31 December of the
previous year, an adjustment will be made in the reserve account whereby
such excess losses will be written off and absorbed by the Company.
2.4 If, at 31 December, the period of the Dealer's latest appointment as an
Authorized Dealer has been canceled or has expired, no adjustment will be
made in the reserve account until any one of the following events has
occurred:
2.4.1 A new Authorized Dealer Agreement is executed, in which event the
adjustments described in Sections 2.2 and 2.3 will be made as of the
previous 31 December.
2.4.2 At 31 December the reserve account balance exceeds the outstanding
balance on
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all contracts accepted from the Dealer, plus 10% of such balance, in
which event the reserve account will be adjusted to that amount and
the excess will be paid or credited to the Dealer as the Company may
elect.
2.4.3 All contracts accepted from the Dealer have been liquidated in full,
in which event any credit balance remaining in the reserve account
(including interest accrued to date) will be applied first against
the Dealer's indebtedness to the Company or to any other company
affiliated with the Company, and any remainder paid to the Dealer in
cash.
SECTION 3 --
COLLECTION AND LOSSES -- CONTRACTS WITH AN AMOUNT FINANCED OF $1500 OR MORE
3.1 The Dealer will render friendly assistance in the collection of contracts,
and will store repossessed equipment when requested by the Company, all
without charge or expense to the Company.
3.2 In the event of default in any contract with an amount financed of $1500 or
more, except contracts which are the subject of an agreement to purchase
under Section 1.8 or are for repair and overhaul work, the Company will
take whatever steps for enforcement, collection, securing, renewing,
extending or compromising the contract it believes will be in the best
interests of the Dealer and the Company. If losses occur, the procedure
for determining the charge to the reserve account will be as follows:
3.2.1 Before repossessing the equipment, bringing suit or compromising a
contract, the Company will ordinarily (but is not obligated to)
notify the Dealer, whereupon the Dealer may purchase the contract
for the unpaid balance including any interest accrued, and earned
finance charge.
3.2.2 After the equipment has been repossessed, the Company will
ordinarily (but is not obligated to) offer to sell all its rights in
the contract including its rights in the equipment, to the Dealer
for the unpaid balance therein including earned interests and
finance charges plus any repossession costs incurred by the Company.
If the Dealer accepts the contract, he assumes full responsibility
for observing any applicable rules of law as to the disposition of
the equipment and the application of proceeds of such disposition,
and will hold the Company harmless from any and all expense or
liability to the debtor or other person arising out of alleged
improper disposition of the equipment or application of proceeds.
3.2.3 If there has been no purchase of the equipment and the contract
under Section 3.2.2, the Company will establish a fair value on the
equipment as quickly as possible. This determination will be by
public or private sale where the Company deems it necessary and
worthwhile to have such a sale because of legal requirements or in
order to preserve rights against the debtor. Where such sale is not
deemed necessary or worthwhile, the Company will fix the value of
the equipment by its own appraisal.
If the value established for the equipment is less than the
balance unpaid on the contract, including earned interest and finance
charges, plus any repossession costs incurred by the Company, the
difference will be considered a loss and charged to the reserve
account. Where the Company has fixed the value of the repossessed
equipment by its own appraisal and later sells the equipment for a
price lower or higher than the appraised value fixed by it, the loss
or profit will be borne by the Company.
3.2.4 If, after establishing a value on the equipment and balancing the
probable cost of further action against the debtor against the
likelihood of actually receiving further collections thereby, the
Company concludes that further action is in the best interests of
the Company and the Dealer, it will so notify the Dealer and proceed
with such action. Charges and credits to the reserve account
arising out of such further action will be as follow:
(1) If the further action is completed in the same calendar year for
which the reserve
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account was charged with the loss, the reserve account will be
credited with the amount of any recovery and debited with the amount
of any expense directly attributable to such action.
(2) If the action is completed in a year following the calendar year
in which the loss was charged to the reserve account, the reserve
account will be credited or debited for recoveries and the expenses
thereof if there was not a negative balance in the reserve account
at the end of the calendar year during which the loss was charged to
the reserve account.
(3) If there was a negative balance in the reserve account at the
end of the calendar year during which the loss was charged, there
shall be no debit or credit to the reserve account as a result of
further action take by the Company except that if the net recovery
(total amount recovered less costs and expenses) exceeds such
negative balance, the amount of such excess shall be credited to the
reserve account.
3.2.5 If, after establishing a value on the equipment a loss has been
charged to the reserve account, the Company may notify the Dealer
that it intends to take further action against the debtor. If the
Company does not notify the Dealer that it intends to take further
action against the debtor, the Company will promptly assign to the
Dealer or allow the Dealer to assert in its stead any rights which
remain against the debtor.
3.2.6 If the equipment has been destroyed or if for other reason
repossession is impossible or, in the Company's judgment, not
worthwhile, the loss shall be deemed to occur when the Company
notifies the Dealer that it has made such efforts to collect from
the debtor as it believes to be worthwhile under the circumstances
and assigns to the Dealer all rights against the debtor, or has made
a compromise settlement with the debtor. In such event the charge
to the reserve account shall be the cost of any legal action taken
by the Company, together with legal fees, plus the balance remaining
unpaid on the contract, including accrued interest but less unearned
finance charges.
3.4 It is recognized that judgments may differ as to what procedures may best
minimize loss when a debtor fails to pay and what steps it is worthwhile to
take in the circumstances. For this reason if the Dealer fails to
repurchase the contract after receiving the notice in Section 3.2.1 or the
offer in Section 3.2.2, such failure shall constitute final and irrevocable
ratification and approval by him of any and all actions which the Company
has taken in attempting to make collection, or which the Company may elect
to take thereafter. The Dealer's ratification includes but is not limited
to any prior or subsequent act by which the right to sue the debtor for a
deficiency is waived, barred or simply not exercised, or by which the
Company enters into a compromise settlement with the debtor.
SECTION 4 --
COLLECTION AND LOSSES -- CONTRACTS WITH AN AMOUNT FINANCED OF LESS THAN $1500,
REPAIR AND OVERHAUL CONTRACTS AND CONTRACTS SUBJECT TO A PURCHASE AGREEMENT
4.1 In the event of default in any contract with an amount financed of less
than $1500, repair and overhaul contracts and contracts which the dealer
has agreed to purchase under Section 1.8, the Company shall at any time
thereafter have the right to require the Dealer to pay the Company the
unpaid balance thereon including any accrued interest and earned finance
charges, and the Dealer hereby promises to pay such amount on demand. Upon
payment of such amount by the Dealer, the Dealer shall succeed to all the
rights of the Company under the contract and the Company shall assign the
contract to the Dealer. At the option of the Company, the contract may be
delivered to the Dealer prior to payment by him of such amount, but the
dealer grants the Company a security interest in the contract and any
equipment subject to such contract to secure such payment.
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4.2 The procedure in handling such contracts shall be as follows:
4.2.1 The Company will ordinarily (but is not obligated to) notify the
Dealer after a contract has been in default thirty days. If the
payment plus past-due interest is not made before the contract has
been in default sixty days, the Company will ordinarily exercise its
right to require the Dealer to pay as provided in Section 4.1, and
will ordinarily assign the contract to the Dealer at that time.
4.2.2 At any time prior to the delivery of the contract to the Dealer, and
whether before or after the debtor's default, the Company may, but
shall not be obligated to, endeavor to realize on the contract and
to that end may take whatever steps for enforcing, collecting,
securing, renewing, extending, or compromising the contract and the
security therefor which it deems worthwhile. The Dealer's
indebtedness under Section 4.1 shall be reduced by any amounts
realized by such action by the Company and shall be increased by any
expense incurred by the Company in enforcing security interests in
the equipment or attempting, after default, to collect any
deficiency or balance owing.
4.2.3 The Dealer's indebtedness under 4.1 and 4.2.2 shall not be
discharged or reduced because of the extension, renewal, or
compromise of a contract or other action taken by the Company
pursuant to 4.2.2, or because of any delay in exercising the right
to require the Dealer to pay pursuant to 4.1.
SECTION 5 --
DEALER'S ACTIVITY BONUS
The Company may, upon occasion, offer to pay the Dealer an activity bonus on
contracts accepted by the Company. When such activity bonus is offered, the
Company will issue a bulletin detailing the amount and computation of activity
bonus.
SECTION 6 --
COMPANY'S SECURITY INTEREST
The Dealer hereby grants the Company a security interest in the reserve account
described in Section 2 and the contingent earnings account described in Section
1.7 to secure all indebtedness which is now owed by the Dealer to the Company,
and all additional indebtedness hereafter incurred by the Dealer to the Company,
whether pursuant to an Authorized Dealer Agreement, the Company's Conditions of
Sale, or otherwise, and whether evidenced by notes, open accounts, or otherwise.
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EXHIBIT 10.7
JOHN DEERE
INDUSTRIAL DEALER
FINANCE AGREEMENT
Dealer RDO Equipment Co. dba Arizona Industrial Machinery Company
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Town Phoenix
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State Arizona
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[LOGO]
<PAGE>
APPLICATION
To: John Deere Industrial Equipment Company
61 Inverness Drive East
- ------------------------
Englewood, CO
- ----------------------
Gentlemen:
I (the undersigned Dealer, whether an individual, partnership, or
corporation) wish to participate in the John Deere Finance Plan for the
installment financing of retail sales of Industrial Equipment as outlined in the
Terms and Conditions appearing on succeeding pages of this booklet.
This Application shall be effective on 1 March 1984, or as of the date it
is executed by me, whichever is later.
I understand that by signing this Application I do not obligate myself to
send installment contracts to you for credit to my account, but that if I do
send you eligible contracts for such credit, their acceptance will be governed
by the Terms and Conditions. I accept the obligations stated in the Terms and
Conditions as to all contracts I may send you hereafter. If you are presently
holding contracts or leases previously assigned to you by me, collection thereof
and all related charges to my reserve or other accounts will be as provided in
the Terms and Conditions in effect on the date such contracts were accepted.
I understand that you may accept or reject at your discretion any contracts
submitted by me, or may discontinue further acceptances at any time.
I agree that if you notify me of amendments to the Terms and Conditions,
such amendments will apply to any contracts I may send you after receiving such
notice without the execution by me of a new Application or other instrument
specifically adopting those amendments, but the Terms and Conditions applicable
to contracts submitted by me before notice of such amendment cannot be changed
without my consent.
When a written assignment or endorsement is required on a contract sent to
you for credit to my account, the failure on my part to execute such assignment
or endorsement shall not prevent such assignment or endorsement from being
effective, and I hereby authorize any of your employees designated by you to
execute such assignment or endorsement on my behalf.
If my signature as "Secured Party" is required on any Financing Statement
submitted with a contract or if my signature as "Seller" is required on a
Purchase Order submitted with a contract and such document has not been signed
by me, I hereby authorize any of your employees designated by you to sign such
Statement or Purchase Order on my behalf.
I agree that by submitting a contract for credit I make the representation
and promise, along with the others enumerated in Section 1.4 of the Terms and
Conditions, that I have myself made a timely filing or recording as provided in
Section 1.4.5.
Sincerely yours,
RDO Equipment Co. dba
Arizona Industrial Machinery Company
By Ronald D. Offutt
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Pres.
---------------------------------
Date 1/21/94
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Application accepted:
Date 14 Mar 94
----------------------------------
John Deere Industrial Equipment Company
By E Carmichal Assistant Secretary
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<PAGE>
JOHN DEERE FINANCE PLAN
TERMS AND CONDITIONS
SECTION 1 --
ACCEPTANCE AND CREDIT
1.1 Customers' installment obligations submitted for credit under the John
Deere Finance Plan for Industrial Equipment (hereafter called "contracts")
must meet the requirements set out in the John Deere Retail Finance Manual
or supplemental bulletins thereto (hereafter called "Manual"). The Terms
and Conditions of this Agreement shall not apply, and the term "contracts"
shall not apply, to customers' installment obligations resulting from the
sale of Consumer Products unless such Consumer Products are part of the
same contract with items eligible for financing under the John Deere
Finance Plan for Industrial Equipment. Unless otherwise specified herein,
the term "contract" shall include Retail Installment Sale Contracts and
Loan Contracts. The term "debtor" shall mean the Purchaser under a Retail
Installment Sale Contract and the Borrower under a Loan Contract.
1.2 If the Company accepts the contract for credit, the Dealer and the debtor
will be notified. All installment payments will be made directly to the
Company.
1.3 Contracts will include finance charge, computed as prescribed in the
Manual. If the contract includes more finance charge than provided in the
Manual, the excess will be endorsed as a credit to the debtor on the last
maturing installment. If the contract includes less finance charge than
provided in the Manual, the Company may accept it but the Dealer will be
charged for the shortage.
1.4 By submitting a contract for credit, the Dealer makes the following
representations and promises:
1.4.1 That the contract is genuine and that the debtor is of legal age.
1.4.2 That the contract and other documents submitted therewith accurately
reflect the transaction with respect to the selling price, down
payment, trade-in, trade-in allowance and other items shown thereon.
1.4.3 That the Dealer has not knowingly misrepresented any other
information respecting the contract or the transaction, and knows of
no misstatements or untruths in any financial or other information
furnished by the debtor.
