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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 1-12641
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RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 45-0306084
(State of incorporation) (I.R.S. Employer Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (701) 237-7363
Securities registered pursuant to Section 12(b) of the Act: CLASS A COMMON
STOCK, $.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].
As of April 25, 1997, 5,721,508 shares of Class A Common Stock of the
Registrant were outstanding, and the aggregate market value of the Class A
Common Stock of the Registrant as of that date (based upon the last reported
sale price of the Class A Common Stock on that date as reported by the New York
Stock Exchange), excluding outstanding shares beneficially owned by directors
and executive officers, was approximately $86 million.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein) from the
registrant's Annual Report to Shareholders for the year ended January 31, 1997
(the "1997 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the registrant's Proxy Statement for its 1997 Annual
Meeting to be held May 29, 1997 (the "1997 Proxy Statement").
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CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including results
reflected in any forward-looking statement made by or on behalf of the Company,
will be impacted by a number of important factors. The factors identified below
in the section entitled "Certain Important Factors" are important factors (but
not necessarily all important factors) that could cause the Company's actual
future results to differ materially from those expressed in any forward-looking
statement made by or on behalf of the Company. Words such as "may," "will,"
"expect," "believe," "anticipate," "estimate," or "continue" or comparable
terminology are intended to identify forward-looking statements. Forward-
looking statements, by their nature, involve substantial risks and
uncertainties.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company operates 38 retail stores in seven states, specializing in the
distribution, sales, service and rental of equipment, primarily supplied by
Deere & Company and its subsidiaries ("Deere"), to the agricultural,
construction, materials handling and transportation industries, as well as to
public service entities, government agencies and utilities. The Company's
stores are located in Arizona, California, Minnesota, North Dakota, South
Dakota, Texas and Washington. These stores include the largest network of Deere
construction equipment dealerships and agricultural equipment dealerships in the
United States. The Company believes that its network of stores enables it to
achieve benefits from increasing operational synergies. The Company expects to
continue to expand its network through future acquisitions.
The equipment and parts sold by the Company primarily are supplied by
Deere, which is a leading manufacturer and supplier of construction and
agricultural equipment in the United States. Sales of new Deere equipment by
the Company accounted for approximately 71% of the Company's new equipment
sales in fiscal 1997. No other supplier accounted for more than 10% of the
Company's new equipment sales in fiscal 1997. The Company expects that Deere
products will continue to account for the majority of its construction and
agricultural new 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, 1997, the Company's revenues were
generated from the following areas of business:
New equipment sales . . . . . . . . . . . . . . 52%
Used equipment sales. . . . . . . . . . . . . . 22%
Product support, parts, service . . . . . . . . 25%
Equipment rental income . . . . . . . . . . . . 1%
The Company is the surviving entity resulting from a merger between the
Company and RDO Equipment Co., a North Dakota corporation ("RDO-North Dakota")
which was effective January 22, 1997 (the "Merger"). RDO-North Dakota was
originally incorporated in North Dakota on March 13, 1968. The Company's
executive offices are located at 2829 South University Drive, Fargo, North
Dakota 58103.
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The Company's phone number is (701) 237-7363. References to the Company include
its subsidiaries and RDO-North Dakota.
INDUSTRY OVERVIEW
CONSTRUCTION RETAIL EQUIPMENT. Management estimates that United States
retail sales of new construction equipment in its target product market (light
to medium applications) in calendar 1995 totaled approximately $5.7 billion.
Deere is one of the leading suppliers of construction equipment in the United
States for light to medium applications and offers a broad array of products.
Currently, Deere has approximately 110 construction dealers which operate
approximately 355 stores in the United States. Each dealer within the Deere
construction dealer system is assigned designated geographic areas of
responsibility within which it has the right to sell new Deere construction
products. Over the last five years, while the number of Deere construction
stores has remained constant, the number of Deere construction 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
construction dealerships.
AGRICULTURAL RETAIL EQUIPMENT. Management estimates that United States
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
dealer system, dealers are not assigned exclusive territories, but are
authorized to operate at specific store locations. Currently, Deere has
approximately 1,275 agricultural dealers which operate approximately 1,545
stores in the United States. The Company believes that Deere agricultural
dealers also face an increasing need for capital, owners' concerns about
succession, and Deere's support for consolidation and, as a result, that a
consolidation of Deere 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
The key elements of the Company's growth strategy 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 construction and agricultural retail equipment 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 each customer's experience
with the Company's parts and service departments and other value-added services
can positively influence such customer's overall satisfaction. Parts and service
currently have 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 and
expanding its construction equipment rental fleet, offering undercarriage
service at strategic locations, selling irrigation equipment at one store, and
expanding the geographic scope of its construction equipment rental operations,
and in the first quarter of fiscal 1998 acquiring a Mack Truck dealership in
Fargo.
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PURSUING ADDITIONAL ACQUISITIONS. Acquisitions are expected to continue to
be an important element of the Company's growth strategy, particularly given the
consolidation trends among construction and agricultural retail equipment
dealers. Due to the Company's leadership position in the retail equipment
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, i.e., whether the operations of an
acquisition candidate can be enhanced by utilizing the Company's operating model
and being part of the Company's network of stores. Upon consummation of each
acquisition, the Company integrates the dealership into its construction or
agricultural retail equipment 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 generally is completed within the
first six to 12 months, although it can take several years before the benefits
of the Company's operating model, store network, strategies, and systems are
fully realized. The consent of Deere is required for the acquisition of any
Deere dealership.
IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven
operating model designed to improve the performance and profitability of each of
its retail equipment 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. 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 network of construction and agricultural retail
equipment 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 network. The Company believes that its business
diversification into both construction and agricultural retail equipment
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 its initial base in the Midwest
helps to diminish the effects of seasonality, as well as local and regional
economic fluctuations. Typically, other retail equipment dealers operate only
construction or agricultural dealerships, with a limited number of stores
concentrated in a specific geographic region. For example, based on information
published by Deere, the Company believes the average United States Deere
construction dealer has less than four stores, as compared to the Company's 21
Deere construction stores, and the average United States Deere agricultural
dealer operates a single store as compared to the Company's 10 Deere
agricultural stores. In addition, the Company has five other stores focused on
construction equipment rental (as of the first quarter of fiscal 1998), a Mack
Truck dealership (as of the first quarter of fiscal 1998), and one store focused
on irrigation equipment, all of which complement and supplement the Deere
stores.
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RECENT ACQUISITIONS
The Company acquired three construction equipment stores and two
agricultural equipment stores in fiscal 1997. These acquisitions extended the
Company's equipment retail store network into Texas and Washington, which the
Company believes will provide platforms for future growth.
In early fiscal 1998, the Company acquired certain assets of a construction
equipment rental company with five locations in Arizona, which had unaudited
total revenues of approximately $8.2 million in calendar year 1996. The
transaction was structured such that this rental operation is owned 80% by the
Company and 20% by the previous owner, with the Company having a right to
purchase the minority interest.
Also in early fiscal 1998, the Company acquired a Mack Truck dealership in
Fargo, North Dakota, with unaudited total revenues of approximately $5.9 million
in calendar year 1996.
CONSTRUCTION DIVISION
The Company is the largest Deere construction retail equipment dealer in
the United States both in number of stores and total revenues and accounted
for approximately six percent of Deere's United States construction equipment
sales in calendar 1996. As of the end of fiscal 1997, the Company owned and
operated 21 Deere construction equipment stores located in metropolitan areas
in Arizona, Southern California, Minnesota, North Dakota, South Dakota, and
North Central Texas.
Customers of the Company's Construction Division include contractors, for
both residential and commercial construction, utility companies, and federal,
state and local government agencies. The Construction Division has a diverse
customer base. The Construction 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
construction equipment is the main focus, the Company's construction equipment
stores also offer complementary equipment from other suppliers, as well as used
equipment taken as trade-ins.
The Company's construction equipment stores are located in areas with
significant construction activity, including Dallas-Fort Worth, southern Los
Angeles, Minneapolis-St. Paul, Phoenix, and San Diego. Each construction 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 construction
equipment. The Company believes it has a competitive advantage over other
construction equipment dealers given its ability to draw on its network of
construction 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 Construction Division to
its continuing implementation of its operating model.
AGRICULTURAL DIVISION
The Company is the largest Deere agricultural retail equipment dealer in
the United States both in number of stores and total revenues and accounted for
approximately one percent of Deere's United States agricultural equipment sales
in calendar 1996. As of the end of fiscal 1997, the Company owned and operated
10 Deere agricultural equipment stores located in Minnesota, North Dakota, South
Dakota, and Washington, and one agricultural store focused on irrigation
equipment.
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The Company's Agricultural Division is a full-service supplier to farmers,
offering a broad range of farm equipment and related products. 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 equipment, and
tillage equipment. The Company's agricultural equipment 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, is 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 equipment stores are located in areas with significant
concentrations of farmers and typically serve customers within a 25 to 50 mile
radius. Each store displays a broad array of new and used equipment and has
fully-equipped service bays to provide on-site service and maintenance of
agricultural equipment. The Company believes it has a competitive 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.
PARTS AND SERVICE
The Company's construction and agricultural retail equipment 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 construction and agricultural
equipment operations. Each construction 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 construction equipment stores located in Minneapolis, Minnesota
and Riverside, California, and at one of the Dallas-Fort Worth, Texas sites also
operate undercarriage shops for all makes and sizes of crawler equipment.
RENTAL FLEET OPERATIONS
The Company maintains a rental fleet of construction equipment, primarily
in its Arizona and Southern California operations. The Company rents the
construction 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 for it as the Company expands its operations
in Arizona and California, as well as in its Texas operations. In early fiscal
1998, the Company acquired an 80% equity interest in a five store construction
equipment rental business in Arizona. The Company believes that its network of
construction equipment stores support the sale of the used equipment retired
from the rental fleet through the ability to relocate used equipment to various
geographic regions based on market demand, the access to an expanded customer
base, and the availability of trained personnel to service the used equipment to
enhance its resale value.
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INVENTORY AND ASSET MANAGEMENT
The Company maintains substantial inventories of equipment and parts in
order to facilitate sales to customers on a timely basis. The Company also is
required to build its inventory in advance of its second and third fiscal
quarters, which historically have higher sales, to ensure that it will have
sufficient inventory available to meet its customer needs and to avoid
shortages or delays. Deere has an inventory warehouse that its dealers may
access to obtain equipment to facilitate inventory management. In addition,
to maximize asset productivity, the Company maintains a complete database on
sales and inventory of parts and equipment, and 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 in its network and at each
store and makes adjustments as needed in accordance with its operating plan.
DEALERSHIP AGREEMENTS
DEERE CONSTRUCTION DEALER AGREEMENTS. The Company has agreements with
Deere which authorize the Company to act as a dealer of Deere construction,
utility, and forestry equipment (the "Construction Dealer Agreements"). The
Company's areas of responsibility for the sale of Deere construction 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 Central: North Central
Texas, including the Dallas-Fort Worth and Waco metropolitan areas.
Pursuant to the Construction Dealer Agreements, the Company is required,
among other things, to maintain suitable facilities, provide competent
management, actively promote the sale of construction equipment in the
designated areas of responsibility, fulfill the warranty obligations of Deere,
maintain inventory in proportion to the sales potential in each area of
responsibility, provide service and maintain sufficient parts inventory to
service the needs of its customers, maintain adequate working capital, and
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 construction equipment
dealers. The Construction Dealer Agreements also entitle the Company to use John
Deere trademarks and tradenames, with certain restrictions.
DEERE AGRICULTURAL DEALER AGREEMENTS. The Company has non-exclusive
dealership agreements with Deere for each of its Deere agricultural equipment
stores, each of which authorizes the Company to act as a dealer in Deere
agricultural equipment (the "Agricultural Dealer Agreements") at a specific
authorized store location. The terms of the Agricultural Dealer Agreements are
substantially the same as the Construction Dealer Agreements. The Deere
agricultural equipment stores also offer John Deere lawn and grounds 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.
DEERE DEALERSHIP AGREEMENTS-OTHER PROVISIONS. Under an agreement with
Deere, 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
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selection of Company's management personnel, including Deere store managers,
and to have input with respect to the selection of nominees to the Company's
Board of Directors and the removal of directors. The prior consent of Deere
is required for the opening of any Deere store within the Company's
designated areas of responsibility and for the acquisition of any other Deere
dealership. 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
agreement, or if such ratio would fall below 30% as a result of such action.
As of the end of fiscal 1997, the Company's equity-to-assets ratio was 48.3%.
In the event of Mr. Offutt's death, Deere has the right to terminate the
Company's dealer appointments upon the occurrence of a "change of control."
The Company's Deere 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 construction equipment
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
construction equipment stores, or amends the dealer agreements or directly
sells substantial amounts of equipment to government entities and national
accounts, the Company's results of operations and financial condition could
be adversely affected.
OTHER SUPPLIERS. 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
Mr. Offutt's death.
FLOOR PLAN FINANCING
Having adequate wholegoods and parts inventories at each of the Company's
construction 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 network,
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 is an
important factor affecting the Company's results of operations.
