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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [FEE REQUIRED]
For the fiscal year ended: July 31, 1996
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File Number 0-23255
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COPART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2867490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 E. SECOND STREET 94510
BENICIA, CALIFORNIA (zip code)
(address of principal executive offices)
Registrant's telephone number, including area code: (707) 748-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock
(TITLE OF CLASS)
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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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of October 14, 1996 was $164,300,000 based upon the last sales
price reported for such date on the Nasdaq National Market. For purposes of
this disclosure, shares of Common Stock held by persons who hold more than 5%
of the outstanding shares of Common Stock and shares held by officers and
directors of the registrant, have been excluded in that such persons may be
deemed to be affiliates. This determination is not necessarily conclusive
for other purposes.
At October 14, 1996 registrant had outstanding 12,653,790 shares of
Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
definitive proxy statement for the Annual Meeting of Shareholders to be held
on December 5, 1996 (the "Proxy Statement").
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PART I
ITEM 1. BUSINESS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS
SET FORTH BELOW. THE COMPANY HAS ATTEMPTED TO IDENTIFY FORWARD-LOOKING
STATEMENTS BY PLACING AN ASTERISK IMMEDIATELY FOLLOWING THE SENTENCE OR
PHRASE THAT CONTAINS THE FORWARD-LOOKING STATEMENT.
GENERAL
Copart, Inc. ("Copart" or the "Company") provides vehicle suppliers,
primarily insurance companies, with a full range of services to process and
sell salvage vehicles through auctions, principally to licensed dismantlers,
rebuilders and used vehicle dealers. Salvage vehicles are either damaged
vehicles deemed a total loss for insurance or business purposes or are
recovered stolen vehicles for which an insurance settlement with the vehicle
owner has already been made. The Company offers vehicle suppliers a full
range of services which expedite each stage of the salvage vehicle auction
process and minimize administrative and processing costs. The Company
generates revenues primarily from auction fees paid by vehicle suppliers and
vehicle buyers as well as related fees for services such as towing and
storage.
Since July 31, 1995, Copart has acquired two auction facilities in or
near Jackson, Mississippi and El Paso, Texas; and opened five new facilities
in or near Charlotte, North Carolina; Jacksonville, Florida; Indianapolis,
Indiana; Van Nuys, California; and Phoenix, Arizona. From July 31, 1990
through July 31, 1995, Copart grew from four auction facilities in northern
California to 42 auction facilities in 20 states. In May, 1995, the Company
acquired substantially all of the net operating assets (excluding real
property) of NER Auction Group ("NER"). The operations acquired by Copart
were part of a group of 14 companies that owned and operated 20 salvage
vehicle auction facilities in 11 states (the "NER Acquisition"). The number
of salvage vehicles processed annually by Copart has grown from approximately
17,200 in fiscal 1990 to 391,100 in fiscal 1996.
Copart was organized as a California corporation in 1982. The Company's
principal executive offices are located at 5500 E. Second Street, Benicia,
California 94510, and its telephone number at that address is (707) 748-5000.
THE SALVAGE VEHICLE AUCTION INDUSTRY
Although there are other suppliers of salvage vehicles, such as
financial institutions, vehicle leasing companies, automobile rental
companies and automobile dealers, the primary source of salvage vehicles to
the salvage vehicle auction industry historically has been insurance
companies. Of the total number of vehicles processed by the Company in
fiscal 1996, over 90% were obtained from insurance company suppliers. Due to
the fragmented nature of the salvage vehicle auction industry, the Company
believes numerous opportunities exist to either open or acquire facilities
throughout the United States. *
INDUSTRY PARTICIPANTS
The primary businesses and/or individuals involved in the salvage
vehicle auction industry include:
SALVAGE VEHICLE AUCTION COMPANIES. Salvage vehicle auction companies such as
the Company generally either (i) auction salvage vehicles on consignment, for
a fixed fee or for a percentage of the sales price of
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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the vehicle or (ii) purchase vehicles from vehicle suppliers at a formula
price, based on a percentage of the vehicles' estimated pre-loss value, or
"actual cash value" ("ACV"), and auction the vehicles for their own account.