1.4.4 That, at the time the contract (except contracts covering repair and
overhaul work) is sent to the Company, there are no liens or
encumbrances on the equipment superior to the lien of the contract
and that there are no liens or encumbrances on any equipment taken
in trade as part of the transaction. If the normal down payment
is reduced because equipment already in the debtor's possession
is made subject to a security agreement or chattel mortgage in
favor of the Company (see Manual for examples of the use of equity
in such equipment), the Dealer warrants that there are no liens or
encumbrances or such equipment superior to that granted by such
security agreement or chattel mortgage.
1.4.5 If the debtor resides in a state which has enacted the Uniform
Commercial Code, that the Dealer has filed a Financing Statement
with the appropriate filing officer or officers within the period of
time necessary to assure priority over purchasers from and other
creditors of the debtor; and, for sales of equipment that are
classified under the law as "inventory", that all perfected secured
parties of record have received proper notice prior to the delivery
of the equipment.
1.4.6 That no part of the down payment was advanced by the Dealer.
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1.4.7 That the contract is not subject to any defense, offset or
counterclaim.
If any representation or promise is untrue, the Company shall at any time
have the right to require the Dealer to purchase the contract and pay the
Company the unpaid balance thereof including any accrued interest, earned
finance charge, and earned insurance premium, if any, and the Dealer hereby
promises to pay such amount on demand. Upon payment of such amount by the
Dealer, the Dealer shall succeed to all the rights of the Company under the
contract and the Company shall assign the contract to the Dealer. At the
option of the Company, the contract may be delivered to the Dealer prior to
payment by him of such amount, but the Dealer grants the Company a security
interest in the contract and any equipment subject to such contract to
secure such payment.
Any knowing misrepresentation concerning a contract or the related
transaction shall be deemed to be a falsification of a contract and
therefore a default under the Security Agreement or Chattel Mortgage
between the Dealer and the Company and will give the Company the right, at
its option, to either immediately cancel the Dealer's appointment as a John
Deere Authorized Industrial Dealer or to suspend all of the Dealer's
participation privileges in the John Deere Finance Plan.
1.5 If a contract is accepted by the Company, the balance remaining after
deducting the finance charge will be credited to the dealer as follows:
1.5.1 1% of the face amount of the contract (including the finance charge
and insurance premium, if any) will be credited to the Dealer's
reserve account described in Section 2.
1.5.2 Occasionally, the Company may conclude that a debtor does not
qualify for credit in the full amount of the contract, but may be
willing to accept the contract for partial credit. If the Dealer
wishes to submit the contract on this basis, the excess will be
credited to the Dealer's contingent earnings account described in
Section 1.6.
1.5.3 The remainder (called the "net credit value") of the contract will
be credited to the Dealer's regular statement as provided in Section
1.5.4 or 1.5.5.
1.5.4 If the contract is a Loan Contract financing equipment on which an
amount is owed to the Company by the Dealer (called the "Dealer's
debt") and the net credit value is equal to or less than the
Dealer's debt, the debtor's obligation under the contract will be
accepted in substitution for the Dealer's debt to the extent of the
net credit value and any amount of the Dealer's debt remaining will
be due in accordance with the Company's Industrial Dealers Terms
Schedule. If the net credit value of such a contract exceeds the
Dealer's debt, that portion of the obligation equal to the Dealer's
debt will be accepted in substitution for the Dealer's debt and the
excess will be used to offset other currently due indebtedness of
the Dealer to the Company. If such excess net credit value exceeds
such other indebtedness, the amount not required to offset such
other indebtedness will be credited to the Dealer's account or, upon
request by the Dealer, will be paid to the Dealer in cash.
1.5.5 If the contract is a Loan Contract on equipment on which no amount
is owed to the Company, or is a Retail Installment Sale Contract,
the net credit value will be used to offset currently due
indebtedness of the Dealer to the Company. If the net credit value
exceeds such indebtedness, the excess will be credited to the
Dealer's account or, upon request by the Dealer, will be paid to the
Dealer in cash.
1.6 The amount credited to the contingent earnings account when a particular
contract was accepted will be paid to the Dealer when the net credit value
of the contract has been recovered by the Company or at such earlier time
as the Company agreed to at the time the contract was accepted. If a loss
is sustained with respect to a particular contract, the amount in the
contingent
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earnings account resulting from that contract will be used to reduce the
amount of loss charged to the Dealer's reserve account. Interest will be
accrued on amounts credited to the contingent earnings account at the rate
of 8% per annum and paid to the Dealer at the time such contingent earnings
are paid to him.
1.7 Occasionally, the Company may conclude that a customer does not qualify
under the Company's credit standards and, in such case, the Company may
require the Dealer to execute an agreement to purchase the contract in the
event of default, as a condition to accepting the contract.
SECTION 2 --
DEALER'S RESERVE
2.1 When a contract is accepted by the Company under Section 1.5, 1% of its
face amount will be credited to the Dealer's reserve account. The reserve
account will also be credited with interest at 8% per annum on the average
of the month-end balances for each 12-month period ending 31 December,
unless the Company, by bulletin to the Dealer, specifies a different
percentage for reserves attributable to contracts with debtors residing in
states with financing rate limitations. In addition, the activity bonus
described in Section 5 will be credited to the reserve account as of the
close of business on 31 December each year.
2.2 If, at 31 December, the Dealer's reserve (including interest accrued
thereon and any activity bonus earned by the Dealer) exceeds 3% of the
balance then outstanding on all contracts accepted from the Dealer, the
reserve will be adjusted to 3% of such balance and the excess will be
applied to currently due indebtedness of the Dealer to the Company or to
any other company affiliated with the Company. Any part of such excess
which remains after all currently due indebtedness of the Dealer has been
satisfied will be paid to the Dealer in cash. No adjustment will be made
which reduces the reserve account below $1000. If the Dealer wishes to do
so, he may forego the adjustment to which he is entitled as of a particular
31 December. In such event, no adjustment will be made until the
succeeding 31 December at which time the adjustment the Dealer is then
entitled to will be determined in the regular manner.
2.3 If any contract accepted from the Dealer (excluding contracts which are the
subject of an agreement to purchase under Section 1.7 and contracts for
repair and overhaul work) is not collected in full, the loss will be
charged to the reserve account together with expenses incurred by the
Company in repossessing and disposing of equipment, the cost of discharging
any mechanic's or other lien on the equipment where necessary to obtain
possession or realize on the collateral, and legal expenses incurred either
in getting possession of equipment, foreclosing the security interest
therein or attempting to collect any deficiency or balance owing (all of
which may be referred to herein as "repossession costs"). If, on any 31
December, total losses charged against the Dealer's reserve account during
the preceding 12 months exceed the total amount credited to the reserve
account during the period (including interest accrued thereon and any
activity bonus earned by the Dealer) plus any balance as of the close of
business 31 December of the previous year, an adjustment will be made in
the reserve account whereby such excess losses will be written off and
absorbed by the Company.
2.4 If, on 31 December, the Dealer has been given a notice of termination of the
Dealer's appointment as an Authorized Industrial Dealer, no adjustment will
be made in the reserve account until any one of the following events has
occurred:
2.4.1 A new Authorized Dealer Agreement is executed, in which event the
adjustments described in Sections 2.2 and 2.3 will be made as of the
previous 31 December.
2.4.2 At 31 December the reserve account balance exceeds the outstanding
balance on all contracts accepted from the Dealer, plus 10% of such
balance, in which event the reserve account will be adjusted to that
amount and the ex-
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cess will be paid or credited to the Dealer as the Company may elect.
2.4.3 All contracts accepted from the Dealer have been liquidated in full,
in which event any credit balance remaining in the reserve account
(including interest accrued to date) will be applied first against
the Dealer's indebtedness to the Company or to any other company
affiliated with the Company, and any remainder paid to the Dealer in
cash.
SECTION 3 --
COLLECTION AND LOSSES -- CONTRACTS OTHER THAN CONTRACTS SUBJECT TO A PURCHASE
AGREEMENT AND REPAIR AND OVERHAUL CONTRACTS
3.1 The Dealer will render friendly assistance in the collection of contracts,
and will store repossessed equipment when requested by the Company, all
without charge or expense to the Company.
3.2 In the event of default in any contract, except contracts which are the
subject of an agreement to purchase under Section 1.7 or are for repair
and overhaul work, the Company will take whatever steps for enforcement,
collection, securing, renewing, extending or compromising the contract
it believes will be in the best interests of the Dealer and the Company.
If losses occur, the procedure for determining the charge to the reserve
account will be as follows:
3.2.1 Before repossessing the equipment, bringing suit or compromising a
contract, the Company will ordinarily (but is not obligated to)
notify the Dealer, whereupon the Dealer may purchase the contract
for the unpaid balance thereof including any accrued interest, earned
finance charge, and earned insurance premium, if any.
3.2.2 After the equipment has been repossessed, the Company will
ordinarily (but is not obligated to) offer to sell all its rights in
the contract including its rights in the equipment, to the Dealer
for the unpaid balance thereof including accrued interest, earned
finance charge, and earned insurance premium, if any, plus any
repossession costs incurred by the Company. If the Dealer accepts
the contract, he assumes full responsibility for observing any
applicable rules of law as to the disposition of the equipment and
the application of proceeds of such disposition, and will hold the
Company harmless from any and all expense or liability to the debtor
or other person arising out of alleged improper disposition of the
equipment or application of proceeds.
3.2.3 If there has been no purchase of the equipment and the contract
under Section 3.2.2, the Company will establish a fair value on the
equipment as quickly as possible. This determination will be by
public or private sale where the Company deems it necessary and
worthwhile to have such a sale because of legal requirements or in
order to preserve rights against the debtor. Where such sale is not
deemed necessary or worthwhile, the Company will fix the value of
the equipment by its own appraisal.
If the value established for the equipment is less than the unpaid
balance of the contract, including accrued interest, earned finance
charge, and earned insurance premium, if any, plus any repossession
costs incurred by the Company, the difference will be considered a
loss and charged to the reserve account. Where the Company has
fixed the value of the repossessed equipment by its own appraisal
and later sells the equipment for a price lower or higher than the
appraised value fixed by it, the loss or profit will be borne by the
Company.
3.2.4 If, after establishing a value on the equipment and balancing the
probable cost of further action against the debtor against the
likelihood of actually receiving further collections thereby, the
Company concludes that further action is in the best interests of
the Company and
4
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the Dealer, it will so notify the Dealer and proceed with such
action. Charges and credits to the reserve account arising out of
such further action will be as follow:
(1) If the further action is completed in the same calendar year for
which the reserve account was charged with the loss, the reserve
account will be credited with the amount of any recovery and debited
with the amount of any expense directly attributable to such action.
(2) If the action is completed in a year following the calendar year
in which the loss was charged to the reserve account, the reserve
account will be credited or debited for recoveries and the expenses
thereof if there was not a negative balance in the reserve account
at the end of the calendar year during which the loss was charged to
the reserve account.
(3) If there was a negative balance in the reserve account at the
end of the calendar year during which the loss was charged, there
shall be no debit or credit to the reserve account as a result of
further action taken by the Company except that if the net recovery
(total amount recovered less costs and expenses) exceeds such
negative balance, the amount of such excess shall be credited to the
reserve account.
3.2.5 If, after establishing a value on the equipment a loss has been
charged to the reserve account, the Company may notify the Dealer
that it intends to take further action against the debtor. If the
Company does not notify the Dealer that it intends to take further
action against the debtor, the Company will promptly assign to the
Dealer or allow the Dealer to assert in its stead any rights which
remain against the debtor.
3.2.6 If the equipment has been destroyed or if for other reason
repossession is impossible or, in the Company's judgment, not
worthwhile, the loss shall be deemed to occur when the Company
notifies the Dealer that it has made such efforts to collect from
the debtor as it believes to be worthwhile under the circumstances
and assigns to the Dealer all rights against the debtor, or has made
a compromise settlement with the debtor. In such event the charge
to the reserve account shall be the cost of any legal action taken
by the Company, together with legal fees, plus the unpaid balance
of the contract, including accrued interest, earned finance
charge, and earned insurance premium, if any.
3.3 It is recognized that judgments may differ as to what procedures may best
minimize loss when a debtor fails to pay and what steps it is worthwhile to
take in the circumstances. For this reason if the Dealer fails to
repurchase the contract after receiving the notice in Section 3.2.1 or the
offer in Section 3.2.2, such failure shall constitute final and irrevocable
ratification and approval by him of any and all actions which the Company
has taken in attempting to make collection, or which the Company may elect
to take thereafter. The Dealer's ratification includes but is not limited
to any prior or subsequent act by which the right to sue the debtor for a
deficiency is waived, barred or simply not exercised, or by which the
Company enters into a compromise settlement with the debtor.
SECTION 4 --
COLLECTION AND LOSSES -- CONTRACTS SUBJECT TO A PURCHASE AGREEMENT AND
REPAIR AND OVERHAUL CONTRACTS
4.1 In the event of default in any contract which is the subject of an
agreement to purchase under Section 1.7 or is for repair and overhaul
work, the Company shall at any time thereafter have the right to require
the Dealer to pay the Company the unpaid balance thereof including any
accrued interest, earned finance charge, and earned insurance premium,
if any, on the contract, and the Dealer hereby promises to pay such amount
on demand. Upon payment of such amount by the Dealer, the Dealer shall
succeed to all the rights of the Company under the contract and the Company
shall assign the
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contract to the Dealer. At the option of the Company, the contract may be
delivered to the Dealer prior to payment by him of such amount, but the
dealer grants the Company a security interest in the contract and any
equipment subject to such contract to secure such payment.