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 twelve months for agricultural equipment and one to five months for
construction 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 January 31,1997, was 8.25%.
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OTHER SUPPLIERS. For equipment from suppliers other than Deere, the
Company primarily finances its inventory through its line of credit at Ag
Capital Company ("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 January 31, 1997 was
8.25%.
CUSTOMER FINANCING OPTIONS
Financing options for customer purchases support the sales activities of
the Company. Significant financing sources for purchases by the Company's
customers are through programs offered by Deere and Ag Capital. The Company does
not grant extended payment terms to its customers.
DEERE. Deere's credit subsidiaries provide and administer financing for
retail purchases and leases of new and used equipment, primarily through Deere
Credit. Deere Credit 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 January 31, 1997,
was $778,000.
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 $2.1 million
as of January 31, 1997. ACL Company, LLC and Farmers Equipment Rental, Inc.
also provided financing to customers for which the Company has some contingent
recourse liability, which contingent liability was approximately $1.9 million as
of January 31, 1997. These contingent liabilities are also capped at an amount
equal to 10% of the amount of the aggregate outstanding contracts.
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.
PRODUCT WARRANTIES
Product warranties for new equipment and parts are generally 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. The supplier (such as Deere) pays the Company for
repairs to equipment under warranty. The Company generally sells used equipment
"as is" and without manufacturer's warranty, although manufacturers sometimes
provide limited warranties if the manufacturer's original warranty is
transferable and has not yet expired. Typically, the Company does not provide
additional warranties on used equipment.
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COMPETITION
The Company's construction equipment retail stores compete with
distributors of equipment produced by manufacturers other than Deere,
including Case Corporation ("Case"), Caterpillar Inc. ("Caterpillar"), and
Komatsu Corporation. The Company also faces competition from distributors of
manufacturers of specific types of construction equipment, including JCB
backhoes, Kobelco excavators, Komatsu wheel loaders and crawler dozers, and
Bobcat skid loaders. The Company's agricultural retail equipment stores
compete with distributors of equipment from suppliers other than Deere,
including Agco Corporation, Case, Caterpillar, and New Holland N.V., a
subsidiary of Fiat. The Company's agricultural equipment stores also compete
with other Deere agricultural dealerships. Competing Deere agricultural
stores may be located in close proximity to one of the Company's agricultural
equipment stores. Competition among retail equipment dealers 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 the stores. The Company believes
that its broad product line, product support, and superior quality products
will enable it to compete effectively.
INTELLECTUAL PROPERTY RIGHTS
RDO Equipment Co. is a registered service mark 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 with respect to new equipment obtained from suppliers other than
Deere are licensed from their respective owners. The Company historically
has operated each of its construction and agricultural retail equipment
stores under either the RDO Equipment Co. service mark and 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. Each Deere store also is identified as either an
authorized John Deere construction or agricultural equipment retail store and
may display signs of other suppliers.
ENVIRONMENTAL AND GOVERNMENTAL REGULATIONS
The Company's operations are subject to numerous federal, state, and local
rules and regulations, including laws and regulations 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 material financial liability to the
Company. The Company is not aware of any federal, state, or local laws or
regulations that have been enacted or adopted, the compliance with which would
have a material adverse effect on the Company's results of operations or would
require the Company to make any material capital expenditures. 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.
EMPLOYEES
As of January 31, 1997 the Company employed 800 full-time employees. Of
this number, 13 employees were located at the Company's corporate offices and
employed in corporate administration. The balance of the employees were located
at the various stores: 97 were employed in administration, 160 in
10
<PAGE>
equipment sales and rental operations, 134 in parts sales, and 396 in servicing
equipment. None of the Company's employees is covered by a collective bargaining
agreement.
CERTAIN IMPORTANT FACTORS
In addition to the matters discussed above, there are several important
factors that could cause the Company's future results to differ materially
from those anticipated by the Company or which are reflected in any
forward-looking statement which may be made by or on behalf of the Company.
Many of these important factors are identified and discussed in greater
detail in the Company's Form 8-K dated April 28, 1997, as it may be
supplemented or amended from time to time in subsequent Form 8-K or other
filings with the Securities and Exchange Commission. Some of these important
factors (but not necessarily all important factors) include the following:
(i) The overall success of Deere and the Company's other suppliers;
(ii) The availability and terms of floor plan financing and customer
financing;
(iii) The incentive and discount programs provided by Deere and the
Company's other suppliers, and their promotional and marketing
efforts for the Company's construction and agricultural products;
(iv) The introduction of new and innovative products by the Company's
suppliers;
(v) The manufacture and delivery of competitively-priced, high quality
equipment and parts by the Company's suppliers in quantities
sufficient to meet the requirements of the Company's customers on a
timely basis;
(vi) General economic conditions, including agricultural industry cycles,
construction spending, 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;
(vii) The length of the crop growing season and winter and spring weather
conditions in the Midwest, and the confidence of the Company's
agricultural customers in the farm economy;
(viii) Risks associated with expansion, including the management of growth;
and
(ix) Continued availability of key personnel.
ITEM 2. PROPERTIES.
As of the end of fiscal 1997, the Company owned the real estate for
eight of its stores, leased its executive offices and eight stores from an
Offutt Entity (as defined in Item 4A below), and leased 16 stores from
unrelated third parties. Lease terms range from one to ten years and some
leases include an option to purchase the leased property. The Company
believes that all of its facilities are in good operating condition.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or other
proceedings to which the Company is a party or of which any of its property is
the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Prior to the completion of the Company's initial public offering and the
merger to reincorporate in Delaware (the "Merger"), in the fourth quarter of
fiscal 1997 the Merger was approved by the sole shareholder of the Company by
written consent and all the shareholders of RDO-North Dakota approved, by
written action, the Merger, the 1996 Stock Incentive Plan and the Share Exchange
Agreement, between the Company and Ronald D. Offutt, pursuant to which Mr.
Offutt exchanged his shares of Class A Common Stock for shares of Class B Common
Stock. No other matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and the offices held, as
of April 25, 1997 are as follows:
NAME AGE OFFICE
- ---- --- ------
Ronald D. Offutt 54 Chairman of the Board and Chief Executive Officer
Paul T. Horn 54 President and Chief Operating Officer
Allan F. Knoll 53 Chief Financial Officer and Secretary
Richard J. Moen 49 Chief Administrative Officer and Treasurer
Gary R. Allan 48 Senior Vice President - Northwest Agricultural Division
Charles Calhoun 44 Senior Vice President - Used Equipment Division
H. David Frambers 53 Senior Vice President - Midwest Construction Division
Randolph F. Goss 44 Senior Vice President - South Central Construction
Division
William R. Hutton 49 President - RDO Rental Co. (d/b/a Sun Valley Equipment)
Larry B. Kerkhoff 43 Senior Vice President - Midwest Agricultural Division
Larry E. Scott 54 Senior Vice President - Southwest Construction Division
Mark A. Doda 34 Controller
- -----------------
12
<PAGE>
RONALD D. 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 R.D. Offutt Company
("Offutt Co."), and he owns, controls, and/or manages other entities
(collectively, the "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. Mr.
Offutt spends 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 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. Mr. Horn serves as a director and officer and is
a beneficial stockholder of many Offutt Entities. 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 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. Mr. Knoll spends
approximately 25% of his time on the business of the Company. Mr. Knoll is a
graduate of Moorhead State University with degrees in Business Administration
and Accounting.
RICHARD J. MOEN has served as the Chief Administrative Officer and
Treasurer of the Company since 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.
("ConAgra"), 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 has served as Senior Vice President -Northwest Agricultural
Division since the Company's acquisition in October 1996 of two agricultural
stores located in the State of Washington. Previously, Mr. Allan was the
President of the acquired Washington agricultural stores and had 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.
CHARLES CALHOUN has served as Senior Vice President - Used Equipment
Division since March 1997. Previously, he was Vice President and an owner of
the construction dealership in Texas which was acquired by the Company in July
1996. Subsequent to this acquisition and prior to his appointment as Senior
Vice President, Mr. Calhoun managed the Texas construction dealership and
started the Used Equipment Division. He is a graduate of Texas Tech University
with a degree in Marketing.
H. DAVID FRAMBERS has served as Senior Vice President - Midwest
Construction Division since July 1996 and from July 1996 until March 1997 also
served as Senior Vice President - South Central
13
<PAGE>
Construction Division. With the expansion of the Construction Division, he
became Vice President and General Manager of the Construction 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
Construction 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.
RANDOLPH F. GOSS has served as Senior Vice President - South Central
Construction Division since March 1997. He joined the Company in January 1997
and managed the Company's Texas construction dealership until his appointment as
Senior Vice President. Prior to joining the Company, Mr. Goss was Vice
President - Sales and Marketing of Source, Inc., a telecommunications company,
from March 1996 until January 1997. From March 1995 until March 1996, he served
as Vice President - National Accounts of American Hi-Lift Corporation, a
division of Vibroplant USA, Inc. engaged in the rental and sale of equipment.
Prior thereto, Mr. Goss was employed by Hertz Equipment Rental Corporation as
Director of National Accounts (1992 until March 1995) and as Director of Sales,
Southwest Region (1987 until 1992). Mr. Goss attended the University of Miami
(Florida).
WILLIAM R. HUTTON has served as President of RDO Rental Co. (d/b/a Sun
Valley Equipment), an 80% owned subsidiary of the Company, since March 1997. He
is also the President of W.R. Hutton & Associates, Inc., a private investment
firm with offices in Arizona, which owns the remaining 20% of Sun Valley
Equipment. From 1984 until February 1997, he was President and owner of the
Arizona construction equipment rental business acquired by Sun Valley Equipment
in February 1997. From 1977 to 1980, Mr. Hutton was Vice President and one of
the founders of Sunstate Equipment Corp. From 1971 to 1977, Mr. Hutton was a
regional manager for U.S. Rentals, Inc. He attended Glendale Community College.
LARRY B. KERKHOFF has served as Senior Vice President - Midwest
Agricultural Division since July 1996. Prior to that time, he was the manager of
the Company's agricultural equipment store in Breckenridge, Minnesota, since
1990. He has been in 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 has served as Senior Vice President - Southwest Construction
Division 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 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.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the captions "Common Stock Information" and "Dividend
Policy" on page 37 of the Company's 1997 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on page 13 of
the 1997 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 14 through 21 of the
Company's 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Consolidated Financial Statements and the report of its
independent public accountants, Arthur Andersen LLP, on pages 22 through 35 of
the Company's 1997 Annual Report to Shareholders are incorporated herein by
reference and are listed in Item 14(a)(1)(A) on pages 16 and 17 of this Report.
The report of the Company's former independent public accountants, Eide Helmeke
PLLP, is included at page 18 of this Report. The supplementary data required by
this Item 8 appears as Note 14 entitled "Unaudited Quarterly Financial Data" on
page 34 of the 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective as of April 17, 1995, 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. In connection with the audits for the fiscal years ended January
31, 1994 and 1995, and through April 17, 1995, 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 with respect to the Company's financial
statements. 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.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Election of Directors--Information
About Nominees" and "Election of Directors--Other Information About Nominees" in
the Company's 1997 Proxy Statement is incorporated herein by reference.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Election of Directors--Compensation of
Directors" and "Executive Compensation and Other Benefits" in the Company's 1997
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and Beneficial
Ownership of Management" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Election of Directors - Certain
Relationships and Related Transactions" in the Company's 1997 Proxy Statement in
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) FINANCIAL STATEMENTS OF REGISTRANT.
(A) The following are incorporated herein by reference from the
pages indicated in the Company's 1997 Annual Report to Shareholders,
copies of which are included as Exhibit 13.1 to this Report:
Report of Independent Public Accountants--Arthur Andersen LLP--page
35.
Consolidated Statements of Operations for the Years Ended January 31,
1997, 1996 and 1995--page 22.
Consolidated Balance Sheets as of January 31, 1997 and 1996--page 23.
16
<PAGE>
Consolidated Statements of Stockholders' Equity for the Years Ended
January 31, 1997, 1996 and 1995--page 24.
Consolidated Statements of Cash Flow for the Years Ended January 31,
1997, 1996 and 1995--page 25.
Notes to Consolidated Financial Statements--pages 26 to 34.
(B) Report of Independent Public Accountants--Eide Helmeke PLLP-
-is included at page 18 of this Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.
Financial Statement Schedules are omitted because of the absence of
the conditions under which they are required or because the information required
is included in the consolidated financial statements or notes thereto.
(a)(3) EXHIBITS.
The exhibits to this Report are listed in the Exhibit Index on pages
20 to 22 below.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of April 25, 1997, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to RDO Equipment Co.,
Stockholder Relations, 6866 Washington Avenue South, Eden Prairie, Minnesota
55344.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(a)(3):
1. RDO Equipment Co. 1996 Stock Incentive Plan, including forms of option
agreements.
2. Form of Agreement Re: Confidentiality, Assignment of Inventions and
Non-Competition.