VEHICLE SUPPLIERS. The primary suppliers of salvage vehicles are insurance
companies. Additional suppliers include automobile dealers and automobile
rental companies, which process self-insured salvage vehicles and
occasionally process retired fleets, and financial institutions and vehicle
leasing companies which process repossessed, uninsured salvage vehicles.
VEHICLE BUYERS. Vehicle dismantlers, rebuilders, repair licensees and used
car dealers are the primary buyers of salvage vehicles. Vehicle dismantlers,
which the Company believes are the largest group of salvage vehicle buyers,
either dismantle a vehicle and sell parts individually or sell the entire
vehicle to rebuilders, used automobile dealers or the public. Vehicle
rebuilders and vehicle repair licensees repair salvage vehicles for sale to
used car dealers and noncommercial buyers. Used automobile dealers will
generally purchase directly from a salvage vehicle auction facility vehicles
requiring few repairs before resale such as late model, slightly damaged or
intact recovered stolen vehicles.
THE INSURANCE ADJUSTMENT AND VEHICLE AUCTION PROCESS
Following an accident involving an insured vehicle, the damaged vehicle
is generally towed to a towing company or a vehicle repair facility for
temporary storage pending insurance company examination. The vehicle is
inspected by the insurance company's adjuster, who estimates the costs of
repairing the vehicle and gathers information regarding the damaged vehicle's
mileage, options and condition in order to estimate its ACV. The insurance
company's adjuster determines whether to pay for repairs or to classify the
vehicle as a total loss, based upon the adjuster's estimate of repair costs
and the vehicle's salvage value, as well as customer service considerations.
If the cost of repair is greater than the ACV less the estimated salvage
value, the insurance company generally will classify the vehicle as a total
loss. The insurance company will thereafter assign the vehicle to a salvage
auction company, such as the Company, settle with the insured vehicle owner
and receive title to the vehicle.
Factors that vehicle suppliers consider when selecting a salvage vehicle
auction company include (i) the anticipated percentage return on salvage
(E.G., gross salvage proceeds, minus vehicle handling and selling expenses,
divided by the ACV); (ii) the services provided by the salvage vehicle
auction company and the degree to which such services reduce administrative
costs and expenses; (iii) the ability to provide service across a broad
geographic area; (iv) the timing of payment; and (v) the financial and
operating history of the salvage vehicle auction company.
In disposing of a salvage vehicle, a vehicle supplier assigns the
vehicle to a salvage vehicle auction company with which it has a contractual
or other relationship. Upon receipt of the pick-up order, which is conveyed
by facsimile, telephone or computer, the salvage vehicle auction company
dispatches one of its transporters or a contract towing company to transport
the vehicle to the salvage vehicle auction company's facility. As a service
to the vehicle supplier, the salvage vehicle auction company customarily pays
advance charges (reimbursable charges paid by the Company on behalf of
vehicle suppliers) to obtain the subject vehicle's release from a towing
company or vehicle repair facility. Typically, advance charges are paid on
behalf of the vehicle supplier and are recovered by the salvage vehicle
auction company upon sale of the salvage vehicle.
After being received and evaluated at the salvage vehicle auction
facility, the vehicle remains in storage and cannot be sold at an auction
until ownership documents are transferred from the insured vehicle owner and
title to the vehicle is cleared through the appropriate state's motor vehicle
regulatory agency (or "DMV"). If a vehicle is a total loss (as determined by
the insurance company), it can be sold in most states upon settlement with
and receipt of title documents from the insured. Total loss vehicles may be
sold in most states only after obtaining a salvage certificate from the DMV,
however, in some states only a bill of
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sale from the insured is required. Upon receipt of the appropriate
documentation from the state DMV or the insured, which is generally received
within 45 to 60 days of vehicle pick-up, the salvage vehicle auction company
auctions the vehicle. Vehicles are sold primarily through live auctions,
which are typically held weekly or biweekly at each facility, and
occasionally by sealed bid auctions.