4.2 The procedure in handling such contracts shall be as follows:
4.2.1 The Company will ordinarily (but is not obligated to) notify the
Dealer after a contract has been in default thirty days. If the
past-due payment plus past-due interest is not made before the
contract has been in default sixty days, the Company will ordinarily
exercise its right to require the Dealer to pay as provided in
Section 4.1, and will ordinarily assign the contract to the Dealer
at that time.
4.2.2 At any time prior to the delivery of the contract to the Dealer, and
whether before or after the debtor's default, the Company may, but
shall not be obligated to, endeavor to realize on the contract and
to that end may take whatever steps for enforcing, collecting,
securing, renewing, extending, or compromising the contract and the
security therefor which it deems worthwhile. The Dealer's
indebtedness under Section 4.1 shall be reduced by any amounts
realized by such action by the Company and shall be increased by any
expense incurred by the Company in enforcing security interests in
the equipment or attempting, after default, to collect any
deficiency or balance owing.
4.2.3 The Dealer's indebtedness under 4.1 and 4.2.2 shall not be
discharged or reduced because of the extension, renewal, or
compromise of a contract or other action taken by the Company
pursuant to 4.2.2, or because of any delay in exercising the right
to require the Dealer to pay pursuant to 4.1.
SECTION 5 --
DEALER'S ACTIVITY BONUS
The Company may, upon occasion, offer to pay the Dealer an activity bonus on
contracts accepted by the Company. When such activity bonus is offered, the
Company will issue a bulletin detailing the amount and computation of activity
bonus.
SECTION 6 --
COMPANY'S SECURITY INTEREST
The Dealer hereby grants the Company a security interest in the reserve account
described in Section 2 and the contingent earnings account described in Section
1.6 to secure all indebtedness which is now owed by the Dealer to the Company,
and all additional indebtedness hereafter incurred by the Dealer to the Company,
whether pursuant to an Authorized Dealer Agreement, the Company's Conditions of
Sale, or otherwise, and whether evidenced by notes, open accounts, or otherwise.
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EXHIBIT 10.8
RDO EQUIPMENT CO.
1996 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the RDO Equipment Co. 1996 Stock Incentive Plan (the "Plan")
is to advance the interests of RDO Equipment Co. (the "Company") and its
stockholders by enabling the Company and its Subsidiaries to attract and retain
persons of ability to perform services for the Company and its Subsidiaries by
providing an incentive to such individuals through equity participation in the
Company and by rewarding such individuals who contribute to the achievement by
the Company of its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.
2.3 "CHANGE IN CONTROL" means an event described in Section 13.1 of the
Plan.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.6 "COMMON STOCK" means the Class A common stock of the Company, par
value $.01 per share, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in accordance with
Section 4.3 of the Plan.
2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent and total disability of the Participant within the meaning of
Section 22(e)(3) of the Code.
2.8 "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any
date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the
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Common Stock is listed, admitted to unlisted trading privileges or reported on
any national securities exchange or on the Nasdaq National Market; (b) if the
Common Stock is not so listed, admitted to unlisted trading privileges or
reported on any national securities exchange or on the Nasdaq National Market,
the closing bid price as reported by the Nasdaq SmallCap Market, OTC Bulletin
Board or the National Quotation Bureau, Inc. or other comparable service; or (c)
if the Common Stock is not so listed or reported, such price as the Committee
determines in good faith in the exercise of its reasonable discretion. If
determined by the Committee, such determination will be final, conclusive and
binding for all purposes and on all persons, including, without limitation, the
Company, the stockholders of the Company, the Participants and their respective
successors-in-interest. No member of the Committee will be liable for any
determination regarding the fair market value of the Common Stock that is made
in good faith.
2.11 "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an Eligible
Recipient pursuant to the Plan.
2.12 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.14 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.16 "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in the
form of stock, cash or a combination of both, upon the achievement of
established employment, service, performance or other goals.
2.17 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
2.18 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 8 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 8.
2.19 "RETIREMENT" means termination of employment or service pursuant to
and in accordance with the regular (or, if approved by the Board for purposes of
the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this determination.
2.20 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21 "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a
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combination of both, equal to the difference between the Fair Market Value of
one or more shares of Common Stock and the exercise price of such shares under
the terms of such Stock Appreciation Right.
2.22 "STOCK BONUS" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 10 of the Plan.
2.23 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.24 "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
"outside directors" within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the members (but may
also take action with the written consent of all members of such committee), and
a majority of the members of such a committee will constitute a quorum. As used
in the Plan, "Committee" will refer to the Board or to such a committee, if
established. To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as the
Committee may establish; provided, however, that only the Committee may exercise
such duties, power and authority with respect to Eligible Recipients who are
subject to Section 16 of the Exchange Act. The Committee may exercise its
duties, power and authority under the Plan in its sole and absolute discretion
without the consent of any Participant or other party, unless the Plan
specifically provides otherwise. Each determination, interpretation or other
action made or taken by the Committee pursuant to the provisions of the Plan
will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of Incentive
Awards as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Incentive Awards to be made to each Participant
(including the number of shares of Common Stock to be subject to each
Incentive Award, any exercise price, the manner in which Incentive Awards
will vest or become exercisable and whether Incentive Awards will be
granted in tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (iii) the time or times
when Incentive Awards will be granted; (iv) the duration of each Incentive
Award; and (v) the restrictions and other conditions to which the payment
or vesting of Incentive Awards may be subject. In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.
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(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the
surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided, however that
the amended or modified terms are permitted by the Plan as then in effect
and that any Participant adversely affected by such amended or modified
terms has consented to such amendment or modification. No amendment or
modification to an Incentive Award, however, whether pursuant to this
Section 3.2 or any other provisions of the Plan, will be deemed to be a
regrant of such Incentive Award for purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the
vesting criteria of any outstanding Incentive Award that is based in whole
or in part on the financial performance of the Company (or any Subsidiary
or division thereof) or such other entity so as equitably to reflect such
event, with the desired result that the criteria for evaluating such
financial performance of the Company or such other entity will be
substantially the same (in the sole discretion of the Committee or the
board of directors of the surviving corporation) following such event as
prior to such event; provided, however, that the amended or modified terms
are permitted by the Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock that
will be available for issuance under the Plan will be ___________ shares of
Common Stock. Notwithstanding any other provisions of the Plan to the contrary,
no Participant in the Plan may be granted any Options or Stock Appreciation
Rights, or any other Incentive Awards with a value based solely on an increase
in the value of the Common Stock after the date of grant, relating to more than
________ shares of Common Stock in the aggregate in any fiscal year of the
Company (subject to adjustment as provided in Section 4.3 of the Plan);
provided, however, that a Participant who is first appointed or elected as an
officer, hired as an employee or retained as a consultant by the Company or who
receives a promotion that results in an increase in responsibilities or duties
may be granted, during the fiscal year of such appointment, election, hiring,
retention or promotion, Options, Stock Appreciation Rights or such other
Incentive Awards relating to up to __________ shares of Common Stock (subject to
adjustment as provided in Section 4.3 of the Plan).
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is
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terminated unexercised or unvested and any shares of Common Stock that are
subject to an Incentive Award that is settled or paid in cash or any form other
than shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants, (a) the number and kind of securities or other property (including
cash) subject to outstanding Options, and (b) the exercise price of outstanding
Options.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
To the extent that any Incentive Stock Option granted under the Plan ceases for
any reason to qualify as an "incentive stock option" for purposes of Section 422
of the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock
Option.
6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant; provided, however, that (a) such price will not be
less than 100% of the Fair Market Value of one share of Common Stock on the date
of grant with respect to an Incentive Stock Option (110% of the Fair Market
Value if, at the time the Incentive Stock Option is granted, the Participant
owns, directly or indirectly, more than 10% of the total combined voting power
of all classes of stock of the Company or any parent or subsidiary corporation
of the Company), and (b) such price will not be less than 85% of the Fair Market
Value of one share of Common Stock on the date of grant with respect to a Non-
Statutory Stock Option.
6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant;
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provided, however, that (a) no Option may be exercisable prior to six months
from its date of grant (other than as provided in Section 11 of the Plan), and
(b) no Option may be exercisable after 10 years from its date of grant.
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to
be purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares, a promissory note (on terms
acceptable to the Committee in its sole discretion) or by a combination of such
methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company (Attention: Chief Financial Officer) at its principal
executive office in Minneapolis, Minnesota and by paying in full the total
exercise price for the shares of Common Stock to be purchased in accordance with
Section 6.4 of the Plan.
7. STOCK APPRECIATION RIGHTS.
7.1 GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights will be
subject to such terms and conditions, consistent with the other provisions of
the Plan, as may be determined by the Committee in its sole discretion.
7.2 EXERCISE PRICE. The exercise price of a Stock Appreciation Right will
be determined by the Committee, in its discretion, at the date of grant but may
not be less than 100% of the Fair Market Value of one share of Common Stock on
the date of grant.
7.3 EXERCISABILITY AND DURATION. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be determined by the
Committee in its sole discretion at the time of grant; provided, however, that
no Stock Appreciation Right may be exercisable after 10 years from its date of
grant. A Stock Appreciation Right will be exercised by giving notice in the
same manner as for Options, as set forth in Section 6.5 of the Plan.
8. RESTRICTED STOCK AWARDS.
8.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with the other provisions of the Plan, as
may be determined by the Committee in its sole discretion. The Committee may
impose such restrictions or conditions, not inconsistent with the provisions of
the Plan, to the vesting of such Restricted Stock Awards as it deems
appropriate, including, without limitation, that the Participant remain in the
continuous employ or service of the Company or a Subsidiary for a certain period
or that the Participant or the Company (or any Subsidiary or division thereof)
satisfy certain performance goals or criteria.
8.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 8 upon
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the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
8.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. In
the event the Committee determines not to pay such dividends or distributions
currently, the Committee will determine in its sole discretion whether any
interest will be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and distributions to
be reinvested (and in such case the Participants consent to such reinvestment)
in shares of Common Stock that will be subject to the same restrictions as the
shares to which such dividends or distributions relate.
8.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to
in this Section 8, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed stock powers,
in a certificateless book-entry stock account with the Company's transfer agent.
9. PERFORMANCE UNITS.
An Eligible Recipient may be granted one or more Performance Units under
the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria. The Committee will have the sole
discretion to determine the form in which payment of the economic value of
vested Performance Units will be made to the Participant (i.e., cash, Common
Stock or any combination thereof) or to consent to or disapprove the election by
the Participant of the form of such payment.
10. STOCK BONUSES.
An Eligible Recipient may be granted one or more Stock Bonuses under the
Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Participant will have all voting, dividend, liquidation and
other rights with respect to the shares of Common Stock issued to a Participant
as a Stock Bonus under this Section 10 upon the Participant becoming the holder
of record of such shares; provided, however, that the Committee may impose such
restrictions on the assignment or transfer of a Stock Bonus as it deems
appropriate.
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11. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
11.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all Subsidiaries
is terminated by reason of death, Disability or Retirement:
(a) All outstanding Options and Stock Appreciation Rights then held
by the Participant will become immediately exercisable in full and will
remain exercisable for a period of one year after such termination (but in
no event after the expiration date of any such Option or Stock Appreciation
Right);
(b) All Restricted Stock Awards then held by the Participant will
become fully vested; and
(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Performance
Units or Stock Bonuses.
11.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason other than
death, Disability or Retirement, or a Participant is in the employ or
service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the
Company (unless the Participant continues in the employ or service of the
Company or another Subsidiary), all rights of the Participant under the
Plan and any agreements evidencing an Incentive Award will immediately
terminate without notice of any kind, and no Options or Stock Appreciation
Rights then held by the Participant will thereafter be exercisable, all
Restricted Stock Awards then held by the Participant that have not vested
will be terminated and forfeited, and all Performance Units and Stock
Bonuses then held by the Participant will vest and/or continue to vest in
the manner determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses; provided, however, that
if such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause," all outstanding Options or Stock
Appreciation Rights then held by such Participant will remain exercisable
to the extent exercisable as of such termination for a period of three
months after such termination (but in no event after the expiration date of
any such Option or Stock Appreciation Right).
(b) For purposes of this Section 11.2, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered into
with the Company or any Subsidiary.
11.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options and Stock
Appreciation Rights
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(or any part thereof) then held by such Participant to become or continue to
become exercisable and/or remain exercisable following such termination of
employment or service and Restricted Stock Awards, Performance Units and Stock
Bonuses then held by such Participant to vest and/or continue to vest or become
free of transfer restrictions, as the case may be, following such termination of
employment or service, in each case in the manner determined by the Committee;
provided, however, that no Option or Stock Appreciation Right may remain
exercisable beyond its expiration date.
11.4 BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant materially
breaches the terms of any confidentiality or noncompete agreement entered into
with the Company or any Subsidiary, whether such breach occurs before or after
termination of such Participant's employment or other service with the Company
or any Subsidiary, the Committee in its sole discretion may immediately
terminate all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant without notice of any
kind.
11.5 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the Company
or the Subsidiary for which the Participant provides employment or other
service, as determined by the Committee in its sole discretion based upon such
records.