3. Form of Indemnification Agreement between the Company and each of its
executive officers and directors.
(b) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the fourth
fiscal quarter of the year.
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RDO Equipment Co.
We have audited the consolidated balance sheet [not presented herein] of RDO
Equipment Co. (a Delaware corporation, formerly a North Dakota corporation) and
Subsidiary as of January 31, 1995 and the accompanying related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
January 31, 1995. These consolidated 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 [not presented herein] of RDO
Equipment Co. and Subsidiary as of January 31, 1995, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
EIDE HELMEKE PLLP
Fargo, North Dakota,
December 15, 1995
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 28, 1997
RDO EQUIPMENT CO.
By: /s/ Ronald D. Offutt
------------------------------------
Ronald D. Offutt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 28, 1997 by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Ronald D. Offutt
- ------------------------------------- Chairman of the Board, Chief Executive
Ronald D. Offutt Officer and Director (principal
executive officer)
/s/ Paul T. Horn
- ------------------------------------- President, Chief Operating Officer and
Paul T. Horn Director
/s/ Allan F. Knoll
- ------------------------------------- Chief Financial Officer, Secretary and
Allan F. Knoll Director (principal financial officer)
/s/ Mark A. Doda
- ------------------------------------- Controller
Mark A. Doda (principal accounting officer)
/s/ Bradford M. Freeman
- ------------------------------------- Director
Bradford M. Freeman
/s/ Ray A. Goldberg
- ------------------------------------- Director
Ray A. Goldberg
/s/ Norman M. Jones
- ------------------------------------- Director
Norman M. Jones
/s/ James D. Watkins
- ------------------------------------- Director
James D. Watkins
19
<PAGE>
RDO EQUIPMENT CO.
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation.................... Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
3.2 Bylaws........................................ Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
4.1 Specimen Form of the Company's Class A
Common Stock Certificate...................... Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
4.2 Specimen Form of the Company's Class B
Common Stock Certificate...................... Incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-1
(File No. 333-13267)
10.1 Agreement between Ronald D. Offutt, RDO
Equipment Co., John Deere Company and
John Deere Construction Equipment Incorporated by reference to Exhibit 10.1 to the
Company....................................... Company's Registration Statement on Form S-1
(File No. 333-13267).
10.2 Form of Deere Agricultural Dealer
Agreement Package............................. Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1
(File No. 333-13267)
10.3 Form of Deere Construction Dealer
Agreement Package............................. Incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.4 Loan Agreement, Seasonal Note and Security
Agreement between Ag Capital and the
Company, dated July 25, 1996.................. Incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
20
<PAGE>
10.5 Loan Agreement and Seasonal Note between
Ag Capital Company and Minnesota Valley
Irrigation, Inc., dated August 26, 1996....... Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.6 Deere Agricultural Dealer Finance
Agreement..................................... Incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.7 Deere Construction Dealer Finance Incorporated by reference to Exhibit 10.7 to the
Agreement..................................... Company's Registration Statement on Form S-1
(File No. 333-13267).
10.8 RDO Equipment Co. 1996 Stock Incentive
Plan, including forms of option agreements.... Filed herewith.
10.9 Form of Indemnification Agreement entered
into by the Company with each of its
executive officers and directors.............. Incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.10 Corporate Service Agreement between RDO
Equipment Co. and R.D. Offutt Company,
dated as of November 1, 1996.................. Incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.12 Agreement and Plan of Merger by and
between RDO Equipment Co. (North Dakota)
and RDO Equipment Co. (Delaware).............. Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.13 Tax Agreement Relating to S Corporation
Distribution, with Supplement................. Incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.14 Agreement between RDO Equipment Co.,
John Deere Company and John Deere
Construction Equipment Company................ Incorporated by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
21
<PAGE>
10.15 Form of Agreement re: Confidentiality,
Assignment of Inventions and Non-
Competition entered into by the Company with
each of its executive officers and directors.. Filed herewith.
11.1 Statement re: Computation of Per Share
Earnings...................................... Filed herewith.
13.1 1997 Annual Report to Shareholders
(pages 13 through 35 and selected portions of
page 37)...................................... Filed herewith.
16.1 Letter re Change in Certifying Accountant..... Incorporated by reference to Exhibit 16.1 to the
Company's Registration Statement on Form S-1
(File No. 333-13267)
21.1 Subsidiaries of the Registrant................ Filed herewith.
27.1 Financial Data Schedule....................... Filed herewith.
</TABLE>
22
<PAGE>
Exhibit 10.8
RDO EQUIPMENT CO. 1996 STOCK INCENTIVE PLAN
AND FORMS OF OPTION AGREEMENTS
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
<PAGE>
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 initial maximum number of shares of
Common Stock that will be available for issuance under the Plan will be
1,250,000 shares of Common Stock; as of February 1 of each year the Plan is
in effect, if the total number of shares of Class A and Class B Common Stock
issued and outstanding, not including any shares of Common Stock issued under
the Plan, exceeds the total number of shares of Class A and Class B Common
Stock issued and outstanding as of February 1 of the preceding year, the
number of shares available will be increased by an amount such that the total
number of shares available for issuance under the Plan equals 10% of the
total number of shares of Common Stock outstanding, not including any shares
issued under the Plan. Lapsed, forfeited, or canceled awards will not count
against these limits. Cash exercises of SARs and cash settlements 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 Plan (without deduction for
issuances). 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 125,000 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
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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 250,000
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 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,
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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; provided, however,
that (a) except for Options to new directors, 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 Fargo, North Dakota 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
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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 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
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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.
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.
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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 (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.
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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;
(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 (ii) 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, provided that, Offutt retains voting control with
respect to such shares; (ii) the distribution to his heirs or beneficiaries
upon Offutt's death, 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).
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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 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), or would otherwise be subject to the excise tax
imposed by Section 4999 of the Code, or any interest or penalties are
incurred by the Participant with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Participant shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Participant of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax, the Participant will be in the same after-tax
position as if no Excise Tax had been imposed. The Committee may, from time
to time, adopt policies and procedures with respect to the calculation and
payment of these amounts.
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
11
<PAGE>
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 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.
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<PAGE>
17. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of October 1, 1996. The Plan will terminate at
midnight on September 31, 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 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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<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this ____ day of
_______, ____ (the "Date of Grant"), by and between RDO Equipment Co. (the
"Company") and _______________ (the "Optionee").
A. The Company has adopted the RDO Equipment Co. 1996 Stock Incentive
Plan (the "Plan") authorizing the Board of Directors of the Company, or a
committee as provided for in the Plan (the Board or such a committee to be
referred to as the "Committee"), to grant incentive stock options to employees
of the Company and its Subsidiaries (as defined in the Plan).
B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of Class A Common Stock of the Company pursuant to the Plan, subject to
the satisfaction of any conditions to such award as the Committee may have made
to the grant of such option.
C. The grant of this option is expressly conditioned upon the delivery by
Optionee to the Company of an assignment of invention, confidentiality and/or
non-compete agreement acceptable to the Company.
Accordingly, the parties agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and option
(the "Option") to purchase ____________________ (_________) shares (the "Option
Shares") of the Company's Class A Common Stock, $0.01 par value (the "Class A
Common Stock"), according to the terms and subject to the conditions hereinafter
set forth and as set forth in the Plan. The Option is intended to be an
"incentive stock option," as that term is used in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an exercise of
the Option will be $_____.
3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become exercisable
with respect to the Option Shares in ____ (__) installments. The following
table sets forth the initial dates of exercisability of
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each installment and the number of Option Shares as to which this Option will
become exercisable on such dates:
Initial Date of Number of Option Shares
Exercisability Available for Exercise
--------------- -----------------------
----------- ---------
----------- ---------
----------- ---------
----------- ---------
----------- ---------
The foregoing rights to exercise this Option will be cumulative with respect to
the Option Shares becoming exercisable on each such date, but in no event will
this Option be exercisable after, and this Option will become void and expire as
to all unexercised Option Shares at, 5:00 p.m. (Fargo, North Dakota time) on
_______ __, ____ (the "Time of Termination").
3.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH OR DISABILITY. In the event that the
Optionee's employment with the Company and all Subsidiaries is terminated
by reason of the Optionee's death or Disability (as defined in the Plan),
this Option 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 Time of Termination).
(b) TERMINATION DUE TO RETIREMENT. In the event that the Optionee's
employment with the Company and all Subsidiaries is terminated by reason of
Retirement (as defined in the Plan), all outstanding Options then held by
the Optionee will remain exercisable to the extent exercisable as of such
termination for a period of 90 days after such termination (but in no event
after the Time of Termination).
(c) TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. In the event the Optionee's employment with the Company and
all Subsidiaries is terminated for any reason other than death, Disability
or Retirement, or the Optionee is in the employ of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the Optionee
continues in the employ of the Company or another Subsidiary), all
outstanding Options then held by the Optionee will remain exercisable to
the extent exercisable as of such termination for a period of 90 days after
such termination (but in no event after the Time of Termination); provided
however, that if the Optionee 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
the Optionee's employment with the Company or any Subsidiary, the
Committee, in its sole discretion and without the consent of the Optionee,
may immediately terminate all rights of the Optionee under the Plan and
this Agreement.
3.3 CHANGE IN CONTROL.
(a) IMPACT OF CHANGE IN CONTROL. If any events constituting a Change
in Control (as defined in the Plan) of the Company occur, this Option will
become immediately exercisable in full and will remain exercisable until
the Time of Termination, regardless of whether the Optionee remains in the
employ of the Company or any Subsidiary. In addition, if a Change in
Control of
24
<PAGE>
the Company occurs, the Committee, in its sole discretion and without the
consent of the Optionee, may determine that the Optionee will receive, with
respect to some or all of the Option Shares, 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 (as defined in the Plan) of such Option
Shares immediately prior to the effective date of such Change in Control of
the Company over the option exercise price per share of this Option.
(b) Excess Parachute Payment Tax Gross-Up:
(i) The parties hereto acknowledge that the protections set
forth in this Paragraph 3.3(b) are important, and it is agreed that
the Optionee should not have to bear the burden of any excise tax that
might be levied under Section 4999 of the Code in the event that a
portion of the payments or benefits payable to the Optionee by the
Company or others, either pursuant to this Agreement or otherwise, are
treated as an excess parachute payment. The parties, therefore, have
agreed as set forth in this Paragraph 3.3(b).
(ii) Anything in this Agreement to the contrary notwithstanding,
if it shall be determined that any payment or benefit provided by the
Company, or any other person to or for the benefit of the Optionee
(whether paid or payable or provided or providable pursuant to the
terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Paragraph 3.3(b)) (a
"Payment") would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by the Optionee
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then the Company shall pay to or on behalf of
the Optionee an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Optionee of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax, Optionee will be in the
same after-tax position as if no Excise Tax had been imposed.
4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or in
part from time to time, subject to the conditions contained in the Plan and in
this Agreement, by delivery, in person, by facsimile or electronic transmission
or through the mail, to the Company at its principal executive office in Fargo,
North Dakota (Attention: Chief Financial Officer), of a written notice of
exercise. Such notice must be in a form satisfactory to the Committee, must
identify the Option, must specify the number of Option Shares with respect to
which the Option is being exercised, and must be signed by the person or persons
so exercising the Option. Such notice must be accompanied by payment in full of
the total purchase price of the Option Shares purchased. In the event that the
Option is being exercised, as provided by the Plan and Section 3.2 above, by any
person or persons other than the Optionee, the notice must be accompanied by
appropriate proof of right of such person or persons to exercise the Option. As
soon as practicable after the effective exercise of the Option, the Optionee
will be recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
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<PAGE>
4.2 PAYMENT. At the time of exercise of this Option, the Optionee must
pay the total purchase price of the Option Shares to be purchased entirely in
cash (including a check, bank draft or money order, payable to the order of the
Company); provided, however, that the Committee, in its sole discretion and upon
terms and conditions established by the Committee, may allow such payment to be
made, in whole or in part, by tender of Previously Acquired Shares (as such term
is defined in the Plan), or by a combination of cash and tender of Previously
Acquired Shares. In the event the Optionee is permitted to pay the total
purchase price of this Option in whole or in part with Previously Acquired
Shares, the value of such shares will be equal to their Fair Market Value (as
defined in the Plan) on the date of exercise of this Option.
5. RIGHTS OF OPTIONEE; TRANSFERABILITY.
5.1 EMPLOYMENT. Nothing in this Agreement will interfere with or limit in
any way the right of the Company or any Subsidiary to terminate the employment
of the Optionee at any time, nor confer upon the Optionee any right to continue
in the employ of the Company or any Subsidiary at any particular position or
rate of pay or for any particular period of time.
5.2 RIGHTS AS A SHAREHOLDER. The Optionee will have no rights as a
shareholder unless and until all conditions to the effective exercise of this
Option (including, without limitation, the conditions set forth in Sections 4
and 6 of this Agreement) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the Committee
in its sole discretion.