At the Company's facilities, the vehicles to be auctioned are moved from
storage areas to a sales area for the convenience of the buyers. At the
Company and many other facilities, the auctioneer works from a truck that
proceeds through the sales area from vehicle to vehicle. Certain vehicles
that are driveable are driven through an auction display area. Minimum bids
are occasionally set by vehicle suppliers on high-value and specialty cars,
and often facilities have standing guaranteed bids of between $25 to $100 per
vehicle from local dismantlers for "junk" vehicles.
Once a vehicle is sold at auction, the buyer typically must pay by
cashier's check, money order or approved company check and take possession of
the sold vehicle within two to five days. After payment for the vehicle, the
buyer receives the appropriate title documentation. In addition to the
awarded bid price, the buyer pays any fees or other charges assessed by the
salvage vehicle auction company, such as post-sale processing, towing and
storage fees. The salvage vehicle auction company thereafter remits to the
insurance company the vehicle sales proceeds, less advance charges and any
fees for its towing, storage and selling of the vehicle pursuant to the
arrangement between the insurance company and the salvage vehicle auction
company. The insurance proceeds check will typically be accompanied by
copies of invoices for deducted fees and advance charges, and copies of title
and related DMV documents. The insurance company may then close its claims
file with copies of all records of the transaction.
OPERATING STRATEGY
The Company's operating strategy is to increase salvage vehicle volume
from new and existing vehicle suppliers by (i) designing sales programs
tailored to a vehicle supplier's particular needs, (ii) offering a full range
of services that reduce the administrative time and costs of the salvage
vehicle auction process, such as computerized monitoring and tracking of
salvage vehicles, (iii) developing a growing base of buyers, (iv) providing
salvage vehicle auction facilities throughout broad geographic regions, and
(v) offering insurance companies the ability to contract for vehicle salvage
services on a regional or national basis. The Company believes its flexible,
service-oriented approach promotes the establishment and maintenance of
strong relationships with vehicle suppliers, which are an integral factor in
competing effectively in the salvage vehicle auction industry.
FLEXIBLE VEHICLE PROCESSING PROGRAMS
At the election of the vehicle supplier, the Company auctions vehicles
(i) pursuant to its Percentage Incentive Program, (ii) on a fixed fee
consignment basis, (iii) on a purchase basis or (iv) on a basis which
combines the consignment and purchase bases in order to meet a vehicle
supplier's particular needs. Based upon the Company's database of historical
returns on salvage vehicles and information provided by vehicle suppliers,
the Company works with the vehicle supplier to design a program that
maximizes the net returns on salvage vehicles. The three primary sales
programs are as follows:
PERCENTAGE FEE CONSIGNMENT. Copart introduced its Percentage Incentive
Program, or the PIP, as an innovative processing program to better serve the
needs of certain vehicle suppliers. Under the PIP, Copart agrees to sell at
auction all of the salvage vehicles of a vehicle supplier in a specified
market for predetermined percentages of vehicle sales prices. Because
Copart's revenues under the PIP are directly linked to the vehicle's auction
price, Copart has an incentive to actively merchandise the vehicles in order
to maximize the net return on salvage vehicles. Under the PIP, Copart
provides the vehicle supplier, at Copart's expense, with transport of the
vehicle to the nearest Company facility, storage at its facilities for up to
90 days, and DMV processing. In addition, Copart provides merchandising
services such as covering/taping openings to protect vehicle interiors from
weather, adding tires, if needed, washing vehicle
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exteriors, vacuuming vehicle interiors, cleaning and polishing dashboards and
tires, making keys for driveable vehicles and operating "drive-through" sales
auctions of driveable vehicles. The Company believes its merchandising
increases the sales prices of salvage vehicles, thereby increasing the return
on salvage vehicles to both vehicle suppliers and the Company. In fiscal
1996, approximately 25% of all salvage vehicles processed by Copart were
processed under the PIP. However, due to, among other factors, including the
timing and size of new acquisitions, market conditions, and acceptance of the
PIP by vehicle suppliers, the percentage of vehicles processed under the PIP
in future periods may vary.