12. PAYMENT OF WITHHOLDING TAXES.
12.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common Stock, with respect to an
Incentive Award.
12.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or employment-
related tax obligation described in Section 12.1 of the Plan by electing to
tender Previously Acquired Shares, a Broker Exercise Notice or a promissory note
(on terms acceptable to the Committee in its sole discretion), or by a
combination of such methods.
13. CHANGE IN CONTROL.
13.1 CHANGE IN CONTROL. For purposes of this Section 13, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or entity
that is not controlled by the Company;
(b) the approval by the stockholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;
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(c) a merger or consolidation to which the Company is a party if the
stockholders of the Company immediately prior to effective date of such
merger or consolidation have "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), immediately following the effective
date of such merger or consolidation, of securities of the surviving
corporation representing (i) more than 50%, but less than 80%, of the
combined voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of directors,
unless such merger or consolidation has been approved in advance by the
Continuity Directors (as defined in Section 13.2 below), or (ii) 50% or
less of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors);
(d) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (i) 20% or more, but not 50% or more, of the
combined voting power of the Company's outstanding securities ordinarily
having the right to vote at elections of directors, unless the transaction
resulting in such ownership has been approved in advance by the Continuity
Directors, or (B) 50% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors); or
(e) the Continuity Directors cease for any reason to constitute at
least a majority of the Board.
Notwithstanding anything in this Section 13.1 to the contrary, none of the
following events, in and of itself, will be deemed to constitute a Change in
Control for purposes of this Section 13: (i) the transfer by Ronald D. Offutt
("Offutt") of shares of Common Stock or shares of Class B common stock of the
Company to a trust for distribution to Offutt's beneficiaries (or the
designation by Offutt of beneficiaries to receive distributions) upon the death
of Offutt, provided that, until his death, Offutt retains voting control with
respect to such shares; (ii) the distribution to such beneficiaries upon
Offutt's death of such shares in accordance with such trust or other estate
plan; or (iii) the conversion of shares of Class B common stock into shares of
Common Stock, provided that this exception from the definition of Change in
Control for conversions relates only to the conversion itself and not to any
transfers that may occur in conjunction with such conversions.
13.2 CONTINUITY DIRECTORS. For purposes of this Section 13, "Continuity
Directors" of the Company will mean any individuals who are members of the Board
on the effective date of the Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the Continuity
Directors (either by specific vote or by approval of the Company's proxy
statement in which such individual is named as a nominee for director without
objection to such nomination).
13.3 ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the
Company occurs, then, unless otherwise provided by the Committee in its sole
discretion either in the agreement evidencing an Incentive Award at the time of
grant or at any time after the grant of an Incentive Award, (a) all outstanding
Options and Stock Appreciation Rights that have been held at least six months
will become immediately exercisable in full and will remain exercisable for the
remainder of their terms, regardless of whether the Participant to whom such
Options or Stock Appreciation Rights have been granted remains in the employ or
service of the Company or any Subsidiary; (b) all outstanding Restricted Stock
Awards will become immediately fully vested and non-forfeitable; and (c) all
outstanding Performance Units and Stock Bonuses then held
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by the Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Performance Units
or Stock Bonuses.
13.4 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
13.5 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in
Section 13.3 or 13.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the vesting of an Incentive Award as provided
in Section 13.3 or the payment of cash in exchange for all or part of an
Incentive Award as provided in Section 13.4 (which acceleration or payment could
be deemed a "payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other "payments" that such Participant has the right to
receive from the Company or any corporation that is a member of an "affiliated
group" (as defined in Section 1504(a) of the Code without regard to
Section 1504(b) of the Code) of which the Company is a member, would constitute
a "parachute payment" (as defined in Section 280G(b)(2) of the Code), then the
"payments" to such Participant pursuant to Section 13.3 or 13.4 of the Plan will
be reduced to the largest amount as will result in no portion of such "payments"
being subject to the excise tax imposed by Section 4999 of the Code; provided,
however, that if a Participant is subject to a separate agreement with the
Company or a Subsidiary that expressly addresses the potential application of
Sections 280G or 4999 of the Code (including, without limitation, that
"payments" under such agreement or otherwise will not be reduced or that the
Participant will have the discretion to determine which "payments" will be
reduced), then the limitations of this Section 13.5 will not apply, and any
"payments" to a Participant pursuant to Section 13.3 or 13.4 of the Plan will be
treated as "payments" arising under such separate agreement.
14. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
14.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time, nor
confer upon any Eligible Recipient or Participant any right to continue in the
employ or service of the Company or any Subsidiary.
14.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other than
Restricted Stock Awards and Stock Bonuses), a Participant will have no rights as
a stockholder unless and until such Incentive Awards are exercised for, or paid
in the form of, shares of Common Stock and the Participant becomes the holder of
record of such shares. Except as otherwise provided in the Plan, no adjustment
will be made for dividends or distributions with respect to such Incentive
Awards as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine in its discretion.
14.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or the
laws of descent and distribution or as otherwise expressly permitted by the
Plan, unless approved by the Committee in its sole discretion, no right or
interest of any Participant in an Incentive Award prior to the exercise or
vesting of such Incentive Award will be assignable or transferable, or subjected
to any lien, during the lifetime of the Participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law
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or otherwise. A Participant will, however, be entitled to designate a
beneficiary to receive an Incentive Award upon such Participant's death, and in
the event of a Participant's death, payment of any amounts due under the Plan
will be made to, and exercise of any Options (to the extent permitted pursuant
to Section 11 of the Plan) may be made by, the Participant's legal
representatives, heirs and legatees.
14.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority of
the Board to adopt such additional or other compensation arrangements as the
Board may deem necessary or desirable.
15. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue any
shares of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable state securities laws or an exemption from such registration under
the Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee, in its sole discretion, deems necessary or advisable. The
Company may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
16. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of any stock exchange or Nasdaq. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2, 4.3 and 13 of
the Plan.
17. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of , 1996, the date it was
adopted by the Board. The Plan will terminate at midnight on , 2006,
and may be terminated prior to such time to by Board action, and no Incentive
Award will be granted after such termination. Incentive Awards outstanding
upon termination of the Plan may continue to be exercised, or become free of
restrictions, in accordance with their terms.
18. MISCELLANEOUS.
18.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed
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exclusively in accordance with the laws of the State of Delaware,
notwithstanding the conflicts of laws principles of any jurisdictions.
18.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
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EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into effective as of _____________, 1996
between RDO Equipment Co., a Delaware corporation (the "Company"), and
______________________________ (the "Indemnitee").
RECITALS
A. The Company is concerned with the retention of qualified, competent
persons to serve as directors and officers of the Company.
B. Highly competent persons are becoming increasingly reluctant to serve
publicly-held corporations as directors and officers or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against risks of claims and actions against them arising out of
their service to and activities on behalf of the Company.
C. As an inducement for the Indemnitee to serve or continue to serve as a
director or officer of the Company, the Indemnitee requires substantial
protection against personal liability for the Indemnitee's actions in serving as
a director or officer of the Company.
D. The Company's Certificate of Incorporation and Bylaws currently
provide for mandatory indemnification of officers and directors of the Company
to the fullest extent permitted under Delaware law.
E. In order to provide the Indemnitee with specific contractual assurance
that the protection provided by the Company's Certificate of Incorporation and
Bylaws will be available to the Indemnitee (regardless of, among other things,
any amendment to or revocation of such Certificate of Incorporation and Bylaws
or any change in the composition of the Company's Board of Directors or
acquisition transaction relating to the Company), the Company wishes to provide
for the indemnification of, and the advancing of expenses to, the Indemnitee to
the fullest extent (whether partial or complete) permitted by law and as set
forth in this Agreement.
F. In addition, to the extent insurance is maintained, the Company wishes
to provide for the continued coverage of the Indemnitee under the Company's
directors' and officers' liability insurance policies.
AGREEMENT
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Company and the Indemnitee do hereby agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, capitalized terms
have the following meaning:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE IN CONTROL" means the following:
<PAGE>
(1) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by the Company;
(2) the approval by the shareholders of the Company of any plan
or proposal for the liquidation or dissolution of the Company;
(3) a merger or consolidation to which the Company is a party if
the shareholders of the Company immediately prior to effective date of
such merger or consolidation have "beneficial ownership" (as defined
in Rule 13d-3 under the Exchange Act), immediately following the
effective date of such merger or consolidation, of securities of the
surviving corporation representing (A) more than 50%, but less than
80%, of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors, unless such merger or consolidation has been
approved in advance by the Continuity Directors, or (B) 50% or less of
the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors (regardless of any approval by the Continuity
Directors);
(4) any person becomes, after the Effective Date, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (A) 20% or more, but not 50% or more, of
the combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors, unless
the transaction resulting in such ownership has been approved in
advance by the Continuity Directors, or (B) 50% or more of the
combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors
(regardless of any approval by the Continuity Directors); or
(5) the Continuity Directors cease for any reason to constitute
at least a majority of the Board.
Notwithstanding anything in this Section 1(c) to the contrary, none of the
following events, in and of itself, will be deemed to constitute a Change
in Control for purposes of this Section 1(c): (i) the transfer by Ronald
D. Offutt ("Offutt") of shares of Class A common stock or Class B common
stock of the Company to a trust for distribution to Offutt's beneficiaries
(or the designation by Offutt of beneficiaries to receive distributions)
upon the death of Offutt, provided that, until his death, Offutt retains
voting control with respect to such shares; (ii) the distribution to such
beneficiaries upon Offutt's death of such shares in accordance with such
trust or other estate plan; or (iii) the conversion of shares of Class B
common stock into shares of Class A common stock, provided that this
exception from the definition of Change in Control for conversions relates
only to the conversion itself and not to any transfers that may occur in
conjunction with such conversions.
(c) "CORPORATE STATUS" describes the status of a person who is or was
a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee
or agent of any Other Enterprise.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
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(e) "EFFECTIVE DATE" means the date first set forth above.
(f) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(g) "EXPENSES" include all reasonable attorneys' fees,
retainers, court costs, transcript costs, expert fees, witness fees, travel
expenses, duplicating and printing costs and all other disbursements or
expenses of the type customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, or being or
preparing to be a witness in any Proceeding.
(h) "GOOD FAITH" means the Indemnitee having acted in good faith and
in a manner that the Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal
Proceeding, having had no reasonable cause to believe that the Indemnitee's
conduct was unlawful.
(i) "CONTINUITY DIRECTOR" means any individual who is a member of the
Board on the Effective Date and any individual who subsequently becomes a
member of the Board whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of
the Continuity Directors (either by specific vote or by approval of the
Company's proxy statement in which such individual is named as a nominee
for director without objection to such nomination)
(j) "INDEPENDENT COUNSEL" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(i) the Company or the Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" does not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or the Indemnitee in an action
to determine the Indemnitee's rights under this Agreement.
(k) "OTHER ENTERPRISE" means the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise of which the Indemnitee is or was serving at the request of the
Company as a director, officer, employee, agent or fiduciary.
(l) "PROCEEDING" includes any action, suit, arbitration, alternative
dispute resolution mechanism, investigation, administrative hearing or any
other actual, threatened or completed proceeding whether civil, criminal,
administrative or investigative, other than one initiated by the
Indemnitee. For purposes of the foregoing sentence, a "Proceeding" will
not be deemed to have been initiated by the Indemnitee where the Indemnitee
seeks pursuant to Section 8 of this Agreement to enforce the Indemnitee's
rights under this Agreement.
2. TERM OF AGREEMENT. This Agreement will continue until and terminate
upon the later of (i) 10 years after the date that the Indemnitee has ceased to
serve as a director, officer, employee, agent or fiduciary of the Company or any
Other Enterprise, or (ii) the final termination (as to which all rights of
appeal have been exhausted or lapsed) of all pending Proceedings in respect of
which the Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by the Indemnitee pursuant to
Section 8 of this Agreement.
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3. AGREEMENT TO SERVE; NOTICE OF PROCEEDINGS. The Indemnitee agrees to
serve as a director or officer of the Company for so long as the Indemnitee is
duly appointed or elected and qualified or until such time as the Indemnitee
resigns from such position; provided, however, that nothing contained in this
Agreement is intended to create on the part of the Indemnitee any right to
continued employment or service with the Company or any Other Enterprise. The
Indemnitee agrees promptly to notify the Company in writing upon being served
with any summons, citation, subpoena, complaint, indictment, information or
other document relating to any Proceeding or matter that may be subject to
indemnification or advancement of Expenses under this Agreement; provided,
however, that failure of the Indemnitee to give such notice promptly will not
relieve the Company from any liability that it may have to the Indemnitee
otherwise than under this Agreement and will relieve the Company from liability
under this Agreement only to the extent that the Company has been prejudiced.
4. INDEMNIFICATION.
(a) IN GENERAL. In connection with any Proceeding, the Company
agrees to indemnify, and advance Expenses, to the Indemnitee as provided in
this Agreement and to the fullest extent permitted by applicable law in
effect on the date hereof and to such greater extent as applicable law may
thereafter from time to time permit.
(b) PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. If, by reason of the Indemnitee's Corporate Status, the
Indemnitee is, or is threatened to be made, a party to any Proceeding,
other than a Proceeding by or in the right of the Company, the Company will
indemnify the Indemnitee against Expenses, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection with such Proceeding
or any claim, issue or matter therein, if the Indemnitee acted in Good
Faith.