5.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or the
laws of descent and distribution or as otherwise expressly permitted by the
Plan, no right or interest of the Optionee in this Option prior to exercise may
be assigned or transferred, or subjected to any lien, during the lifetime of the
Optionee, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise. The Optionee will, however, be entitled to
designate a beneficiary to receive this Option upon such Optionee's death, and,
in the event of the Optionee's death, exercise of this Option (to the extent
permitted pursuant to Section 3.2(a) of this Agreement) may be made by the
Optionee's legal representatives, heirs and legatees.
6. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future wages of the
Optionee (or from other amounts that may be due and owing to the Optionee from
the Company), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any federal, state or local withholding
and employment-related tax requirements attributable to the grant or exercise
of, or a disqualifying disposition with respect to, this Option or otherwise
incurred with respect to this Option, or (b) require the Optionee promptly to
remit the amount of such withholding to the Company before acting on the
Optionee's notice of exercise of this Option. In the event that the Company is
unable to withhold such amounts, for whatever reason, the Optionee agrees to pay
to the Company an amount equal to the amount the Company would otherwise be
required to withhold under federal, state or local law.
7. ADJUSTMENTS.
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
26
<PAGE>
Company, the Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation), in
order to prevent dilution or enlargement of the rights of the Optionee, will
make appropriate adjustment (which determination will be conclusive) as to the
number, kind and exercise price of securities subject to this Option.
8. LIMITATION OF LIABILITY.
Nothing in this Agreement will be construed to (a) limit in any way the
right of the Company to terminate the employment or service of the Optionee at
any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular position,
at any particular rate of compensation or for any particular period of time.
9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms of,
the Plan. The terms of the Plan are incorporated by reference in this Agreement
in their entirety, and the Optionee, by execution of this Agreement,
acknowledges having received a copy of the Plan. The provisions of this
Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this Agreement will be interpreted by reference to the Plan. In
the event that any provision of this Agreement is inconsistent with the terms of
the Plan, the terms of the Plan will prevail.
10. MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
10.2 GOVERNING LAW. This Agreement and all rights and obligations under
this Agreement will be construed in accordance with the Plan and governed by the
laws of the State of Delaware, without regard to conflicts of laws provisions.
Any legal proceeding related to this Agreement will be brought in an appropriate
Delaware or North Dakota (which is to apply the law of Delaware) court, and the
parties to this Agreement consent to the exclusive jurisdiction of such court
for this purpose.
10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the entire
agreement and understanding of the parties to this Agreement with respect to the
grant and exercise of this Option and the administration of the Plan and
supersede all prior agreements, arrangements, plans and understandings relating
to the grant and exercise of this Option and the administration of the Plan.
10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties to this Agreement or, in the case of a
waiver, by the party waiving compliance.
27
<PAGE>
The parties to this Agreement have executed this Agreement effective the
day and year first above written.
RDO EQUIPMENT CO.
By
---------------------------
Its
--------------------------
By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan.
------------------------------
(Signature)
------------------------------
(Name and Address)
------------------------------
------------------------------
28
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this ____ day of
______________, ____ (the "Date of Grant"), by and between RDO Equipment Co.
(the "Company") and ___________________ (the "Optionee").
A. The Company has adopted the RDO Equipment Co.. 1996 Stock Incentive
Plan (the "Plan") authorizing the Board of Directors of the Company, or a
committee as provided for in the Plan (the Board or such a committee to be
referred to as the "Committee"), to grant non-statutory stock options to
employees, non-employee directors, consultants and independent contractors of
the Company and its Subsidiaries (as defined in the Plan).
B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of Class A Common Stock of the Company pursuant to the Plan, subject
to the satisfaction of any conditions to such award as the Committee may have
made to the grant of such option.
Accordingly, the parties agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase ____________________________ (________)
shares (the "Option Shares") of the Company's Class A Common Stock, $0.01 par
value (the "Common Stock"), according to the terms and subject to the
conditions hereinafter set forth and as set forth in the Plan. The Option is
not intended to be an "incentive stock option," as that term is used in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an exercise
of the Option will be $______.
3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become
exercisable with respect to the Option Shares in _____________ (_____)
installments. The following table sets forth the initial dates of
exercisability of each installment and the number of Option Shares as to
which this Option will become exercisable on such dates:
Initial Date of Number of Option
Exercisability Shares Available for Exercise
-------------- -----------------------------
_____________, ______ _________
_____________, ______ _________
_____________, ______ _________
_____________, ______ _________
<PAGE>
_____________, ______ _________
The foregoing rights to exercise this Option will be cumulative with respect to
the Option Shares becoming exercisable on each such date, but in no event will
this Option be exercisable after, and this Option will become void and expire
as to all unexercised Option Shares at 5:00 p.m. (Fargo, North Dakota time) on
___________ __, ____ (the "Time of Termination").
3.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) TERMINATION DUE TO DEATH OR DISABILITY. In the event that the
Optionee's employment or other service with the Company and all Subsidiaries
is terminated by reason of the Optionee's death or Disability (as defined in
the Plan), this Option 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 Time of Termination).
(b) TERMINATION DUE TO RETIREMENT. In the event that the Optionee's
employment or other service with the Company and all Subsidiaries is
terminated by reason of Retirement (as defined in the Plan), all outstanding
Options then held by the Optionee will remain exercisable to the extent
exercisable as of such termination for a period of 90 days after such
termination (but in no event after the Time of Termination).
(c) TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. In the event the Optionee's employment or other service with the
Company and all Subsidiaries is terminated for any reason other than death,
Disability or Retirement, or the Optionee is in the employ or other service
of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Optionee continues in the employ or other service of the Company
or another Subsidiary), all outstanding Options then held by the Optionee
will remain exercisable to the extent exercisable as of such termination for
a period of 90 days after such termination (but in no event after the Time of
Termination), provided however, that if the Optionee 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 the Optionee's employment or other service with the Company or
any Subsidiary, the Committee may, in its sole discretion and without the
consent of the Optionee, immediately terminate all rights of the Optionee
under this Plan and this Agreement.
3.3 CHANGE IN CONTROL.
(a) IMPACT OF CHANGE IN CONTROL. If any events constituting a
Change in Control (as defined in the Plan) of the Company occur, this Option
will become immediately exercisable in full and will remain exercisable until
the Time of Termination, regardless of whether the Optionee remains in the
employ or service of the Company or any Subsidiary. In addition, if a Change
in Control of the Company occurs, the Committee, in its sole discretion and
without the consent of the Optionee, may determine that the Optionee will
receive, with respect to some or all of the Option Shares, 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 (as defined in the Plan)
of such Option Shares immediately prior to the effective date of such Change
in Control of the Company over the option exercise price per share of this
Option.
2
<PAGE>
(b) Excess Parachute Payment Tax Gross-Up:
(i) The parties hereto acknowledge that the protections set
forth in this Paragraph 3.3(b) are important, and it is
agreed that the Optionee should not have to bear the
burden of any excise tax that might be levied under
Section 4999 of the Code in the event that a portion of
the payments or benefits payable to the Optionee by the
Company or others, either pursuant to this Agreement or
otherwise, are treated as an excess parachute payment.
The parties, therefore, have agreed as set forth in this
Paragraph 3.3(b).
(ii) Anything in this Agreement to the contrary notwithstanding,
if it shall be determined that any payment or benefit
provided by the Company, or any other person to or for the
benefit of the Optionee (whether paid or payable or
provided or providable pursuant to the terms of this
Agreement or otherwise, but determined without regard to
any additional payments required under this Paragraph
3.3(b)) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Optionee with respect to
such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Company shall
pay to or on behalf of the Optionee an additional payment
(a "Gross-Up Payment") in an amount such that after
payment by the Optionee of all taxes (including any
interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and
Excise Tax, Optionee will be in the same after-tax position
as if no Excise Tax had been imposed.
4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole
or in part from time to time, subject to the conditions contained in the Plan
and in this Agreement, by delivery, in person, by facsimile or electronic
transmission or through the mail, to the Company at its principal executive
office in Fargo, North Dakota (Attention: Chief Financial Officer), of a
written notice of exercise. Such notice must be in a form satisfactory to
the Committee, must identify the Option, must specify the number of Option
Shares with respect to which the Option is being exercised, and must be
signed by the person or persons so exercising the Option. Such notice must
be accompanied by payment in full of the total purchase price of the Option
Shares purchased. In the event that the Option is being exercised, as
provided by the Plan and Section 3.2 above, by any person or persons other
than the Optionee, the notice will be accompanied by appropriate proof of
right of such person or persons to exercise the Option. As soon as
practicable after the effective exercise of the Option, the Optionee will be
recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee
will pay the total purchase price of the Option Shares to be purchased
entirely in cash (including a check, bank draft
3
<PAGE>
or money order, payable to the order of the Company); provided, however, that
the Committee, in its sole discretion and upon terms and conditions
established by the Committee, may allow such payment to be made, in whole or
in part, by tender of Previously Acquired Shares (as such term is defined in
the Plan), or by a combination of cash and tender of Previously Acquired
Shares. In the event the Optionee is permitted to pay the total purchase
price of this Option in whole or in part with Previously Acquired Shares, the
value of such shares will be equal to their Fair Market Value (as defined in
the Plan) on the date of exercise of this Option.
5. RIGHTS OF OPTIONEE; TRANSFERABILITY.
5.1 EMPLOYMENT OR SERVICE. Nothing in this Agreement will
interfere with or limit in any way the right of the Company or any Subsidiary
to terminate the employment or service of the Optionee at any time, nor
confer upon the Optionee any right to continue in the employ or service of
the Company or any Subsidiary at any particular position or rate of pay or
for any particular period of time.
5.2 RIGHTS AS A SHAREHOLDER. The Optionee will have no rights as
a shareholder unless and until all conditions to the effective exercise of
this Option (including, without limitation, the conditions set forth in
Sections 4 and 6 of this Agreement) have been satisfied and the Optionee has
become the holder of record of such shares. No adjustment will be made for
dividends or distributions with respect to this Option as to which there is a
record date preceding the date the Optionee becomes the holder of record of
such shares, except as may otherwise be provided in the Plan or determined by
the Committee in its sole discretion.
5.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary
will or the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of the Optionee in this Option
prior to exercise may be assigned or transferred, or subjected to any lien,
during the lifetime of the Optionee, either voluntarily or involuntarily,
directly or indirectly, by operation of law or otherwise. The Optionee will,
however, be entitled to designate a beneficiary to receive this Option upon
such Optionee's death, and, in the event of the Optionee's death, exercise of
this Option (to the extent permitted pursuant to Section 3.2(a) of this
Agreement) may be made by the Optionee's legal representatives, heirs and
legatees.
6. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future wages
of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company), or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to the grant
or exercise of this Option or otherwise incurred with respect to this Option,
or (b) require the Optionee promptly to remit the amount of such withholding
to the Company before acting on the Optionee's notice of exercise of this
Option. In the event that the Company is unable to withhold such amounts, for
whatever reason, the Optionee agrees to pay to the Company an amount equal to
the amount the Company would otherwise be required to withhold under federal,
state or local law.
4
<PAGE>
7. ADJUSTMENTS.
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), in order to prevent dilution or enlargement of the rights of the
Optionee, will make appropriate adjustment (which determination will be
conclusive) as to the number, kind and exercise price of securities subject to
this Option.
8. LIMITATION OF LIABILITY.
Nothing in this Agreement will be construed to (a) limit in any way
the right of the Company to terminate the employment or service of the
Optionee at any time, or (b) be evidence of any agreement or understanding,
express or implied, that the Company will retain the Optionee in any
particular position, at any particular rate of compensation or for any
particular period of time.
9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms
of, the Plan. The terms of the Plan are incorporated by reference in this
Agreement in their entirety, and the Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions
of this Agreement will be interpreted as to be consistent with the Plan, and
any ambiguities in this Agreement will be interpreted by reference to the
Plan. In the event that any provision of this Agreement is inconsistent with
the terms of the Plan, the terms of the Plan will prevail.
10. MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement will be binding upon the
heirs, executors, administrators and successors of the parties to this
Agreement.
10.2 GOVERNING LAW. This Agreement and all rights and obligations
under this Agreement will be construed in accordance with the Plan and
governed by the laws of the State of Delaware, without regard to conflicts of
laws provisions. Any legal proceeding related to this Agreement will be
brought in an appropriate Delaware or North Dakota (which is to apply the law
of Delaware) court, and the parties to this Agreement consent to the
exclusive jurisdiction of the court for this purpose.
10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the
entire agreement and understanding of the parties to this Agreement with
respect to the grant and exercise of this Option and the administration of
the Plan and supersede all prior agreements, arrangements, plans and
understandings relating to the grant and exercise of this Option and the
administration of the Plan.
10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan,
this Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties to this Agreement or, in the case of a
waiver, by the party waiving compliance.
5
<PAGE>
The parties to this Agreement have executed this Agreement effective
as of the day and year first above written.
RDO EQUIPMENT CO.
By________________________________
Its_______________________________
By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan.