FIXED FEE CONSIGNMENT. Under the fixed fee consignment program, the Company
sells vehicles for a fixed consignment fee, generally $50 to $125 per
vehicle. In addition to the consignment fees, the Company usually charges
for, or includes in its fee to the vehicle supplier, the cost of transporting
the vehicle to the Company's facility, storage of the vehicle, and other
incidental costs. Approximately 69% of all salvage vehicles processed by
Copart in fiscal 1996, were processed under the fixed fee consignment program.
PURCHASE CONTRACT. Under a purchase contract arrangement, the Company agrees
to buy salvage vehicles of a vehicle supplier in a specific market. The
vehicles generally are purchased for a pre-determined percentage of the
vehicle's ACV and then resold by the Company for its own account. Under a
purchase contract, the Company usually provides vehicle suppliers with free
towing to its premises and storage at its facilities for up to 90 days.
Approximately 6% of all salvage vehicles processed by the Company during
fiscal 1996 were processed under purchase contracts.
BROAD ARRAY OF SERVICES
The Company offers vehicle suppliers a full range of services which
expedite each stage of the salvage vehicle auction process and minimize
administrative and processing costs.
COPART SALVAGE ASSET MANAGER-C-. Copart's Salvage Asset Manager (formerly
called the Copart Salvage Estimating Guide) provides vehicle suppliers with a
method for estimating the value of salvage vehicles based on Copart's
historical sales data. This computerized service illustrates the types and
severity of damage to vehicles and the resulting variances in salvage value
historically realized at Copart's auctions. By providing an estimate of a
damaged vehicle's residual salvage value, the Copart Salvage Asset Manager
enables an insurance adjuster to more accurately determine whether to repair
a damaged vehicle or declare it a total loss and aids the adjuster in
negotiations with the owner of an insured vehicle. As part of the Copart
Salvage Asset Manager service, the Company provides subscribers with the
right to participate in the Copart Guaranteed Bid System, whereby the Company
agrees to buy salvage vehicles at their salvage values calculated using the
Copart Salvage Asset Manager.
The Company believes that use of the Copart Salvage Asset Manager
(including participation in the Copart Guaranteed Bid System) will result in
increased vehicle volume from vehicle suppliers that use the Copart Salvage
Asset Manager.* Although not historically a significant portion of Copart's
business, in the event that the Copart Guaranteed Bid System becomes more
significant, the Company believes that its liquidity will not be adversely
affected, as the Company receives proceeds from the sale of such vehicles at
approximately the same time as it pays for vehicles under the Copart
Guaranteed Bid System.
Salvage Lynk-TM-. Copart's proprietary software program, Salvage Lynk,
provides a vehicle supplier with on-line access to retrieve information on
any of its salvage vehicles being processed at Copart throughout the claims
adjustment and auction process. Copart furnishes each user of Salvage Lynk
with software and a
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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computer terminal, if necessary, which enables the user to monitor each stage
of the salvage vehicle auction process, from pickup to payment and the
eventual auction of the vehicle, from each user's own office.
MONTHLY REPORTING. Upon request, the Company provides vehicle suppliers with
monthly reports that summarize all of their salvage vehicles processed by the
Company. These reports are able to track the vehicle suppliers' gross and
net return on each vehicle, service charges, and other data that enable the
vehicle suppliers to more easily administer and monitor the salvage vehicle
disposition process. In addition, when the suppliers receive payment, they
also receive a detailed closing invoice, noting any advance charges made by
the Company on their behalf. Copart's vehicle suppliers can obtain all of
their payment and invoice information on-line through Salvage Lynk.
DMV PROCESSING. The Company offers employees of vehicle suppliers training
on DMV document processing and has prepared a manual that provides
step-by-step instructions to expedite title document processing. In
addition, the Company's computers provide a direct link to the California,
Texas and New York DMV computer systems. This training on DMV procedures
and, in California, Texas and New York, the direct link to the DMV computer
system, allow vehicle suppliers to expedite title searches and the processing
of paperwork, thereby facilitating title acquisition from the insured vehicle
owner and consequently shortening the time period in which vehicle suppliers
can receive their salvage vehicle proceeds. Under California's license
registration fee rebate program, the Company, for a fee, assists
participating vehicle suppliers in calculating, applying for and obtaining
rebates of unused owner registration and license fees. The net rebates are
delivered and paid to the vehicle supplier.