(c) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. If, by reason of
the Indemnitee's Corporate Status, the Indemnitee is, or is threatened to
be made, a party to any Proceeding brought by or in the right of the
Company to procure a judgment in its favor, the Company will indemnify the
Indemnitee against Expenses, judgments, penalties, and amounts paid in
settlement, actually and reasonably incurred by the Indemnitee or on the
Indemnitee's behalf in connection with such Proceeding or any claim, issue
or matter therein, if the Indemnitee acted in Good Faith. Notwithstanding
the foregoing, no such indemnification will be made if applicable law
prohibits such indemnification; provided, however, that, if applicable law
so permits, indemnification will nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the
State of Delaware (or the court in which such Proceeding has been brought
or is pending) determines.
(d) INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent that
the Indemnitee is, by reason of the Indemnitee's Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, the
Indemnitee will be indemnified to the maximum extent permitted by
applicable law against all Expenses, judgments, penalties, fines, and
amounts paid in settlement, actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection with such Proceeding
or any claim, issue or matter therein. If the Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in
such Proceeding, the Company will indemnify the Indemnitee to the maximum
extent permitted by applicable law against all Expenses, judgments,
penalties, fines,
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and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section
4(d), and without limitation, the termination of any claim, issue or matter
in such a Proceeding by dismissal, with or without prejudice, will be
deemed to be a successful result as to such claim, issue or matter.
(e) INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee is, by
reason of the Indemnitee's Corporate Status, a witness in any Proceeding,
the Indemnitee will be indemnified against all Expenses actually and
reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with such Proceeding or any claim, issue or matter therein.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any provision to the
contrary in Section 6 of this Agreement, the Company will advance all reasonable
Expenses that, by reason of the Indemnitee's Corporate Status, were incurred by
or on behalf of the Indemnitee in connection with any Proceeding, within 20 days
after the receipt by the Company of a statement or statements from the
Indemnitee requesting such advance or advances, whether prior to or after final
disposition of such Proceeding. Such statement or statements must reasonably
evidence the Expenses incurred by the Indemnitee and must include or be preceded
or accompanied by an undertaking by or on behalf of the Indemnitee to repay any
Expenses if it is ultimately determined (as to which all rights of appeal have
been exhausted or lapsed) that the Indemnitee is not entitled to be indemnified
against such Expenses. Any advance and undertakings to repay pursuant to this
Section 5 will be unsecured and interest free.
6. PROCEDURES FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) INITIAL REQUEST. To obtain indemnification under this Agreement,
the Indemnitee must submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification
under this Agreement. The Secretary of the Company will promptly advise
the Board in writing that the Indemnitee has requested indemnification.
(b) METHOD OF DETERMINATION. A determination (if required by
applicable law) with respect to the Indemnitee's entitlement to
indemnification will be made as follows:
(1) If a Change in Control has occurred, unless the Indemnitee
requests in writing that such determination be made in accordance with
clause (2) of this Section 6(b), the determination will be made by
Independent Counsel in a written opinion to the Board, a copy of which
will be delivered to the Indemnitee.
(2) If a Change of Control has not occurred, and subject to
Section 6(e) of this Agreement, the determination will be made by the
Board by a majority vote of a quorum consisting of Disinterested
Directors. In the event that a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, such
quorum of Disinterested Directors so directs, the determination will
be made by Independent Counsel in a written opinion to the Board, a
copy of which will be delivered to the Indemnitee.
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(c) SELECTION, PAYMENT AND DISCHARGE OF INDEPENDENT COUNSEL. In the
event that the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) of this Agreement, the
Independent Counsel will be selected, paid and discharged in the following
manner:
(1) If a Change of Control has not occurred, the Independent
Counsel will be selected by the Board, and the Company will give
written notice to the Indemnitee advising the Indemnitee of the
identity of the Independent Counsel so selected.
(2) If a Change of Control has occurred, the Independent Counsel
will be selected by the Indemnitee (unless the Indemnitee requests
that such selection be made by the Board, in which event clause (1) of
this Section 6(c) applies), and the Indemnitee must give written
notice to the Company advising it of the identity of the Independent
Counsel so selected.
(3) Following the initial selection described in clauses (1) and
(2) of this Section 6(c), the Indemnitee or the Company, as the case
may be, may, within seven days after such written notice of selection
has been given, deliver to the other party a written objection to such
selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1(j) of this Agreement,
and the objection must set forth with particularity the factual basis
of such assertion. Absent a proper and timely objection, the person
so selected will act as Independent Counsel. If such written
objection is made, the Independent Counsel so selected may not serve
as Independent Counsel unless and until a court has determined that
such objection is without merit.
(4) Either the Company or the Indemnitee may petition the Court
of Chancery of the State of Delaware if the parties have been unable
to agree on the selection of Independent Counsel within 20 days after
submission by the Indemnitee of a written request for indemnification
pursuant to Section 6(a) of this Agreement. Such petition will
request a determination whether an objection to the party's selection
is without merit and/or seek the appointment as Independent Counsel of
a person selected by the Court or by such other person as the Court
may designate. A person so appointed will act as Independent Counsel
under Section 6(b) of this Agreement.
(5) The Company will pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel
in connection with acting pursuant to this Agreement, and the Company
will pay all reasonable fees and expenses incident to the procedures
of this Section 6(c), regardless of the manner in which such
Independent Counsel was selected or appointed.
(6) Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 8(a)(3) of this Agreement, Independent
Counsel will be discharged and relieved of any further responsibility
in such capacity (subject to the applicable standards of professional
conduct then prevailing).
(d) COOPERATION. The Indemnitee agrees to cooperate with the person,
persons or entity making the determination with respect to the Indemnitee's
entitlement to indemnification under this Agreement, including providing to
such person, persons or entity upon reasonable
6
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advance request any documentation or information that is not privileged or
otherwise protected from disclosure and that is reasonably available to the
Indemnitee and reasonably necessary to such determination. Any costs or
expenses (including attorneys' fees and disbursements) incurred by the
Indemnitee in so cooperating with the person, persons or entity making such
determination will be borne by the Company (irrespective of the
determination as to the Indemnitee's entitlement to indemnification), and
the Company hereby indemnifies and agrees to hold the Indemnitee harmless
therefrom.
(e) PAYMENT. If it is determined that the Indemnitee is
entitled to indemnification, payment to the Indemnitee must be made within
10 days after such determination.
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) BURDEN OF PROOF. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity
making such determination will presume that the Indemnitee is entitled to
indemnification under this Agreement if the Indemnitee has submitted a
request for indemnification in accordance with Section 6(a) of this
Agreement, and the Company will have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity
of any determination contrary to that presumption.
(b) EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a please of NOLO CONTENDERE or its equivalent, will not
(except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of the Indemnitee to indemnification or create a
presumption that the Indemnitee did not act in Good Faith.
(c) RELIANCE AS SAFE HARBOR. For purposes of any determination of
Good Faith, the Indemnitee will be deemed to have acted in Good Faith if
the Indemnitee's action is based on the records or books of account of the
Company or any Other Enterprise, including financial statements, or on
information supplied to the Indemnitee by the officers of the Company or
any Other Enterprise in the course of their duties, or on the advice of
legal counsel for the Company or any Other Enterprise or on information or
records given or reports made to the Company or any Other Enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Company or any Other Enterprise. The
provisions of this Section 7(c) will not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be
deemed to have met the applicable standard of conduct set forth in this
Agreement.
(d) ACTIONS OF OTHERS. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Company or any
Other Enterprise will not be imputed to the Indemnitee for purposes of
determining the right of indemnification under this Agreement.
8. RIGHTS OF THE INDEMNITEE.
(a) APPLICATION TO DISPUTES. This Section 8 applies in the event of
a Dispute. For purposes of this Section, a "Dispute" means any of the
following events: (i) a determination is made pursuant to Section 6 of
this Agreement that the Indemnitee is not entitled to indemnification under
this Agreement; (ii) advancement of Expenses is not timely made pursuant
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to Section 5 of this Agreement; (iii) the determination of entitlement to
indemnification to be made pursuant to Section 6(b) of this Agreement has
not been made within 90 days after receipt by the Company of the request
for indemnification; or (iv) payment of indemnification is not made within
10 days after a determination has been made that the Indemnitee is entitled
to indemnification or such determination is deemed to have been made
pursuant to Section 6 of this Agreement.
(b) ADJUDICATION. In the event of a Dispute, the Indemnitee is
entitled to an adjudication in any court of competent jurisdiction of the
Indemnitee's entitlement to such indemnification or advancement of
Expenses. Alternatively, the Indemnitee, at the Indemnitee's option, may
seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. The
Indemnitee must commence such proceeding seeking an adjudication or an
award in arbitration within 180 days following the date on which the
Indemnitee first has the right to commence such proceeding pursuant to this
Section 8(b). The Company will not oppose the Indemnitee's right to seek
any such adjudication or award in arbitration.
(c) DE NOVO REVIEW. In the event that a determination has been made
pursuant to Section 6 of this Agreement that the Indemnitee is not entitled
to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Section 8 will be conducted in all respects as a de novo
trial, or arbitration, on the merits, and the Indemnitee will not be
prejudiced by reason of that adverse determination. In any such proceeding
or arbitration, the Company has the burden of proving that the Indemnitee
is not entitled to indemnification or advancement of Expenses,
as the case may be.
(d) COMPANY BOUND. If a determination has been made or is deemed to
have been made pursuant to Section 6 of this Agreement that the Indemnitee
is entitled to indemnification, the Company will be bound by such
determination in any judicial proceeding or arbitration absent (i) a
misstatement by the Indemnitee of a material fact, or an omission of a
material fact necessary to make the Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(e) PROCEDURES VALID. The Company is precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8
that the procedures and presumptions of this Agreement are not valid,
binding and enforceable and must stipulate in any such court or before any
such arbitrator that the Company is bound by all the provisions of this
Agreement.
(f) EXPENSES OF ADJUDICATION. In the event that the Indemnitee,
pursuant to this Section 8, seeks a judicial adjudication or an award in
arbitration to enforce the Indemnitee's rights under, or to recover damages
for breach of, this Agreement, the Indemnitee will be entitled to recover
from the Company, and will be indemnified by the Company against, any and
all expenses (of the types described in the definition of Expenses in
Section 1(g) of this Agreement) actually and reasonably incurred by the
Indemnitee in such adjudication or arbitration, but only if the Indemnitee
prevails therein. If it is determined in such adjudication or arbitration
that the Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the expenses incurred by
the Indemnitee in connection with such adjudication or arbitration will be
appropriately pro-rated.
8
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9. NON-EXCLUSIVITY; INSURANCE; SUBROGATION; DUPLICATION OF PAYMENTS.
(a) NON-EXCLUSIVITY. The rights of the Indemnitee are not exclusive
of any rights to which the Indemnitee may be entitled under the Company's
Certificate of Incorporation or Bylaws, any agreement, any vote of
stockholders or Disinterested Directors, applicable law or otherwise both
as to action in the Indemnitee's Corporate Status and as to action in any
other capacity while holding such office. No amendment, alteration,
rescission or replacement of this Agreement or any provision hereof will be
effective as to the Indemnitee with respect to any action taken or omitted
by such the Indemnitee in the Indemnitee's Corporate Status prior to such
amendment, alteration, rescission or replacement.
(b) LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies for directors' and officers' liability, the
Indemnitee will be covered by such policy or policies, in accordance with
its or their terms, to the maximum extent of the coverage available for any
Company director or officer.
(c) SUBROGATION. In the event of payment under this Agreement, the
Company will be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee against any person or organization,
and the Indemnitee will execute all papers and take all actions necessary
to secure such rights, including the execution of such documents necessary
to enable the Company effectively to bring suit to enforce such rights.
(d) NO DUPLICATION OF PAYMENTS. The Company will not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that the Indemnitee has otherwise actually
received payment under any insurance policy, the Certificate of
Incorporation or Bylaws or otherwise.
10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVER. No supplement, modification or amendment
of this Agreement will be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement will
be deemed or will constitute a waiver of any other provisions hereof
(whether or not similar) nor will such waiver constitute a continuing
waiver.
(b) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company), spouses,
heirs and personal and legal representatives. The Company will require and
cause any such successor, by written agreement in form and substance
satisfactory to the Indemnitee, to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This
Agreement will continue in effect regardless of whether Indemnitee
continues to serve as a director or officer of the Company or of any Other
Enterprise.
(c) SEVERABILITY. The provisions of this Agreement will be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise
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<PAGE>
unenforceable, and the remaining provisions will remain enforceable to the
fullest extent permitted by law.
(d) NOTICE. All notices, requests, demands and other communications
under this Agreement must be in writing and will be deemed to have been
duly given (i) if delivered by hand and receipted for by the party to whom
such notice or other communication was directed, on the date of delivery,
or (ii) if mailed by certified or registered mail or by express mail,
postage prepaid and properly addressed, on the third business day after the
date on which it is so mailed. Unless subsequently modified as provided
herein, notice to the Company will be directed to RDO Equipment Co., 2829
South University Drive, Fargo, North Dakota 58109 (Attn: Chief Executive
Officer), and notice to the Indemnitee will be directed to the address set
forth with the Indemnitee's signature below.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed an original but
all of which together will constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought
needs to be produced to evidence the existence of this Agreement.