----------------------------------
(Signature)
----------------------------------
(Name and Address)
----------------------------------
----------------------------------
6
<PAGE>
Exhibit 10.15
FORM OF AGREEMENT RE: CONFIDENTIALITY,
ASSIGNMENT OF INVENTIONS, AND NON-COMPETITION
This Agreement is made as of _____________ between RDO Equipment Co. (the
"Company") (which, for purposes of this Agreement includes any subsidiary of the
Company) and ____________, who is an employee of the Company (the "Employee").
WHEREAS, the Company currently is engaged in the selling, servicing and
renting of industrial and agricultural equipment throughout the United States;
and
WHEREAS, the Company has in place a stock incentive plan which provides for
the granting of options to acquire shares of the Company's Class A Common Stock;
and
WHEREAS, the Company desires to grant a stock option to Employee, subject
to the express condition that Employee execute and deliver to the Company this
Agreement; and
WHEREAS, Employee has reviewed this Agreement and understands its terms and
conditions, and in consideration of a stock option grant desires to execute and
deliver to the Company this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree as
follows:
1. INVENTIONS.
(a) "Inventions", as used in this Agreement, means any discoveries,
improvements and ideas (whether or not they are in writing or reduced
to practice) or works of authorship (whether or not they can be
patented or copyrighted) that the Employee makes, authors, or
conceives (either alone or with others) and that:
(1) concern directly the Company's business or the Company's present
or demonstrably anticipated future business or development;
(2) result from any work the Employee performs for the Company;
(3) use the Company's equipment, supplies, facilities, or trade
secret information; or
(4) the Employee develops during the time the Employee is performing
employment duties for the Company.
(b) The Employee agrees that all Inventions made by the Employee during or
within six (6) months after the term of this Agreement will be the
Company's sole and exclusive property. The Employee will, with
respect to any Invention:
29
<PAGE>
(1) keep current, accurate and complete records, which will belong to
the Company and be kept and stored on the Company's premises
while the Employee is employed by the Company;
(2) promptly and fully disclose the existence and describe the nature
of the Invention to the Company in writing (and without request);
(3) assign (and the Employee does hereby assign) to the Company all
of his rights to the Invention, any application Employee makes
for patents or copyrights in any country, and any patents or
copyrights granted to Employee in any country; and
(4) acknowledge and deliver promptly to the Company any written
instruments, and perform any other acts necessary in the
Company's opinion to preserve property rights in the Invention
against forfeiture, abandonment or loss and to obtain and
maintain letters, patents and/or copyrights on the Invention and
to vest the entire right and title to the Invention in the
Company.
The requirements of this Agreement do not apply to an Invention for which
no equipment, supplies, facility or trade secret information of the Company
was used and which was developed entirely on the Employee's own time, and
(1) which does not relate directly to the Company's business or to the
Company's actual or demonstrably anticipated business or development, or
(2) which does not result from any work the Employee performed for the
Company. Except as previously disclosed to the Company in writing, the
Employee does not have, and will not assert, any claims to or rights under
any Inventions as having been made, conceived, authored or acquired by the
Employee prior to his employment by the Company. With respect to any
obligations performed by the Employee under this Agreement following
termination of employment, the Company will pay the Employee reasonable
hourly compensation and will pay or reimburse all reasonable out-of-pocket
expenses.
(c) Employee will sign and execute all instruments of assignment and other
papers to evidence the assignment of Employee's entire right, title
and interest in such inventions, improvements, discoveries, software,
writings or other works of authorship to the Company, at the request
and the expense of the Company, and Employee will do all acts and sign
all instruments of assignment and other papers the Company may
reasonably request relating to applications for patents, copyrights,
and the enforcement and protection thereof. If the Employee is
needed, at any time, to give testimony, evidence, or opinions in any
litigation or proceeding involving any patents or copyrights or
applications for patents or copyrights, both domestic and foreign,
relating to inventions, improvements, discoveries, software, writings
or other works of authorship conceived, developed or reduced to
practice by the Employee, the Employee agrees to do so, and if the
Employee leaves the employ of the Company, the Company will pay the
Employee at a rate mutually agreeable to the Employee and the Company,
plus reasonable traveling or other expenses.
(d) The obligations of this Section 1 will survive the expiration or
termination of this Agreement.
2. CONFIDENTIAL INFORMATION.
(a) "Confidential Information", as used in this Agreement, means
information or material which is not generally available to or used by
others, or the utility or value of which is not generally
30
<PAGE>
known or recognized as standard practice, whether or not the
underlying details are in the public domain, including:
(1) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, marketing or sales plans, operations, past, current or
anticipated software, products or services, customers or
prospective customers, or development, purchasing, accounting, or
marketing activities;
(2) information or material relating to the Company's inventions,
improvements, discoveries, "know-how," technological
developments, or unpublished writings or other works of
authorship, or to the materials, apparatus, processes, formulae,
plans or methods used in the development, or marketing of the
Company's products or services;
(3) information which when received is marked as "proprietary,"
"private," or "confidential";
(4) trade secrets; and
(5) any similar information of the type described above which the
Company obtained from another party and which the Company treats
as or designates as being proprietary, private or confidential,
whether or not owned or developed by the Company.
Notwithstanding the foregoing, "Confidential Information" does
not include any information which is properly published or in the public
domain; provided, however, that information which is published by or with
the aid of the Employee outside the scope of employment or contrary to the
requirements of this Agreement will not be considered to have been properly
published, and therefore will not be in the public domain for purposes of
this Agreement.
(b) The Employee will never, either during or after the Employee's
employment by the Company, use Confidential Information for any
purpose other than the business of the Company or publish or disclose
it to any person who is not also an employee of the Company subject to
a confidentiality agreement with the Company. When the Employee's
employment with the Company ends, the Employee will promptly deliver
to the Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe or embody
Confidential Information, including all copies, reproductions and
specimens of the Confidential Information in the Employee's
possession, regardless of who prepared them, and will promptly deliver
any other property of the Company in the Employee's possession,
whether or not Confidential Information.
3. NON-COMPETITION.
(a) During the period Employee is employed by the Company and for a
further period of two (2) years after termination of employment with
the Company for any reason, Employee will not, directly or indirectly,
either for Employee's own benefit or for the benefit of any other
person, firm or corporation whatsoever, other than the Company, (i)
directly engage in any commercial activity that competes with the
Company in the geographic areas where the Company has conducted its
business during the three years before the Employee's employment with
the Company ends, (ii) serve any of the then-existing clients or
customers of the Company, any clients or customers that have had a
relationship with the Company during the preceding twelve (12) months,
or any potential clients or customers that were solicited by the
Company
31
<PAGE>
during the preceding twelve (12) months, (iii) in any way interfere or
attempt to interfere with the Company's relationships with any of its
current or potential customers, or (iv) employ or attempt to employ
any of the Company's then employees on behalf of any other entity
competing with the Company. Employee acknowledges that if Employee
breaches this covenant, the Company will be irreparably and
immeasurably injured. Therefore, Employee agrees that in addition to
any other remedies available to the Company, the Company may apply to
a court of competent jurisdiction for a temporary and/or permanent
injunction and that such court may grant such injunction to restrain
and prohibit such breach by Employee. Notwithstanding the foregoing,
it is understood that the restrictions contained in this Section 3
will cease to be applicable to any activity of the Employee from and
after such time as the Company (i) will have ceased all business
activities for a period of sixty (60) days or (ii) will have made a
decision through the Board of Directors not to continue, or will have
ceased for a period of sixty (60) days, the business activities with
which such activity of Employee would be competitive.
(b) In the event Employee's employment terminates for any reason, no
additional compensation will be paid for this non-competition
obligation.
(c) The obligations of this Section 3 will survive the expiration or
termination of this Agreement.
4. MISCELLANEOUS.
(a) CONFLICTS OF INTEREST. The Employee agrees that Employee will not,
directly or indirectly, transact business with the Company personally,
or as an agent, owner, partner or shareholder of any other entity;
provided, however, that any such transaction may be entered into if
approved by the Company's Board of Directors in accordance with its
policies.
(b) NO ADEQUATE REMEDY. The Employee understands that if the Employee
fails to fulfill the Employee's obligations under this Agreement the
damages to the Company would be very difficult to determine.
Therefore, in addition to any other rights or remedies available to
the Company at law, in equity, or by statute, the Employee hereby
consents to the specific enforcement of this Agreement by the Company
through an injunction or restraining order issued by an appropriate
court.
(c) SUCCESSORS AND ASSIGNS. This Agreement is binding on and inures to
the benefit of the Company's successors and assigns, all of which are
included in the term the "Company" as it is used in this Agreement;
provided, however, that the Company may assign this Agreement only in
connection with a merger, consolidation, assignment, sale or other
disposition of substantially all of its assets or business.
(d) MODIFICATION. This Agreement may be modified or amended only by a
written statement signed by both the Company and the Employee.
(e) GOVERNING LAW. It is the intention of both parties that the terms of
this Agreement be strictly enforced and be governed by the law of the
Company's state of incorporation (Delaware), corporate headquarters
(North Dakota), or the Employee's residence, whichever such law would
enforce the terms of this Agreement to the greatest extent. Any legal
proceeding, regardless of the governing law, related to this Agreement
will be brought in an appropriate
32
<PAGE>
North Dakota court, and both the Company and the Employee hereby
consent to the exclusive jurisdiction of that court for this purpose.
(f) CONSTRUCTION. Wherever possible, each provision of this Agreement
will be interpreted so that it is valid under the applicable law. If
any provision of this Agreement is to any extent invalid under the
applicable law, that provision will still be effective to the extent
it remains valid. The remainder of this Agreement also will continue
to be valid, and the entire Agreement will continue to be valid in
other jurisdictions.
(g) WAIVERS. No failure or delay by either the Company or the Employee in
exercising any right or remedy under this Agreement will waive any
provision of the Agreement. Nor will any single or partial exercise
by either the Company or the Employee of any right or remedy under
this Agreement preclude either of them from otherwise or further
exercising these rights or remedies, or any other rights or remedies
granted by any law or any related document.
(h) CAPTIONS. The headings in this Agreement are for convenience only and
do not affect this Agreement's interpretation.
(i) ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and
understandings between the parties concerning the matters in this
Agreement, including without limitation any policy or personnel
manuals of the Company.
(j) NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and will be hand delivered or
sent by registered or certified first class mail, postage prepaid, and
will be effective upon delivery if hand delivered, or three (3) days
after mailing if mailed to the address stated below. These addresses
may be changed at any time by like notice.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the date first written above.
RDO Equipment Co.
2829 South University Drive
Fargo, ND 58103
By
----------------------
Its
---------------------
EMPLOYEE
- -------------------------
- -------------------------
- -------------------------
- -------------------------
33
<PAGE>
Exhibit 11.1
RDO EQUIPMENT CO. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1997 1996
---- ----
Pro forma net income $ 6,483 $ 4,841
-------- --------
-------- --------
Weighted average number of common shares
outstanding 8,400 8,370
Dilutive effect of shares for which proceeds were
necessary to fund the $15 million distribution of
accumulated S corporation earnings 1,059 1,059
-------- --------
Weighted average number of common shares
outstanding 9,459 9,429
-------- --------
-------- --------
Pro forma net income per common share $ 0.68 $ 0.51
-------- --------
-------- --------
34
<PAGE>
Exhibit 13.1
1997 ANNUAL REPORT TO SHAREHOLDERS
(pages 13 through 35 and selected portions of page 37)
35
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
(in thousands, except store and per share data) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales $224,094 $164,054 $135,704 $106,600 $ 73,516 $ 49,097
Parts and service 75,820 58,998 48,206 37,512 31,862 22,129
Rental 2,499 505 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues 302,413 223,557 183,910 144,112 105,378 71,226
Cost of sales 245,287 180,839 148,111 116,369 83,548 56,422
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 57,126 42,718 35,799 27,743 21,830 14,804
Selling, general, and administrative expense 41,275 31,655 24,893 20,577 16,737 11,929
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 15,851 11,063 10,906 7,166 5,093 2,875
Interest expense, net (5,046) (2,994) (1,093) (1,334) (908) (1,126)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,805 8,069 9,813 5,832 4,185 1,749
Pro forma provision for income taxes (1) 4,322 3,228 3,925 2,332 1,674 700
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 6,483 $ 4,841 $ 5,888 $ 3,500 $ 2,511 $ 1,049
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Pro forma net income per share $ .68 $.51
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Weighted average shares outstanding 9,459 9,429
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
SELECTED OPERATING DATA:
Comparable store sales increase 26% 11% 25% 32% 12% --
Stores open at beginning of period 26 22 22 21 17 15
Stores opened 1 2 0 0 0 1
Stores acquired 5 2 0 1 4 1
- ------------------------------------------------------------------------------------------------------------------------------
Stores open at end of period 32 26 22 22 21 17
- ------------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 3,656 $ 9,993 $ 1,208 $ 627 $ 681 $ 561
Depreciation and amortization 2,606 1,326 690 668 584 504
AS OF JANUARY 31,
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Working capital $ 72,744 $ 26,596 $ 26,700 $ 22,019 $ 15,284 $ 9,846
Inventories 130,955 115,616 77,204 64,768 55,582 40,175
Total assets 181,551 148,093 98,315 83,341 68,660 46,129
Floor plan payables (2) 64,331 91,614 53,581 46,644 45,149 28,067
Total debt 14,409 10,638 3,277 2,946 6,698 6,283
Stockholders' equity 87,795 34,284 30,467 24,503 11,105 7,006
</TABLE>
(1) Prior to January 20, 1997, the Company elected to be treated as an S
corporation under the Internal Revenue Code. The pro forma provision for
income taxes is computed as if the Company were subject to corporate income
taxes based on the tax laws in effect during these fiscal years.