(f) GOVERNING LAW. This Agreement will be governed by and
construed and enforced in accordance with the law of the State of Delaware
applicable to contracts made to be performed in such state without giving
effect to the principles of conflicts of laws.
The parties have executed this Agreement on the day and year first above
written.
RDO EQUIPMENT CO.
By:
---------------------------------
Its:
--------------------------------
INDEMNITEE
(Signature)
---------------------------------------
(Name)
---------------------------------------
(Address)
---------------------------------------
10
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11
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EXHIBIT 10.11
August 21, 1996
Gary Allan
President
Liberty Agricultural Inc.
P.O. Box 2425
Pasco, WA 99302
Dear Gary:
This letter of intent confirms the discussions that representatives of
RDO Equipment Co., a North Dakota corporation ("Buyer"), have had with you
relative to the proposed purchase of substantially all the assets of Liberty
Agricultural, Inc., a Washington corporation ("Seller"), which company is
engaged in the sales and service of agricultural equipment operating
primarily as an authorized dealer for Deere and Company as well as certain
other equipment manufacturers with facilities located in Pasco and Sunnyside,
Washington (the "Business"). The objective of our discussions has been the
execution and consummation, as soon as feasible, of a formal purchase
agreement (the "Purchase Agreement"), which, among other things, would
provide for the various matters set forth below.
1. In the proposed transaction, Seller will at closing sell, transfer and
assign to Buyer free and clear of all liens and encumbrances
substantially all the assets of Seller, including, all inventory, parts,
used equipment, rental equipment, attachments, and work in process owned
by Seller wherever located together with the fixed assets of the Business
which shall include, without limitation, all motor vehicles, tools, shop
equipment, supplies, furniture, computers, office equipment, computer
software, and fixtures used in the operation of the Business wherever
located, all of which assets are to be valued according to the formulas
set forth on Exhibit A attached hereto together with all trademarks and
tradenames (if any), customer lists and records, and goodwill of the
Business (the "Assets").
Assets to be retained by Seller (the "Excluded Assets") shall be
specifically scheduled in the Purchase Agreement and shall include cash,
accounts receivable, dealer credits, finance reserves, new John Deere
equipment and parts, certain rental equipment, and real estate.
2. For the purchase of the Assets by Buyer, Buyer will pay Seller the sum of
(i) one million two hundred fifty thousand dollars ($1,250,000) and
(ii) the value of the saleable and usable inventory, fixed assets, and
other assets at closing of the transaction as developed pursuant to
Exhibit A.
<PAGE>
The purchase price shall be paid in cash except that $1,000,000 will be
payable in equal annual installments over a period of five years
commencing one year from the date of the Closing with interest at a rate
to be determined by the parties. The balance shall be evidenced by a
note secured in a manner satisfactory to Seller. It is contemplated that
the Buyer will assume certain financial liabilities of Seller associated
with the Business which liabilities shall be deducted from the purchase
price payable at closing. Buyer shall have the opportunity to review all
the liabilities of the Seller and will assume only those liabilities
that are specifically agreed to in the Purchase Agreement.
3. It is understood that in addition to the payments called for in Paragraph 2
above, additional payments to the Seller based on the earnings and
performance of the business over the three year period following the
Closing Date may be required. The basic criteria to earn this additional
amount will be a formula to be mutually agreed upon by the parties that
calls for a 30% equity in the assets of the Business and the Buyer
earning a 20% after-tax return on equity. Earnings over and above that
standard shall be paid to the Seller annually up to a total cumulative
maximum amount of $750,000.
4. The real estate used in the operation of the business will be
leased to the Seller for a term of 5 years at a rental of $20,000 per
month. During the term of the lease, Buyer shall pay all real estate
taxes, fire and casualty insurance premiums, and ordinary and necessary
repairs and replacements to the premises. The landlord shall be
responsible for all structural and/or major repairs and replacements to
the premises.
The lease agreement shall also contain a provision giving Buyer an
option to purchase the property at any time during the term of the lease
at an appraised value or agreed upon price which will be established in
the Purchase Agreement and on such other terms and conditions as are
mutually agreeable to Buyer and Seller. The lease agreement shall also
contain a right of first refusal in favor of the Buyer.
5. The Purchase Agreement will further provide that Seller will obtain an
environmental assessment prepared by such a company and in such a manner
as is satisfactory to Buyer covering all of the real estate involved
hereunder. Buyer shall pay the cost of such environmental assessment.
Seller will be responsible for and bear the costs of any required
remedial and/or clean up action on the real estate.
6. It is understood that Seller will be responsible to terminate the
employment with Seller of all existing employees of the Business as of
the closing date and shall be responsible for
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all financial obligations to those employees, including but not limited
to, any pension or profit sharing plan liabilities, accrued vacation
liabilities, and any other payroll or employment related liabilities.
7. Buyer's obligation to close hereunder shall be contingent on Buyer
entering into employment agreements with David McKensie and Kelly Hector
on such terms and conditions as are satisfactory to Buyer. Such
employment agreements shall be for a term of two years and shall contain
a prohibition against competition by said employee for a period of four
years from the Closing Date.
Buyer's obligation to close hereunder shall be contingent on Buyer
entering into noncompetition agreement with Seller and Gary Allan
containing a prohibition against competition by Seller for a period of
four years from the Closing Date. The area of non-competition shall be
the State of Washington.
8. It is contemplated that Buyer will assume certain liabilities, leases,
and other contractual obligations of Seller associated with the Business.
Buyer shall have the opportunity to review all of the leases, contracts,
and other documents representing all of the liabilities and obligations
of Seller to be assumed and will assume only those liabilities, leases,
and other contractual obligations of Seller that are specifically agreed
to in the Purchase Agreement.
9. It is understood that it is likely that various approvals, assignments
and consents (including the consent and approval of Deere and Company)
will be required to effectuate the closing of this transaction. Seller
and Buyer will cooperate to obtain all such assignments, consents and
approvals.
10. Seller agrees to obtain the consent of its auditors to allow Buyer and
its representatives to utilize said auditors' past financial and audit
work in its S-1 registration in connection with Buyer's initial public
offering.
11. Upon your signing and returning to me this letter of intent, our legal
counsel will work with your legal counsel to prepare the Purchase
Agreement containing provisions in accordance with this letter together
with such further appropriate terms and conditions as we may mutually
and in good faith agree upon. The Purchase Agreement shall contain the
normal and usual indemnifications, representations and warranties
regarding the absence of undisclosed liabilities affecting the Assets
and the Business, merchantability of inventory, marketable title to the
real estate subject only to such permitted exceptions as may be scheduled
in the Purchase Agreement, compliance with all environmental laws and
regulations, the existence and enforceability of all permits and licenses
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required to conduct operations, the good condition and repair of all
structures, buildings, fixtures and other assets used in the current
operations of the Business, accuracy of financial statements, etc. Seller
agrees to comply with bulk transfer requirements unless waived by Buyer.
Seller will indemnify Buyer with respect to all undisclosed liabilities and
breaches of representations and warranties. The Purchase Agreement shall
also provide that the obligations of Buyer thereunder are expressly
subject to an investigation by Buyer and review by legal counsel of
Buyer confirming that the representations and warranties of Seller set
forth in the Purchase Agreement are true in all material respects and
that the conditions to the obligations of Buyer set forth therein,
including the obtaining of all requisite franchisor consents,
governmental approvals relating to the transaction, if any, have been
satisfied in all material respects.
12. The Buyer and his representatives shall have, during reasonable business
hours subsequent to the execution of this Letter of Intent and during
the preparation of the Purchase Agreement, access to the offices of the
Seller and current financial and business records of the Seller relating
to the operation of the Business and that Seller shall furnish Buyer and
its representatives for their review and approval such financial,
operating data and other information with respect to the Business and
the Assets of the Seller as Buyer shall from time to time request. It
is, of course, understood that all such access, investigations, and
contacts to be conducted by Buyer and its representatives shall be
conducted in such a manner as to not unduly interfere with the normal
conduct of the business of Seller.
13. In connection with this proposed transaction, you will furnish to the
Buyer's representatives information of a confidential and proprietary
nature relating to the Business and its assets and liabilities. We agree
that such information shall be held in confidence and will not be
unnecessarily disclosed to any third parties without your consent.
14. It is understood that each party will be responsible for its own legal,
accounting and other expenses incurred in connection with the proposed
transaction.
15. In view of the substantial expenditures of time, effort and expense to be
undertaken by Buyer in connection with the preparation of the Purchase
Agreement and the various investigations and reviews referred to above,
you agree that neither you nor anyone acting on behalf of the Seller
will attempt to market the Business and/or Assets or any part thereof or
enter into any discussions or negotiations with any other party with
respect to the sale or other disposition of the Business and/or Assets
or any part thereof until the
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earlier of (a) November 30, 1996 or (b) Buyer's written notification to
Seller of his election to not proceed with the purchase.
16. Seller agrees to continue to operate the Business in the ordinary course
of business prior to closing. Seller further agrees to use its best
efforts to preserve intact the existing business organization, including
employees, and the goodwill of the customers, suppliers, and others
having business relations with Seller.
We consider time to be of the essence in consummating the proposed
transaction. Accordingly, we will instruct our legal counsel to work with
your legal counsel promptly after execution by you of this letter of intent
to prepare an initial draft of the Purchase Agreement, which shall contain
provisions in accordance with the foregoing.
If the foregoing meets with your approval, please sign and return the
enclosed duplicate copy of this letter within three (3) business days from
the date hereof. We look forward to receiving your prompt response.
Very truly yours,
RDO EQUIPMENT CO.
By: /s/ Ronald Offutt
------------------------------------
President
ACKNOWLEDGED AND AGREED TO
ON AUGUST 23, 1996.
LIBERTY AGRICULTURAL INC.
By: /s/ Gary Eller
---------------------------
President
17. Seller's obligation to close this transaction is dependent on satisfaction
of the following conditions:
a. Liberty's and its shareholders' approval of the form and content of the
final Purchase Agreement and related documents; and,
b. Review and approval of the final Purchase Agreement and related documents
by Liberty's legal counsel and Certified Public Accountant.
5
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EXHIBIT A
1. WHOLE GOODS INVENTORY.
a. All used whole goods inventory and attachments will be purchased
for a price to be mutually agreed upon between Buyer and Seller in the
Purchase Agreement. If Buyer and Seller are not able to mutually agree
on a price for the used inventory or any individual components thereof,
Buyer and Seller will mutually agree upon an appraiser to determine the
value of the disputed item or items. In the event that the parties cannot
mutually agree upon an appraiser, each side will appoint an appraiser and
the two appraisers will then appoint a third appraiser with the final
price to be determined by an average of the three appraisals.
b. New and unused John Deere equipment will be transferred to John
Deere for credit on Seller's John Deere statement. Buyer will reimburse
Seller for freight and set up charges at Seller's cost.
c. New equipment that has been rented will be transferred to John
Deere for credit on Buyer's John Deere statement. 80% of the rental
income that has been received on each piece of equipment shall apply to
the reduction of the Buyer's cost of said piece of equipment. 20% of the
rental income will be treated as income to Seller.
2. PARTS.
a. Seller will return all of the John Deere parts that are returnable
through Deere and Company at standard terms pursuant to its dealer
agreement. As to any such parts that Buyer may purchase from Deere &
Company, Buyer shall have the benefit of any truckload discounts or other
favorable terms that are standard or available from Deere and Company or
that were made available to Seller.
b. Buyer will purchase up to a one year supply (based on historical
sales) of any non-returnable John Deere parts at a price to be mutually
agreed upon.
c. Buyer will purchase the non-John Deere parts inventory at 85% of
Seller's cost provided the inventory is less than one year's supply based
on historical sales. For those parts that are greater than one year's
supply, the parties will mutually agree on a price.
d. If Buyer and Seller are not able to mutually agree on a price for
the parts described at subparagraphs (b) and (c) above, Buyer and Seller
will mutually agree upon an appraiser
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to determine the value of the disputed item or items. In the event
that the parties cannot mutually agree upon an appraiser, each side will
appoint an appraiser and the two appraisers will then appoint a third
appraiser with the final price to be determined by an average of the three
appraisals.
3. FIXED ASSETS.
a. Rolling stock will be purchased at a price to be mutually agreed
upon between Buyer and Seller.
b. Service equipment and tools will be purchased at fair market value
which is estimated to be approximately $300,000.
c. Furniture, fixtures, computer equipment and computer software and
all other fixed assets will be purchased at fair market value which is
estimated to be approximately $300,000.
d. If Buyer and Seller are not able to mutually agree on a price for
the items listed at subparagraphs (a), (b), and (c) above, Buyer and
Seller will mutually agree upon an appraiser to determine the value of
the disputed item or items. In the event that the parties cannot mutually
agree upon an appraiser, each side will appoint an appraiser and the two
appraisers will then appoint a third appraiser with the final price to be
determined by an average of the three appraisals.
4. WORK IN PROGRESS.
Seller will be reimbursed for Seller's cost, including parts, at M.D.P
and labor at mechanic's hourly rate.
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EXHIBIT 10.12
August 27, 1996
Carl D. Lemon
President
East Texas Machinery, Inc.