(2) Includes interest bearing and non-interest bearing liabilities incurred in
connection with inventory financing.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company distributes, sells, services and rents construction and agricultural
equipment to customers primarily operating in the construction, materials
handling and agricultural industries, as well as to units of state, local and
federal government and utility companies. The Company's primary supplier of new
equipment and parts is Deere & Company (Deere). The Company operates the largest
network of John Deere construction retail equipment stores and agricultural
retail equipment stores in the United States. The Company's stores are located
in Arizona, California, Minnesota, North Dakota, South Dakota, Texas and
Washington.
The Company's growth in recent years has been due to its ability to grow market
share within its existing Deere areas of responsibility, to increase same store
sales, to open additional retail locations, and to acquire additional
construction and agricultural dealerships. The acquisitions are primarily the
result of consolidation trends among Deere dealers, Deere's support of the trend
and Deere's support of the Company as an acquirer.
In January 1997, the Company completed an initial public offering of Class A
Common Stock, issuing 4,830,000 shares ("Offering"). The proceeds of the
Offering, $68.3 million after offering costs, have been or will be used to repay
indebtedness incurred to finance acquisitions in the aggregate amount of
approximately $10.1 million, to make an S corporation distribution of
approximately $15.0 million in connection with the termination of the Company's
S corporation tax status, and to finance future acquisitions, new stores,
internal growth and working capital needs.
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 rent-to-purchase 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 equipment sales during the
period from November through April, affecting its first and fourth fiscal
quarters, 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 activity and, therefore, also typically results
in lower sales of construction 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 Company ("Ag Capital"), and
commercial banks. Floor plan financing from Deere and
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 twelve months for agricultural equipment and
one to five months for construction equipment. Deere also provides financing to
dealers on used equipment accepted in trade and approved equipment from other
suppliers.
The Company believes that it has benefited from generally favorable economic
conditions during recent years, including, with respect to its Agricultural
Division, favorable grain prices which have resulted in a strong farming economy
and, with respect to its Construction 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.
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 construction equipment dealership in Southern California
which consisted of two full-service construction 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 acquisition of a Deere
construction equipment dealership in Central Texas, with three stores located in
the Dallas-Fort Worth and Waco, Texas metropolitan areas with a Deere area of
responsibility covering the 35 surrounding counties. The Company acquired
certain assets and assumed certain liabilities. The purchase price for the net
assets was approximately $8.4 million, which was financed through a note payable
to Ag Capital, with an interest rate at the prime rate (which was 8.25%), which
note was repaid out of the net proceeds of the Offering. 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 July 1, 1996.
Effective October 1, 1996, the Company completed the acquisition of a Deere
agricultural equipment dealership with two stores located in Pasco and
Sunnyside, Washington. The Company acquired certain assets and assumed certain
liabilities. The purchase price for the net assets was approximately
$2.7 million, and was financed in part by a $1.0 million note payable to the
seller, with the remainder financed through a note payable to Ag Capital with an
interest rate at the prime rate (which was 8.25%), which note was repaid out of
the net proceeds of the Offering. This acquisition was accounted for under the
purchase method of accounting and the results of operations of the Washington
stores are included in the Company's results of operations beginning October 1,
1996.
Beginning November 1, 1989, the Company was an S corporation and not subject to
tax on its net income. The Company's S election was terminated in January 1997.
The pro forma 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.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Wholegoods sales 74.1% 73.4% 73.8%
Parts and service 25.1 26.4 26.2
Rental 0.8 0.2 --
- ------------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Gross profit 18.9% 19.1% 19.5%
Selling, general, and
administrative expense 13.6 14.2 13.5
- ------------------------------------------------------------------
Operating income 5.3 4.9 6.0
Interest expense, net 1.7 1.3 0.6
Pro forma provision for taxes (1) 1.5 1.4 2.2
- ------------------------------------------------------------------
Pro forma net income (1) 2.1% 2.2% 3.2%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</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
(at an assumed rate of 40%) during these periods.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED
TO FISCAL YEAR ENDED JANUARY 31, 1996
REVENUES
Revenues increased approximately $78.8 million, or 35.3%, from $223.6 million
for fiscal 1996 to $302.4 million for fiscal 1997. Construction operations
contributed approximately $52.5 million of this increase, with revenues
increasing 37.8% to $191.5 million. The increase in construction 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 construction 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, $15.0 million of the increase in revenues from construction operations
resulted from the inclusion of seven months of operations of the Central Texas
operations, the acquisition of which was effective July 1, 1996. The May 1995
opening of a construction store in Prescott, Arizona, the addition of an
undercarriage service facility at the Company's construction store in Riverside,
California, and the November 1995 addition of a dedicated construction equipment
rental fleet in the Southwest region also contributed to the increase in total
revenues.
Agricultural operations contributed the remaining increase in revenues of
approximately $26.3 million, with revenues in fiscal 1997 increasing 31.1% to
$110.9 million. Of this increase in agricultural revenues, $6.1 million was due
to the Company's October 1, 1996 acquisition of the Washington operations. A
portion of the increase in total revenues was the result of a shift in business
from the fourth quarter of the previous fiscal year due to the cold weather and
farmer uncertainty about the United States farm program. In addition, a highly
positive outlook of farmers for the agricultural economy generated increased
activity in all aspects of the Company's agricultural operations.
Wholegoods sales increased approximately $60.0 million in fiscal 1997, or 36.6%,
from $164.1 million for fiscal 1996 to $224.1 million for fiscal 1997.
Construction operations contributed approximately $38.7 million of this
increase, with sales increasing 38.9% to $138.1 million. Of this increase, $10.5
million was due to the acquisition of the Central Texas operations. Agricultural
operations contributed the remaining increase of approximately $21.3 million,
with sales increasing 32.9% to $86.0 million. Of this increase, $4.3 million was
due to the acquisition of the Washington agricultural operations. The increase
in wholegoods sales in fiscal 1997 for both the Construction and Agricultural
Divisions was due to the factors discussed in the preceding paragraphs.
Wholegoods sales also increased as a result of the Company's marketing strategy,
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
which focuses on increased market share, customer relationship training of its
sales force, and utilization of software to track and manage sales calls.
Parts and service revenue increased approximately $16.8 million, or 28.5%, from
$59.0 million for fiscal 1996 to $75.8 million for fiscal 1997. Of this
increase, $6.2 million was due to the acquisitions of the Central Texas and
Washington operations and the majority of the remaining portion of the increase
was due to the increase in the base of wholegoods owned by the Company's
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, service bay facilities and personnel to its stores
to expand its service capacity. The May 1995 opening of the undercarriage
service facility at the construction store in Riverside, California contributed
approximately $1.1 million of parts and service revenue in fiscal 1996 compared
to $2.2 million in fiscal 1997.
Rental revenue of $2.5 million was generated in fiscal 1997 as the result of the
commencement of construction equipment rental operations in the Southwest region
in November 1995 compared to $505,000 in fiscal 1996.
GROSS PROFIT
Gross profit increased approximately $14.4 million, or 33.7%, from $42.7 million
for fiscal 1996 to $57.1 million for fiscal 1997. Gross profit as a percentage
of total revenues for fiscal 1997 and 1996 was 18.9% and 19.1%, respectively.
The Company's highest gross margins are derived from its parts and service
revenues. For these periods, there was a small change in the revenue mix between
wholegoods sales and parts and service revenues which contributed to the
reduction in gross margin percent.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expense as a percentage of total revenues
decreased from 14.2% for fiscal 1996 to 13.6% for 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
$9.6 million, from $31.7 million for fiscal 1996 to $41.3 million for fiscal
1997. Approximately $3.7 million of the increase was due to the operations
acquired during fiscal 1997. The remaining portion of the increase was 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 $1.9 million, or 50%, from $3.8 million
for fiscal 1996 to $5.7 million for fiscal 1997. The increase was due primarily
to the increased levels of floor plan payables associated with higher inventory
levels, the financing of the construction equipment rental fleet discussed
above, and the acquisition debt associated with the acquisitions of the Central
Texas and Washington operations.
PRO FORMA PROVISION FOR TAXES
In the fourth quarter of fiscal 1997, the Company recognized a one-time income
tax benefit of $300,000 due to changing its status from an S corporation to a C
corporation during the period. This benefit is excluded from pro forma net
income and pro forma net income per share which are being reported as if the
Company had been a taxable entity for fiscal 1997 and 1996. The 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 35.4%, to
$6.5 million, or $0.68 per share, for fiscal 1997, compared to $4.8 million, or
$0.51 per share, for fiscal 1996.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. Construction operations
contributed approximately $28.3 million of this increase with revenues
increasing 25.7% to $139.0 million. Approximately $16.9 million of the increase
in construction revenues was due to the Company's February 1995 acquisition of
the California operations. Approximately $2.0 million of the construction
revenues increase was due to the Prescott, Arizona store, which opened in
May 1995. Excluding the California and Prescott operations, same store
construction 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
construction revenues increased at a lower rate than in prior fiscal 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 discount program
on governmental sales and increased the discounts back to their previous 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 did not buy wholegoods and equipment was not able to be moved for
normal servicing.
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 construction sales and farmer
uncertainty about the United States farm program. During fiscal 1995 and 1996,
all of the Company's agricultural stores were located in the Midwest. Through
the first three quarters of fiscal 1996, total agricultural revenues had
increased 22.0% over the same period of fiscal 1995. The extremely cold weather
in the fourth quarter of fiscal 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. Construction
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 construction 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 Construction
Division was affected by the change in the Deere discount program on
governmental sales 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 discussed above. 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 utilization of software to track
and manage sales calls.
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 oper-
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ations, 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 construction equipment rental operations in the fourth
quarter of fiscal 1996 by implementing a rental fleet of construction 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 discounts on
governmental sales of construction 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 construction wholegoods
sales. In addition, the Company had a marketing strategy designed to increase
market share at newly-acquired construction 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 13.5% in fiscal 1995 to 14.2% 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 California construction
stores acquired in fiscal 1996, which have higher compensation and occupancy
costs relative to the Company's other construction 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.
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 construction equipment rental
fleet. The remaining $1.4 million increase was a result of increased levels of
floor plan payables 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 construction 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 fiscal 1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories 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, Ag
Capital, and commercial banks. In addition, in January 1997, the Company
completed its initial public offering raising net proceeds of $68.3 million
which is being used to satisfy the Company's working capital needs.
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 wholegoods 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
twelve months for agricultural equipment and one to five months for construction
equipment. Deere also provides financing to dealers on used equipment accepted
in trade and approved equipment from other manufacturers.
The Company annually reviews the terms of its financing with its lenders,
including the interest rate. In fiscal 1997, 1996 and 1995 the average interest
rate under interest bearing floor plan financing was approximately 8.25%,
8.85%, and 7.25%, respectively. As of January 31,1997 the Company had
outstanding floor plan payables of approximately $64.3 million, of which
$15.3 million was then interest bearing.
During fiscal 1997, operating activities used net cash of $31.9 million versus
providing net cash of $12.1 million in fiscal 1996 and $3.2 million in fiscal
1995. The changes in fiscal 1997 and 1996 were primarily attributable to
decreased and increased levels of floor plan payables, respectively.
Cash used for investing activities in fiscal 1997, 1996 and 1995 was $14.3
million, $11.8 million and $1.3 million, respectively. The cash used in
fiscal 1997 was primarily related to dealership acquisitions. The cash used
in fiscal 1996 was primarily due to the purchase of construction equipment
for the Company's rental operations in the Southwest and for the acquisition
of dealerships.
Cash provided by financing activities amounted to $45.9 million for fiscal 1997
and was primarily attributable to net proceeds of $68.3 million from the initial
public offering, partially offset by the distribution to its stockholders of
$25.0 million of previously undistributed accumulated
S corporation earnings. In fiscal 1996 and 1995 the Company utilized net cash
from financing activities of $200,000 and $1.5 million, respectively.
The Company believes cash from operations, available cash and borrowing capacity
will be sufficient to fund its planned capital expenditures for fiscal 1998.
INCOME TAXES
Prior to January 20, 1997, the Company had elected to be treated as an
S corporation for income tax purposes, and the Company's stockholders paid the
income taxes on the Company's taxable income directly. The Company made
distributions to its stockholders of $25.0 million, $4.3 million and $3.8
million during fiscal 1997, 1996 and 1995, respectively. The increase in
distributions in fiscal 1997 relates to the Company's termination of its S
corporation federal tax status and the corresponding distribution of the
previously undistributed accumulated S corporation earnings, of which $830,000
was unpaid as of January 31, 1997.