P. O. Box 3327
Lufkin, Texas 75902
Dear Mr. Lemon:
This letter of intent confirms the various discussions that representatives
of RDO Equipment Co., a North Dakota corporation ("Buyer"), have had with you
relative to the proposed purchase of substantially all the assets of East Texas
Machinery, Inc., a Texas corporation, ("Seller"), which company is engaged in
the sales and service of industrial equipment operating primarily as an
authorized dealer for Deere and Company as well as certain other equipment
manufacturers with facilities located in Lufkin, Longview, and Mt. Pleasant,
Texas (the "Business"). The objective of our discussions has been the execution
and consummation, as soon as feasible, of a formal Purchase Agreement (the
"Purchase Agreement"), which, among other things, would provide for the various
matters set forth below.
1. In the proposed transaction, Seller will at closing sell, transfer and
assign to Buyer free and clear of all liens and encumbrances substantially
all the assets of Seller (except Excluded Assets as hereinafter defined),
including, without limitation, all inventory, parts, used equipment,
rental fleet, attachments, and work in process owned by Seller wherever
located together with the fixed assets of the Business which shall include,
without limitation, all motor vehicles, tools, shop equipment, supplies,
furniture, computers, office equipment, computer software, and fixtures
used in the operation of the Business wherever located all of which assets
are to be valued according to the formula set forth on Exhibit A attached
hereto together with all trademarks and tradenames (if any), customer lists
and records, and goodwill of the Business (the "Assets").
Assets to be retained by Seller (the "Excluded Assets") shall be
specifically scheduled in the Purchase Agreement and shall include cash,
accounts receivable, dealer credits, new John Deere equipment, certain
rental equipment, and pre-paids.
<PAGE>
2. For the purchase of the Assets by Buyer, Buyer will pay Seller the sum of
(i) seven hundred fifty thousand dollars ($750,000) and (ii) the value of
the inventory and other assets at closing of the transaction as developed
pursuant to Exhibit A.
The purchase price shall be paid in cash except that $500,000 will be
payable in equal annual installments over a period of three years
commencing one year from the date of closing with interest at the rate of
8% per annum. In addition, the sum of money to be paid for used forestry
equipment as developed pursuant to Exhibit A will be paid one-third in cash
at closing with the balance to be paid in four equal installments with the
first such installment due six months from the closing and on each
six-month period thereafter which sum shall also bear interest at the rate
of 8% per annum. It is understood that these payments are to be considered
to be minimum payments and if the used forestry equipment sales exceed said
payment amount for each six-month period, the installment payment amount
will be increased accordingly. Any balances owing to Seller pursuant to
this paragraph shall be evidenced by a note secured in a manner reasonably
satisfactory to Seller.
It is contemplated that the Buyer will assume certain financial liabilities
of Seller associated with the Business which liabilities shall be deducted
from the purchase price payable at closing. Buyer shall have the
opportunity to review all the liabilities of the Seller and will assume
only those liabilities that are specifically agreed to by Buyer and Seller
in the Purchase Agreement.
3. The real estate leased by Seller from Carl D. Lemon and Maria Lemon
(hereinafter referred to as "Lemon") involved in the operation of the
Business at the Lufkin and Longview facilities shall be leased to Buyer for
a term of ten (10) years at a rental of $14,100 dollars per month total for
both facilities. Commencing in the first month of the fourth year of the
term of the lease, the rent shall be increased to $16,752,000 per month.
During the term of the lease, Buyer shall pay all real estate taxes, fire
and casualty insurance premiums, and ordinary and necessary repairs and
replacements to the premises. The landlord shall be responsible for all
structural and/or major repairs and replacements to the premises.
The lease agreement shall also contain a provision giving Buyer an option
to purchase the Lufkin facility and the Longview facility at any time
during the first three (3) years of the term of the lease at an agreed upon
fair market value price to be determined in the Purchase Agreement and on
such other terms and conditions as are mutually agreeable to Buyer and
Seller. The lease shall also contain a right of first refusal in favor of
Buyer.
2
<PAGE>
Buyer will assume Seller's obligations as Lessee under the Lease Agreement
in effect for the Mt. Pleasant facility. Buyer shall have the right to
review and approve the terms and conditions of said lease.
4. The Purchase Agreement will further provide that Seller will obtain an
environmental assessment prepared by such a company and in such a manner as
is satisfactory to Buyer covering all of the real estate involved
hereunder. Seller and Buyer shall each pay one-half of the cost of such
environmental assessment. Seller and/or Carl Lemon will be responsible for
and bear the costs of any required remedial and/or clean up action on the
real estate.
5. It is understood that Seller will be responsible to terminate the
employment with Seller of all existing employees of the Business as of the
closing date and shall be responsible for all financial obligations to
these employees, including but not limited to, any pension or profit
sharing plan liabilities, accrued vacation liabilities, and any other
payroll or employment related liabilities.
6. Buyer's & Seller's obligation to close hereunder shall be contingent on
Buyer entering into an employment agreement with Carl D. Lemon on such
terms and conditions as are satisfactory to Buyer and Seller. It is
understood that said employment agreement shall be for a term of one year
and shall contain a prohibition against competition by Carl Lemon for a
period of three years from the Closing Date. The area of noncompetition
shall be limited to Seller's existing area of responsibility under its
Deere Dealer Agreement. The Employment Agreement will provide for an
annual salary of $150,000 and a monthly car allowance of $750.
7. It is contemplated that Buyer will assume certain liabilities and
contractual obligations of Seller associated with the business. Buyer
shall have the opportunity to review all of the contracts and other
documents representing all of the liabilities and contractual obligations
of Seller to be assumed and will assume only those liabilities and
contractual obligations of Seller that are specifically agreed to in the
Purchase Agreement.
8. It is understood that it is likely that various assignments and consents
(including the consent and approval of Deere and Company) will be required
to effectuate the closing of this transaction. Seller and Buyer will
cooperate to obtain all such assignments, consents, and approvals.
9. Seller agrees to obtain the consent of its auditors to allow Buyer and its
representatives to utilize said auditors' past financial and audit work in
its S-1 registration in connection
3
<PAGE>
with Buyer's initial public offering. Any reasonable accounting fees
incurred by Seller relating to its auditor's cooperation in Buyer's S-1
registration will be paid by Buyer.
10. Upon your signing and returning to me this letter of intent, our legal
counsel will work with your legal counsel to prepare the Purchase Agreement
containing provisions in accordance with this letter together with such
further appropriate terms and conditions as we may mutually and in good
faith agree upon. The Purchase Agreement will specify a closing date of
December 2, 1996 and shall contain the normal and usual indemnifications,
representations and warranties regarding the absence of undisclosed
liabilities affecting the Assets and the Business, merchantability of
inventory, marketable title to the real estate subject only to such
permitted exceptions as may be scheduled in the Purchase Agreement,
compliance with all environmental laws and regulations, the existence and
enforceability of all permits and licenses required to conduct operations,
the good condition and repair of all structures, buildings, fixtures and
other assets used in the current operations of the Business, accuracy of
financial statements, etc. Seller agrees to comply with bulk transfer
requirements, if any, unless waived by Buyer. Seller and Lemon will
indemnify Buyer with respect to all undisclosed liabilities and breaches of
representations and warranties. The Purchase Agreement shall also provide
that the obligations of Buyer thereunder are expressly subject to an
investigation by Buyer and review by legal counsel of Buyer confirming
that the representations and warranties of Seller set forth in the Purchase
Agreement are true in all material respects and that the conditions to the
obligations of Buyer set forth therein, including the obtaining of all
requisite franchisor consents, governmental approvals relating to the
transaction, if any, have been satisfied in all material respects.
11. The Buyer and his representatives shall have, during reasonable business
hours subsequent to the execution of this Letter of Intent and during the
preparation of the Purchase Agreement, access to the offices of the Seller
and current financial and business records of the Seller relating to the
operation of the Business and that Seller shall furnish Buyer and its
representatives for their review and approval such financial, operating
data and other information with respect to the Business and the Assets of
the Seller as Buyer shall from time to time request. It is, of course,
understood that all such access, investigations, and contacts to be
conducted by Buyer and its representatives shall be conducted in such a
manner as to not unduly interfere with the normal conduct of the business
of Seller.
12. In connection with this proposed transaction, you will furnish to the
Buyer's representatives information of a confidential
4
<PAGE>
and proprietary nature relating to the Business and its assets and
liabilities. We agree that such information shall be held in confidence
and will not be unnecessarily disclosed to any third parties (other than as
required by Buyer's initial public offering) without your consent.
13. It is understood that each party will be responsible for its own legal,
accounting and other expenses incurred in connection with the proposed
transaction.
14. In view of the substantial expenditures of time, effort and expense to be
undertaken by Buyer in connection with the preparation of the Purchase
Agreement and the various investigations and reviews referred to above, you
agree that neither you nor anyone acting on behalf of the Seller will
attempt to market the Business and/or Assets or any part thereof or enter
into any discussions or negotiations with any other party with respect to
the sale or other disposition of the Business and/or Assets or any part
thereof until the earlier of (a) December 15, 1996 or (b) Buyer's written
notification to Seller of his election to not proceed with the purchase.
15. Seller agrees to continue to operate the Business in the ordinary course of
business prior to closing. Seller further agrees to use its best efforts
to preserve intact the existing business organization, including employees,
and the goodwill of the customers, suppliers, and others having business
relations with Seller.
We consider time to be of the essence in consummating the proposed transaction.
Accordingly, we will instruct our legal counsel to work with your legal counsel
promptly after execution by you of this letter of intent to prepare an initial
draft of the Purchase Agreement, which shall contain provisions in accordance
with the foregoing.
If the foregoing meets with your approval, please sign and return the enclosed
duplicate copy of this letter within three (3) business days from the date
hereof. We look forward to receiving your prompt response.
Very truly yours,
RDO EQUIPMENT CO.
By: /s/ Paul T. Horn
---------------------------
President
5
<PAGE>
ACKNOWLEDGED AND AGREED TO
ON AUGUST 8/29, 1996.
----
EAST TEXAS MACHINERY, INC.
By:/s/ Carl D. Lemon
--------------------------
President
ACKNOWLEDGED AND AGREED TO
ON AUGUST 8/29, 1996.
----
/s/ Carl D. Lemon
--------------------------
Carl D. Lemon
ACKNOWLEDGED AND AGREED TO
ON AUGUST _____, 1996.
/s/ Maria Lemon
- ------------------------------
Maria Lemon
6
<PAGE>
EXHIBIT A
1. WHOLE GOODS.
a. All used non-forestry equipment and attachments will be purchased for
a price to be mutually agreed upon between Buyer and Seller in the Purchase
Agreement. If Buyer and Seller are not able to mutually agree on a price
for the used non-forestry equipment and attachments or any individual
components thereof, Buyer and Seller will mutually agree upon an appraiser
to determine the value of the disputed item or items. In the event that
the parties cannot mutually agree upon an appraiser, each side will appoint
an appraiser and the two appraisers will then appoint a third appraiser
with the final price to be determined by an average of the three
appraisals.
b. All used forestry equipment and attachments will be purchased for a
price to be mutually agreed upon between Buyer and Seller in the Purchase
Agreement. It is agreed that representatives of John Deere Remarketing
Equipment Services will be called in to assist Buyer and Seller in reaching
agreement on said prices. Once this process is completed, if Buyer and
Seller are not able to mutually agree on a price for the used forestry
equipment and attachments or any individual components thereof, Buyer and
Seller will mutually agree upon an appraiser to determine the value of the
disputed item or items. In the event that the parties cannot mutually
agree upon an appraiser, each side will appoint an appraiser and the two
appraisers will then appoint a third appraiser with the final price to be
determined by an average of the three appraisals.
c. New John Deere equipment will be transferred to John Deere for credit
on Seller's John Deere statement. Buyer will reimburse Seller for Seller's
actual freight costs related to said equipment at the closing.
d. New John Deere equipment that has been rented will be transferred to
John Deere for credit on Buyer's John Deere statement. Each rental unit
will be inspected by Buyer to insure that there has an appropriate
application of rental income in reduction of Seller's costs of said
equipment.
e. Seller's DMF (Dealer's Monetary Fund) paid at the rate of 5.5% of the
current book value of the machines (minus freight and set-up) shall belong
to the Buyer.
2. PARTS.
a. All returnable new repair parts will be purchased at the cost of
purchasing said parts currently from the manufacturer
7
<PAGE>
deducting any applicable manufacturer's stock orders or discount programs.
b. Buyer will purchase a one-year supply (based on Seller's historical
sales) of non-returnable repair parts that have been the subject of sales
within the last 12 months. Said parts will be purchased at the cost of
purchasing said parts currently from the manufacturer deducting any
applicable manufacturer's stock orders or discount programs.
c. Nonreturnable repair parts that have not been the subject of a sale in
the last 12 months or that are in excess of a one-year supply as described
in paragraph (b) above will not be purchased by Buyer.
d. Oils, batteries, cutting edges, undercarriage, and similar items that
have special purchase programs from the manufacturer will be purchased at
Seller's original purchase price.
3. FIXED ASSETS. All rolling stock and fixed assets including computer
equipment, computer software, office equipment, furniture, fixtures, tools,
shop equipment, storage bins, and similar items shall be purchased at
Seller's book value. Buyer shall have the right to inspect and verify the
value of said items.
4. WORK IN PROCESS. Seller will be reimbursed for Seller's cost, including
parts, at M.D.P. and labor at mechanic's hourly rate.