As a result of the termination of its S corporation election in fiscal 1997, the
Company recorded a net deferred income tax asset of $300,000, which relates
primarily to
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
the timing differences between financial and income tax reporting of certain
items attributable to the periods in which the Company 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 fiscal quarters. As a result, sales
of agricultural equipment generally are lower in the first and fourth fiscal
quarters. Winter weather in the Midwest also limits construction to some degree
and, therefore, also typically results in lower sales of construction equipment
in the first and fourth fiscal 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.
9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS RDO EQUIPMENT CO. AND SUBSIDIARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Wholegoods sales $224,094 $164,054 $135,704
Parts and service 75,820 58,998 48,206
Rental 2,499 505 --
- -----------------------------------------------------------------------------------------
Total revenues 302,413 223,557 183,910
COST OF SALES 245,287 180,839 148,111
- -----------------------------------------------------------------------------------------
GROSS PROFIT 57,126 42,718 35,799
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 41,275 31,655 24,893
- -----------------------------------------------------------------------------------------
Operating income 15,851 11,063 10,906
INTEREST EXPENSE (5,720) (3,817) (1,895)
INTEREST INCOME 674 823 802
- -----------------------------------------------------------------------------------------
Income before income taxes 10,805 8,069 9,813
INCOME TAX BENEFIT 300 -- --
- -----------------------------------------------------------------------------------------
NET INCOME $ 11,105 $ 8,069 $ 9,813
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
UNAUDITED PRO FORMA DATA (Note 7):
Income before income taxes $ 10,805 $ 8,069 $ 9,813
Pro forma provision for income taxes 4,322 3,228 3,925
- -----------------------------------------------------------------------------------------
Pro forma net income $ 6,483 $ 4,841 $ 5,888
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Pro forma net income per share $ .68 $ .51
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Weighted average shares outstanding 9,459 9,429
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
10
<PAGE>
CONSOLIDATED BALANCE SHEETS RDO EQUIPMENT CO. AND SUBSIDIARY
<TABLE>
<CAPTION>
AS OF JANUARY 31
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 459 $ 787
Accounts receivable (less allowance for doubtful accounts of $929 and $555) 24,982 15,533
Receivables from affiliates -- 490
Inventories 130,955 115,616
Prepaid expenses 499 312
Deferred income tax benefit 540 --
- ---------------------------------------------------------------------------------------------------------
Total current assets 157,435 132,738
PROPERTY AND EQUIPMENT, net 15,642 13,039
OTHER ASSETS:
Deposits 1,360 1,579
Goodwill and other, net of accumulated amortization of $185 and $41 7,114 737
- ---------------------------------------------------------------------------------------------------------
Total assets $181,551 $148,093
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables $ 64,331 $ 91,614
Notes payable and current maturities of long-term debt-
Banks and others 4,933 2,835
Affiliates 651 136
Accounts payable 5,153 4,104
Accrued liabilities 5,652 3,350
Customer advance deposits 3,141 4,103
Dividends payable 830 --
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 84,691 106,142
LONG-TERM DEBT, net of current maturities:
Banks and others 3,522 6,469
Affiliates 5,303 1,198
DEFERRED INCOME TAXES 240 --
- ---------------------------------------------------------------------------------------------------------
Total liabilities 93,756 113,809
- ---------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 8):
Preferred stock -- --
Common stocks-
Class A 57 9
Class B 75 75
Additional paid-in capital 84,447 16,284
Retained earnings 3,216 17,916
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 87,795 34,284
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $181,551 $148,093
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
11
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY RDO EQUIPMENT CO. AND SUBSIDIARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
--------------------------------------- ADDITIONAL
TOTAL PAID-IN RETAINED
CLASS A CLASS B AMOUNT CAPITAL EARNINGS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 891,508 7,458,492 $ 84 $16,216 $ 8,203 $24,503
Net income -- -- -- -- 9,813 9,813
Dividends paid -- -- -- -- (3,849) (3,849)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1995 891,508 7,458,492 84 16,216 14,167 30,467
Issuance of common stock 20,383 -- -- 68 -- 68
Net income -- -- -- -- 8,069 8,069
Dividends paid -- -- -- -- (4,320) (4,320)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1996 911,891 7,458,492 84 16,284 17,916 34,284
Issuance of common stock 4,830,000 -- 48 68,231 -- 68,279
Purchase of common stock (20,383) -- -- (68) -- (68)
Net income -- -- -- -- 11,105 11,105
Dividends paid and payable -- -- -- -- (25,805) (25,805)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1997 5,721,508 7,458,492 $132 $84,447 $ 3,216 $87,795
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS RDO EQUIPMENT CO. AND SUBSIDIARY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31
(IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,105 $8,069 $9,813
Adjustments to reconcile net income to net cash
provided by (used for) operating activities-
Depreciation and amortization 2,606 1,326 690
Deferred tax benefit (300) -- --
Change in operating assets and liabilities:
Accounts and notes receivable (8,959) (432) (5,285)
Inventories (1,330) (29,266) (12,436)
Prepaid expenses (185) (36) (199)
Deposits 218 (343) (405)
Floor plan payables (37,193) 32,723 8,995
Accounts payable and accrued liabilities 3,085 (125) 971
Customer advance deposits (962) 184 1,072
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (31,915) 12,100 3,216
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,656) (9,993) (1,208)
Purchase of net assets of dealerships (10,100) (1,263) --
Other, net (516) (571) (46)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (14,272) (11,827) (1,254)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 7,432 5,862 250
Payments on long-term debt (2,757) (510) (565)
Net payments of bank lines and short-term notes payable (2,052) (1,269) (1,711)
Proceeds from collection of notes receivable from affiliates -- -- 1,259
Issuance of common stock, net of issuance costs 68,279 68 --
Purchase of common stock (68) -- --
Payment of dividends (24,975) (4,320) (761)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 45,859 (169) (1,528)
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (328) 104 434
CASH AND CASH EQUIVALENTS, beginning of year 787 683 249
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 459 $ 787 $ 683
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
1. NATURE OF BUSINESS:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the results of RDO Equipment Co.
(RDO) and its wholly owned subsidiary, Minnesota Valley Irrigation, Inc. (MVI).
RDO acquired MVI in January 1997 when both were owned and controlled by the same
majority stockholder. The acquisition was effected through the issuance of
191,725 shares of RDO common stock. Because RDO and MVI were under common
control, the acquisition was accounted for essentially as a pooling of
interests. RDO and MVI, collectively, are referred to herein as the Company.
BUSINESS
The Company is engaged in the sale, servicing and rental of construction and
agricultural equipment to customers primarily in the construction and
agricultural industries and to governmental agencies. The Company's headquarters
are located in Fargo, North Dakota. The Company owns and operates construction
and agricultural equipment dealerships located in Arizona, California,
Minnesota, North Dakota, South Dakota, Texas and Washington. 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 49%, 48% and 47% of total revenues for
fiscal years 1997, 1996 and 1995, 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 construction 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,
maintain suitable facilities, actively promote the sale of Deere equipment,
fulfill warranty obligations and 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 the death of the controlling stockholder
and a subsequent change in control, as defined. The Company was in compliance
with the terms of the Deere agreements at January 31, 1997.
Deere is obligated to make floor plan and other financing programs available to
the Company 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, 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 valuation of 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.
CASH AND CASH EQUIVALENTS
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.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
INVENTORIES
All inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out 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):
1997 1996
- --------------------------------------------------------------------------------
New equipment $ 75,233 $ 72,647
Used equipment 40,094 32,056
Parts and other 15,628 10,913
- --------------------------------------------------------------------------------
Total $130,955 $115,616
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 as of January 31 (in
thousands):
1997 1996
- --------------------------------------------------------------------------------
Land $ 850 $ 488
Buildings and improvements 3,919 3,394
Equipment, furniture and fixtures 8,064 5,585
Rental equipment 8,624 7,750
Construction in progress 198 18
- --------------------------------------------------------------------------------
Total 21,655 17,235
Accumulated depreciation (6,013) (4,196)
- --------------------------------------------------------------------------------
Property and equipment, net $15,642 $13,039
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenue on equipment and parts sales is recognized upon delivery of product to
customers. Rental and service revenue is recognized at the time such services
are provided.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed based on weighted average shares
outstanding, adjusted for the number of shares for which proceeds were necessary
to fund the $15 million distribution of accumulated undistributed S corporation
earnings discussed in Note 7.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121) 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 adopted SFAS 121 in the year ended January
31, 1997. The adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
changes the way companies calculate their earnings per share (EPS). SFAS 128
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding, excluding potentially dilutive
securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is also to be
disclosed. The Company is required to adopt SFAS 128 in fiscal 1998 at which
time all prior year EPS are to be restated in accordance with SFAS 128. If the
Company had adopted the pronouncement during fiscal 1997, the effect of this
accounting change on reported earnings per share data would not have been
material.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
3. BUSINESS COMBINATIONS:
On October 1, 1996, the Company purchased certain assets and assumed certain
liabilities of Liberty Agricultural, Inc. (Washington), a full-service
agricultural equipment dealership with two stores located in Pasco and
Sunnyside, Washington. The total purchase price for the net assets of Washington
was approximately $2.7 million and was financed with debt, a portion of which
was repaid with net proceeds from the Offering (see Note 8). The purchase
agreement also calls for future contingent consideration of up to $750,000 in
the event certain performance criteria are met over a three-year period. The
Company anticipates accounting for the contingent consideration paid, if any, as
compensation expense. The acquisition resulted in goodwill of approximately $1.6
million, which will be amortized over 30 years.
On July 1, 1996, the Company acquired certain assets and assumed certain
liabilities of Mega Equipment Company (Central Texas), which consists of three
full-service construction stores located in the Dallas/Fort Worth metropolitan
area and Waco, Texas. Total consideration for the net assets acquired was
approximately $8.4 million and was financed with debt from Ag Capital Company
(Ag Capital), which was repaid with a portion of the net proceeds from the
Offering (see Note 8). Resulting goodwill of approximately $4.4 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.
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 233,559 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 consolidated net assets and results of
the operations of the consolidated 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
net assets was $2,699,000. Resulting goodwill of $625,000 is being amortized
over 30 years.
The Central Texas, Washington and Whitney acquisitions have been accounted for
using the purchase method of accounting, and accordingly, the assets acquired
and liabilities of Central Texas, Washington and Whitney have been recorded
based upon fair value as of the dates of acquisition. The excess of the purchase
price over the fair value of the assets acquired and liabilities assumed has
been recorded as goodwill.
Results of operations for these acquisitions have been included in the
accompanying consolidated financial statements since the dates of acquisition.
The accompanying unaudited consolidated pro forma results of operations for the
years ended January 31, 1997 and 1996, give effect to the Offering (see Note 8)
and the acquisitions of Central Texas, Washington and Whitney as if they were
completed at the beginning of the respective periods. The unaudited pro forma
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions in fact had occurred
at such date or to project the Company's results of future operations (in
thousands, except per share data):
1997 1996
- --------------------------------------------------------------------------------
Revenues $330,977 $265,478
- --------------------------------------------------------------------------------
Net income $ 9,877 $ 8,376
- --------------------------------------------------------------------------------
Weighted average shares
outstanding 13,185 13,200
- --------------------------------------------------------------------------------
Net income per common and
common equivalent share $ .75 $ .63
- --------------------------------------------------------------------------------
4. 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
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
terms of the financing arrangements. All amounts owed to Deere are guaranteed by
the majority stockholder of the Company and are collateralized by inventory.
Floor plan payables consist of the following as of January 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing:
Deere Credit Services inventory notes, due as inventory is sold, interest
at various rates, 8.25% during fiscal 1997 and 5.65%
to 9.25% during fiscal 1996 $10,927 $20,015
Deere & Company payables, due as inventory is sold, interest at various
rates, 8.75% during fiscal 1997 and 8.25% to 9.00% during fiscal 1996 3,744 17,487
Ag Capital Company, interest based on prime (8.25% and 8.5%
at January 31, 1997 and 1996, respectively) 347 7,299
Other 325 363
- ----------------------------------------------------------------------------------------------------------
15,343 45,164
- ----------------------------------------------------------------------------------------------------------
Noninterest-bearing:
Deere & Company 46,860 45,147
Deere Credit Services 1,580 --
Other 548 1,303
- ----------------------------------------------------------------------------------------------------------
48,988 46,450
- ----------------------------------------------------------------------------------------------------------
Total $64,331 $91,614
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT:
BANKS AND OTHERS
Notes payable and long-term debt to banks and others consisted of the following
as of January 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deere Credit Services rental equipment notes, due in various amounts
through January 2001, interest at various rates from 8.25% to 9.5%,
collateralized by rental equipment $5,115 $3,533
Bank lines of credit (see below) 1,420 3,472
Other 1,920 2,299
- ----------------------------------------------------------------------------------------------------------
Total 8,455 9,304
Less short-term notes and current maturities of long-term debt (4,933) (2,835)
- ----------------------------------------------------------------------------------------------------------
$3,522 $6,469
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Company has bank lines of credit totaling $3,000,000 available through May
1, 1997 at variable interest rates. Bank lines of credit are guaranteed by the
majority stockholder of the Company. During the fiscal years ended January 31,
1997, 1996 and 1995, the highest balances outstanding under these lines were
$3,000,000, $2,972,000 and $750,000, respectively. The weighted average interest
rates on these lines during such periods were 8.58%, 8.41% and 7.94%,
respectively.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
AFFILIATES
Notes payable and long-term debt due to affiliates consisted of the following as
of January 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Ag Capital Company, interest (variable 8.25% to fixed 8.61%),
collateralized by substantially all assets of the Company $5,954 $1,334
Less- Short-term notes and current maturities of long-term debt (651) (136)
- -----------------------------------------------------------------------------------------------------
$5,303 $1,198
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
Future maturities of all debt as of January 31, 1997 are as follows (in
thousands):
1998 $ 5,584
1999 3,155
2000 2,312
2001 1,485
2002 1,072
Thereafter 801
- --------------------------------------------------------------------------------
$14,409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997.