8
<PAGE>
EXHIBIT 10-13
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is made as of this
___ day of ___________, 1996, by and between RDO Equipment Co., a North Dakota
corporation ("RDO Equipment-North Dakota"), and RDO Equipment Co. - Delaware, a
Delaware corporation ("RDO Equipment-Delaware"). RDO Equipment-North Dakota and
RDO Equipment-Delaware are sometimes referred to hereinafter as the "Constituent
Corporations."
WHEREAS, the authorized capital stock of RDO Equipment-North Dakota
consists of 250,000 shares of Common Stock, par value $1.00 per share, of which
__________ shares are issued and outstanding, and
WHEREAS, the authorized capital stock of RDO Equipment-Delaware consists
of __________ shares of Class A Common Stock, par value $.01 per share, of which
__________ shares are issued and outstanding, and _______________ shares of
Class B Common Stock, of which no shares are issued and outstanding, and
WHEREAS, the directors of the Constituent Corporations deem it advisable
and to the advantage of such corporations that RDO Equipment-North Dakota merge
with and into RDO Equipment-Delaware upon the terms and conditions herein
provided, and
WHEREAS, the parties intend that the merger contemplated hereby shall be
a tax-free reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended;
NOW, THEREFORE, the parties hereby adopt the plan of merger encompassed
by this Merger Agreement and, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, do hereby agree that RDO
Equipment-North Dakota shall merge with and into RDO Equipment-Delaware on the
following terms and conditions:
ARTICLE
1.
TERMS AND CONDITIONS OF THE MERGER
1.1 MERGER. As soon as practicable following the fulfillment (or waiver, to
the extent permitted herein) of the conditions specified herein, RDO
Equipment-North Dakota shall be merged with and into RDO Equipment-
Delaware (the "Merger"), and RDO Equipment-Delaware shall survive the
Merger.
1.2 EFFECTIVE DATE. The Merger shall be effective upon the filing of this
Merger Agreement, together with appropriate articles of merger or a
certificate of merger with respect thereto, with the Secretaries of State
of the States of North Dakota and Delaware, as provided by the North
Dakota Business Corporation Act and the Delaware General Corporation Law
(the "Effective Date").
1.3 SURVIVING CORPORATION. On the Effective Date, RDO Equipment-Delaware, as
the surviving corporation (the "Surviving Corporation"), shall continue
its corporate existence under the laws of the State of Delaware and shall
succeed to all of the rights, privileges, powers and property of RDO
Equipment-North Dakota in the manner of and as more fully set forth in
Section 259 of the
<PAGE>
Delaware General Corporation Law, and the separate corporate existence of
RDO Equipment-North Dakota, except insofar as it may be continued by
operation of law, shall cease and be terminated.
1.4. CAPITAL STOCK OF RDO EQUIPMENT-NORTH DAKOTA AND RDO EQUIPMENT-DELAWARE.
On the Effective Date, by virtue of the Merger and without any further
action on the part of the Constituent Corporations or their shareholders:
(a) Each share of Common Stock of RDO Equipment-North Dakota issued and
outstanding immediately prior thereto shall be changed and converted
into _________ of a fully paid and nonassessable share of the Class
A Common Stock of RDO Equipment-Delaware; and
(b) Each share of Class A Common Stock of RDO Equipment-Delaware issued
and outstanding immediately prior thereto (_________ shares held by
RDO Equipment-North Dakota) shall be canceled and returned to the
status of authorized but unissued shares.
1.5. STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates that, prior to that time, represented shares of
the capital stock of RDO Equipment-North Dakota shall be deemed for all
purposes to evidence ownership and to represent the number of shares of
the capital stock of RDO Equipment-Delaware in accordance with Section
1.4 above and shall be so registered on the books and records of RDO
Equipment-Delaware or its transfer agent. The registered owner of any
such outstanding stock certificate shall, until such certificate shall
have been surrendered for transfer or conversion or otherwise accounted
for to RDO Equipment-Delaware or its transfer agent, have and be entitled
to exercise any voting and other rights with respect to, and to receive
any dividend or other distributions upon, the shares of RDO Equipment-
Delaware evidenced by such outstanding certificate as above provided.
After the Effective Date, whenever certificates which formerly
represented shares of RDO Equipment-North Dakota are presented for
transfer or conversion, the Surviving Corporation will cause to be issued
in respect thereof a certificate or certificates representing the
appropriate number of shares of the capital stock of RDO Equipment-
Delaware in accordance with Section 1.4 above.
1.6. FRACTIONAL SHARES. No fractional shares shall be issued upon conversion
of shares of capital stock of RDO Equipment-North Dakota into shares of
capital stock of RDO Equipment-Delaware. If any fractional share of
capital stock would, except for the provisions of this Section 1.6, be
delivered upon such conversion, the Surviving Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering a
certificate for conversion an amount in cash equal to the amount of such
fractional share multiplied by $____________.
1.7. STOCK OPTIONS AND WARRANTS. Upon the Effective Date, each outstanding
option or warrant to purchase capital stock of RDO Equipment-North Dakota
shall, by virtue of the Merger and without any action on the part of the
holder thereof, become an option or warrant to purchase Class A Common
Stock of RDO Equipment-Delaware, and each option or warrant shall entitle
the holder to purchase from RDO Equipment-Delaware the number of shares
of Class A Common Stock of RDO Equipment-Delaware that equals the number
of shares of capital stock of the same class and series of RDO Equipment-
North Dakota subject to such option or warrant immediately prior to the
Effective Date multiplied by ______ (rounded down to the nearest full
number of shares), at an exercise price per share of the Class A Common
Stock of RDO
2
<PAGE>
Equipment-Delaware equal to the exercise price per share then specified
with respect to such option or warrant divided by _______ (rounded to the
nearest full cent).
1.8. OTHER EMPLOYEE BENEFIT PLANS. RDO Equipment-Delaware will assume all of
the obligations of RDO Equipment-North Dakota under any and all employee
benefit plans in effect as of the Effective Date or with respect to which
employee rights or accrued benefits are outstanding as of the Effective
Date.
ARTICLE
2.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1. CERTIFICATE OF INCORPORATION. On the Effective Date, the Certificate of
Incorporation of RDO Equipment-Delaware in effect immediately prior
thereto shall be amended in the following respect, and as amended and in
the form attached hereto as Appendix A, shall be and may be certified as
the Certificate of Incorporation of the Surviving Corporation until duly
amended in accordance with the provisions thereof and applicable law.
Article I shall be amended to read as follows:
The name of this corporation is RDO Equipment Co. (the
"Corporation").
2.2 BYLAWS. The Bylaws of RDO Equipment-Delaware in effect on the Effective
Date shall continue to be the Bylaws of the Surviving Corporation without
change or amendment until further amended in accordance with the
provisions thereof and applicable law.
2.3. DIRECTORS. The directors of RDO Equipment-Delaware immediately preceding
the Effective Date shall continue to be the directors of the Surviving
Corporation on and after the Effective Date to serve until their
successors are duly elected and qualified.
2.4. OFFICERS. The officers of RDO Equipment-Delaware immediately preceding
the Effective Date shall continue to be the officers of the Surviving
Corporation on and after the Effective Date to serve until their
successors are duly elected and qualified.
3
<PAGE>
ARTICLE
3.
MISCELLANEOUS
3.1. FURTHER ASSURANCES. From time to time and when required by the Surviving
Corporation or by its successors and assigns there shall be executed and
delivered on behalf of RDO Equipment-North Dakota such deeds and other
instruments and there shall be taken or caused to be taken by it such
further and other action as shall be appropriate or necessary in order to
vest or perfect in or to confirm of record or otherwise, in the Surviving
Corporation the title to and possession of all the property, interests,
assets, rights, privileges, immunities, powers, franchises and authority
of RDO Equipment-North Dakota and otherwise to carry out the purposes of
this Merger Agreement, and the officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of RDO
Equipment-North Dakota or otherwise to take any and all such action and
to execute and deliver any and all such deeds and other instruments.
3.2. AMENDMENT. At any time before the date of filing, this Merger Agreement
may be amended in any manner (except that any of the principal terms may
not be amended without the approval of the shareholders of RDO Equipment-
North Dakota if such amendment would in the sole discretion of the
respective Boards of Directors of RDO Equipment-North Dakota and RDO
Equipment-Delaware have a material adverse effect on the rights of such
shareholders) as may be determined in the judgment of the respective
Boards of Directors of RDO Equipment-North Dakota and RDO Equipment-
Delaware to be necessary, desirable or expedient in order to clarify the
intention of the parties hereto or to effect or facilitate the purpose
and intent of this Merger Agreement.
3.3 CONDITIONS OF MERGER. The respective obligations of the Constituent
Corporations to effect the transactions contemplated hereby is subject to
satisfaction of the following conditions (any or all of which may be
waived by either of the Constituent Corporations in its sole discretion
to the extent permitted by law):
(a) The Merger shall have been approved by the shareholders of
RDO Equipment-North Dakota in accordance with the North Dakota
Business Corporation Act;
(b) RDO Equipment-North Dakota as sole shareholder of RDO Equipment-
Delaware shall have approved the Merger in accordance with the
Delaware General Corporation Law; and
(c) Any and all consents, permits, authorizations, approvals and orders
deemed in the sole discretion of RDO Equipment-North Dakota to be
material to consummation of the Merger shall have been obtained.
3.4. ABANDONMENT OR DEFERRAL. At any time before the date of filing, this
Merger Agreement may be terminated and the Merger may be abandoned by the
Board of Directors of either or both of the Constituent Corporations
notwithstanding the approval of this Merger Agreement by the shareholders
of RDO Equipment-North Dakota and RDO Equipment-Delaware, or the
consummation of the Merger may be deferred for a reasonable period of
time if, in the opinion of the Boards of Directors of the Constituent
Corporations, such action would be in the best interest of such
Corporations. This Merger Agreement may be terminated at any time by the
Board of Directors of RDO Equipment-North Dakota in the event that the
number of shares as to which
4
<PAGE>
shareholders have properly exercised their rights under Section 10-19.1-
98 of the North Dakota Business Corporation Act is such that it is
impracticable, in the sole judgment and discretion of such Board of
Directors, to proceed with the consummation of the Merger. In the event
of termination of this Merger Agreement, this Merger Agreement shall
become void and of no effect and there shall be no liability on the part
of either Constituent Corporation or its Board of Directors or
shareholders with respect thereto, except that RDO Equipment-North Dakota
shall pay all expenses of the Constituent Corporations incurred in
connection with the Merger.
3.5. COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
5
<PAGE>
IN WITNESS WHEREOF, the Merger Agreement, having first been duly approved
by the Boards of Directors of RDO Equipment-North Dakota and RDO Equipment-
Delaware, is hereby executed on behalf of each of such corporations and attested
by their respective officers thereunto duly authorized.
ATTEST: RDO EQUIPMENT CO.,
a North Dakota corporation
By By
----------------------------- -----------------------------
Its Its
---------------------------- ----------------------------
ATTEST: RDO EQUIPMENT CO. - DELAWARE,
a Delaware corporation
By By
---------------------------- ----------------------------
Its Its
---------------------------- ----------------------------
6
<PAGE>
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN, INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
October 1, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
"As independent public accountants, we hereby consent to the use of our
report dated December 15, 1995, with respect to the combined financial
statements of RDO Equipment Co., (and to all references to our Firm) included
in or made a part of this registration statement."
/s/ Eide Helmeke PLLP
October 1, 1996
Fargo, North Dakota
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AS INDEPENDENT PUBLIC ACCOUNTANTS, WE HEREBY CONSENT TO THE USE OF OUR REPORTS
(AND TO ALL REFERENCES TO OUR FIRM) INCLUDED IN OR MADE A PART OF THIS
REGISTRATION STATEMENT.
HANSEN, PLAHM & CO.
/s/ Hansen, Plahm & Co.
-----------------------------
Certified Public Accountants
OAK BROOK, ILLINOIS
SEPTEMBER 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEETS AS OF JANUARY 31, 1996 AND JULY 31, 1996, AND THE RELATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 1996 AND THE SIX-MONTH
PERIOD ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1996 JAN-31-1997
<PERIOD-START> FEB-01-1995 FEB-01-1996
<PERIOD-END> JAN-31-1996 JUL-31-1996
<CASH> 787 966
<SECURITIES> 0 0
<RECEIVABLES> 16,578 26,827
<ALLOWANCES> 555 600
<INVENTORY> 115,616 129,008
<CURRENT-ASSETS> 132,738 156,769
<PP&E> 17,235 19,163
<DEPRECIATION> 4,196 5,134
<TOTAL-ASSETS> 148,093 177,202
<CURRENT-LIABILITIES> 106,142 137,049
<BONDS> 7,667 5,869
0 0
0 0
<COMMON> 188 188
<OTHER-SE> 34,096 34,096
<TOTAL-LIABILITY-AND-EQUITY> 148,093 177,202
<SALES> 223,557 153,773
<TOTAL-REVENUES> 223,557 153,773
<CGS> 180,839 125,841
<TOTAL-COSTS> 180,839 125,841
<OTHER-EXPENSES> 31,655 18,523
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,817 2,667
<INCOME-PRETAX> 8,069 7,259
<INCOME-TAX> 3,228 2,904
<INCOME-CONTINUING> 4,841 4,355
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,841 4,355
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