6. 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 an annual maximum of $900 per employee.
Contributions to the plan by the Company were $214,000, $194,000 and $151,000
for the fiscal years ended January 31, 1997, 1996 and 1995, 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, 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.
STOCK-BASED COMPENSATION PLAN
The Company adopted 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) provides for an authorization of shares of Class A
common stock for issuance thereunder such that the total number of shares
available for issuance under the Plan equals 10% of the total number of shares
of Class A 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.
Information regarding the Plan as of January 31, 1997 is as follows:
SHARES UNDER EXERCISE
OPTION PRICE
- --------------------------------------------------------------------------------
Outstanding, end of year 560,000 $15.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exerciseable, end of year 40,000 $15.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company accounts for this stock option plan under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for this
plan been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company's pro
forma net income and pro forma net income per common share would not be
materially different from reported amounts.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
7. INCOME TAXES:
Prior to January 20, 1997, the Company had elected to be treated as an S
corporation under the Internal Revenue Code. Under this election, the Company
was not directly subject to income taxes. Instead, corporate taxable earnings
were passed through to the stockholders, who were responsible for any taxes
which may have been due. The Company previously made distributions to its
stockholders to enable them to pay the corresponding taxes on such corporate
taxable earnings. In connection with the reorganization and Offering described
in Note 8, the Company terminated S corporation federal tax status and changed
to a C corporation and, accordingly, is subject to federal and certain state
income taxes. In conjunction with this termination, the Company distributed to
its stockholders the previously undistributed accumulated S corporation earnings
accumulated as of the termination date.
Pro forma net income and pro forma net income per share for the years ended
January 31, 1997, 1996 and 1995, 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 all periods presented. The components of the pro
forma income tax provision are summarized as follows as of January 31 (in
thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Currently payable:
Federal $3,386 $2,433 $3,319
State 979 757 992
Deferred income tax
provision (benefit) (43) 38 (386)
- --------------------------------------------------------------------------------
Pro forma provision for
income taxes $4,322 $3,228 $3,925
- --------------------------------------------------------------------------------
For fiscal years ended January 31, 1997, 1996 and 1995, the difference between
the federal statutory rate of 34% and the pro forma provision for income taxes
represents the impact of state income taxes, net of the federal benefit.
Effective with the termination of the Company's S corporation status, the
Company provided 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 totaling $300,000.
The current deferred tax asset and the long-term deferred tax liability
consisted of the following temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities at January 31, 1997
(in thousands):
Accruals and other reserves $560
Inventory (250)
Compensation accruals 230
- ------------------------------------------------------------
Net current deferred tax asset 540
Property and equipment (240)
- ------------------------------------------------------------
$300
- ------------------------------------------------------------
- ------------------------------------------------------------
8. INITIAL PUBLIC OFFERING, REORGANIZATION AND CAPITAL STOCK:
INITIAL PUBLIC OFFERING
The Company completed the sale of 4,830,000 shares (including the Underwriters'
overallotment option) of Class A common stock (the Offering) for net proceeds of
$68,279,000. The Company used a portion of the net proceeds of this Offering to
fund the distribution of accumulated S corporation dividends (see Note 7), repay
certain notes issued in connection with the acquisitions of Central Texas and
Washington (see Note 3), pay down inventory floor plan financing, fund
subsequent acquisitions (see Note 13) and for general corporate purposes.
REORGANIZATION
The Company's Board of Directors approved the reclassification and split of each
share of common stock into 44.5 shares of either Class A or Class B common stock
effective immediately prior to the Offering. This reclassification and stock
split has been retroactively reflected in the accompanying consolidated
financial statements.
CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Class A common stock, 7,500,000 shares of Class B common stock and 500,000
shares of preferred stock, each with a par value of $0.01 per share. The
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
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.
The following is a summary of the Company's issued and outstanding shares of
common stock as of January 31, 1997:
Class A shares 5,721,508
Class B shares 7,458,492
- ---------------------------------------------------------
Total shares 13,180,000
- ---------------------------------------------------------
- ---------------------------------------------------------
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. Lease expense was $2,733,000, $2,055,000 and $1,386,000
for fiscal 1997, 1996 and 1995, respectively.
Future minimum lease payments, by year, required under leases with initial or
remaining terms of one year or more consist of the following (in thousands):
1998 $3,069
1999 2,760
2000 2,441
2001 2,038
2002 1,541
Thereafter 5,992
- ----------------------------------------------------
Total $17,841
- ----------------------------------------------------
- ----------------------------------------------------
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 companies to partially fund
contingent liabilities which may come due. These customer notes are
collateralized by equipment. As of January 31, 1997, the contingent liability
and off-setting deposits are as follows (in thousands):
FINANCE
GUARANTEED DEPOSITS
AMOUNTS RECEIVABLE
- --------------------------------------------------------------------
Ag Capital Company (affiliate) $2,097 $ --
ACL Company, LLC (affiliate) 1,223 --
Farmers Equipment Rental, Inc.
(affiliate) 721 --
Deere Credit Services 778 778
Other 118 --
- --------------------------------------------------------------------
Total $4,937 $ 778
- --------------------------------------------------------------------
- --------------------------------------------------------------------
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 accounts for
significant transactions which have a guaranteed repurchase feature as leases.
The Company's existing repurchase agreements expire as follows (in thousands):
1998 $1,449
1999 1,049
2000 2,438
2001 3,760
2002 2,603
Thereafter 266
- ------------------------------------------------------------------------
Total $ 11,565
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
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, ACL Company, LLC 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 and Farmers Equipment Rental, Inc. to finance
inventory as summarized in Notes 4 and 5. Interest expense paid to related
entities totaled $1,354,000, $849,000 and $627,000 in fiscal 1997, 1996 and
1995, respectively.
c. The Company had sales to related entities totaling $11,198,000, $5,492,000
and $3,450,000 in fiscal 1997, 1996 and 1995, respectively. The Company also
leases certain retail space and vehicles from related entities. Total lease
expense for these leases totaled $1,793,000, $1,089,000 and $737,000 in
fiscal 1997, 1996 and 1995, respectively.
11. SUPPLEMENTAL CASH FLOW DISCLOSURES:
<TABLE>
<CAPTION>
Supplemental cash flow disclosures for the Company are as follows (in thousands):
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash payments for interest $ 5,640 $3,820 $1,937
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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 $11,325 $9,991 $ --
- ------------------------------------------------------------------------------------------------------------------------
Dividends declared, accrued and unpaid $ 830 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Reduction of notes receivable from affiliates and other receivables
through payment of dividends $ -- $ -- $3,088
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
12. SEGMENT INFORMATION:
The Company's operations are classified into two business segments: construction
and agricultural. The construction operations include the sale, service and
rental of construction equipment to customers primarily in the construction and
utility industries and to units of government. Agricultural operations include
the sale, service and rental of agricultural equipment primarily to customers in
the agricultural industry.
Operating earnings by business segment are defined as revenues less operating
costs and expenses. 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 and equipment, deferred income taxes and goodwill.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RDO EQUIPMENT CO. AND SUBSIDIARY
The following table shows sales, operating income and other financial
information by business segment for the fiscal years 1997, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
CORPORATE
CONSTRUCTION AGRICULTURAL AND OTHER TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Revenues $191,461 $110,952 $ -- $302,413
Operating income 9,783 6,068 -- 15,851
Depreciation and amortization 2,199 364 43 2,606
Identifiable assets 111,175 62,841 7,535 181,551
Capital expenditures 2,723 871 62 3,656
1996:
Revenues 138,972 84,585 -- 223,557
Operating income (loss) 6,604 4,826 (367) 11,063
Depreciation and amortization 987 303 36 1,326
Identifiable assets 102,289 45,591 213 148,093
Capital expenditures 7,855 2,001 137 9,993
1995:
Revenues 110,546 73,364 -- 183,910
Operating income (loss) 6,709 4,796 (599) 10,906
Depreciation and amortization 444 239 7 690
Identifiable assets 59,573 37,110 1,632 98,315
Capital expenditures 540 643 25 1,208
</TABLE>
13. ACQUISITIONS COMPLETED SUBSEQUENT TO JANUARY 31, 1997:
Effective February 1, 1997, the Company purchased certain net assets and assumed
certain liabilities of Sun Valley Equipment Corp., a construction equipment
rental company with five retail stores in Arizona. Total consideration for the
net assets acquired was $2.7 million. The Company assigned these net assets to a
newly formed subsidiary, RDO Rental Co., of which the Company owns 80% of the
outstanding common stock.
Effective March 3, 1997, the Company purchased certain net assets and assumed
certain liabilities of a Mack Truck dealership located in Fargo, North Dakota.
Total consideration for the net assets acquired was $2.1 million.
14. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL YEAR
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 1997:
Total revenues $70,886 $82,887 $75,487 $73,153 $302,413
Gross profit 12,168 14,936 15,705 14,317 57,126
Pro forma net income 1,597 2,262 2,041 583 6,483
Pro forma net income per share 0.17 0.24 0.22 0.06 0.68
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
Pro forma net income 1,130 1,618 1,847 246 4,841
Pro forma net income per share 0.12 0.17 0.19 0.03 0.51
</TABLE>
The sum of the per share amounts for fiscal 1997 does not equal the total for
the year due to the effects of rounding.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO RDO EQUIPMENT CO.:
We have audited the accompanying consolidated balance sheets of RDO Equipment
Co. (a Delaware corporation) and Subsidiary as of January 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated 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. The financial
statements of RDO Equipment Co. and Subsidiary as of January 31, 1995 were
audited by other auditors whose report dated December 15, 1995 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RDO Equipment Co. and
Subsidiary as of January 31, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 18, 1997
23
<PAGE>
COMMON STOCK INFORMATION
RDO Equipment Co. Class A Common Stock is listed on the New York Stock Exchange
and is traded under the symbol "RDO." The high and low reported sales prices
on the New York Stock Exchange from January 24, 1997 (the day the Company's
Class A Common Stock began trading) through January 31, 1997 (the last day of
the fiscal year) were $19.00 and $17.125, respectively. As of April 25, 1997,
the Company had approximately 2,200 holders of its Class A Common Stock, and one
holder of its Class B Common Stock.
DIVIDEND POLICY
The Company intends to retain the earnings of the Company to support the
Company's operations and to finance expansion and growth, and it does not intend
to pay cash dividends in the foreseeable future. Payment of dividends rests
within the discretion of the Board of Directors and will depend upon, among
other factors, the Company's earnings, capital requirements, financial
condition, and any dividend restrictions under its dealership and credit
agreements.
24
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF RDO EQUIPMENT CO.
<TABLE>
<CAPTION>
Name Under Which
Subsidiary State of Incorporation Subsidiary Does Business
- ---------- ---------------------- ------------------------
<S> <C> <C>
Minnesota Valley Irrigation, Inc. Minnesota Corporate Name
(100% owned)
RDO Mack Sales and Service, Inc. North Dakota Corporate Name
(100% owned)
RDO Rental Co. Minnesota Sun Valley Equipment
(80% owned)
</TABLE>
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 25,911
<ALLOWANCES> 929
<INVENTORY> 130,955
<CURRENT-ASSETS> 157,435
<PP&E> 21,655
<DEPRECIATION> 6,013
<TOTAL-ASSETS> 181,551
<CURRENT-LIABILITIES> 84,691
<BONDS> 8,825
0
0
<COMMON> 132
<OTHER-SE> 87,663
<TOTAL-LIABILITY-AND-EQUITY> 181,551
<SALES> 302,413
<TOTAL-REVENUES> 302,413
<CGS> 245,287
<TOTAL-COSTS> 245,287
<OTHER-EXPENSES> 41,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,720
<INCOME-PRETAX> 10,805
<INCOME-TAX> 4,322
<INCOME-CONTINUING> 6,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,483
<EPS-PRIMARY> .68
<EPS-DILUTED> 0
</TABLE>