VEHICLE INSPECTION STATION. The Company offers certain of its major
insurance company suppliers office and yard space to house a Vehicle
Inspection Station ("VIS") on-site at its auction facilities. At July 31,
1996, there were 26 VIS's at 20 of the Company's facilities. An on-site VIS
provides an insurance company a central location to inspect potential total
loss vehicles and reduces storage charges that otherwise may be incurred at
the initial storage and repair facility. The Company believes that providing
an on-site VIS enables the Company to improve the level of service it
provides to such insurance company.
VEHICLE PREPARATION AND MERCHANDISING. The Company has developed
merchandising techniques designed to increase the volume and sale price of
salvage vehicles. Under the PIP, Copart provides vehicle weather protection,
including shrink-wrapping vehicles to protect them from inclement weather,
cleaning and drive-through sales of driveable vehicles, which the Company
believes enhance salvage vehicle presentation and increase vehicle sales
prices. Direct mailings are also made to selected vehicle buyers, identified
through the Company's database of buyers, to alert them to the availability
of salvage vehicles in which they might be interested.
SALVAGE BROKERAGE NETWORK. In response to requests of vehicle suppliers to
coordinate disposal of their vehicles outside of Copart's current areas of
operation, Copart has developed a national network of salvage vehicle auction
facilities that process vehicles under the direction of Copart. Copart's
customers benefit from being able to monitor and obtain information on
virtually all of their salvage vehicles at any place in the United States
through Salvage Lynk, as opposed to dealing with numerous salvage auction
facilities across the country. Copart receives revenues from the sale of
vehicles processed by members of these networks (in each case, net of
applicable fees of the facility which processed the vehicle and without
buyer's fees) in substantially the same manner as for vehicles processed at
Copart facilities.
TRANSPORTATION SERVICES. The Company maintains a fleet of multi-vehicle
transport trucks at most of its yards as well as contracts for vehicle
transports at most facilities.
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BUYER NETWORK
The Company maintains a database of thousands of registered buyers of
salvage vehicles in the vehicle dismantling, rebuilding, repair, and/or
resale business. Copart's database of buyers also includes vehicle
preference and purchasing history by buyer. This data enables a local
facility manager to notify key prospective buyers throughout the region or
country of the sale of salvage vehicles that match their preferences. Sales
notices listing the salvage vehicles to be auctioned on a particular day and
location are made available at each auction. Each notice details for each
vehicle, among other things, the year and make of the vehicle, the
description of the damage, the status of title and the order of the vehicle
in the auction.
The Company seeks to establish a loyal and growing customer base of
salvage vehicle buyers by providing a variety of value-added programs and
services. Copart has initiated its Buyers Plus Program, which includes a
Copart Silver and Gold Card frequent buyer program designed to attract
high-volume commercial customers by providing them with frequent buyer
credits to acquire promotional merchandise, and extra services such as
express check-in procedures and streamlined paperwork processing services.
Copart also periodically provides free prizes and giveaways to promote
auction attendance.
MULTIPLE LOCATIONS
The Company had a total of 49 facilities in 24 states at July 31, 1996.
The Company's multiple locations provide vehicle suppliers certain
advantages, including (i) a reduction in administrative time and effort, (ii)
a reduction in overall towing costs, (iii) the ability for adjusters to make
inspections of vehicles in their area, as opposed to traveling long
distances, (iv) the convenience to the insurance company's customers of
inspecting their vehicles and retrieving any personal belongings left in the
vehicle and (v) access to buyers in a broad geographic area.
GROWTH STRATEGY
The Company's growth strategy is to (i) open or acquire new facilities,
(ii) increase salvage vehicle volume from new and existing suppliers, (iii)
increase revenues and profitability at its existing facilities, and (iv)
pursue regional and national supply agreements with vehicle suppliers.* Due
to the fragmented nature of the salvage vehicle auction industry, the Company
believes numerous opportunities exist to either open or acquire new
facilities throughout the United States.*
EXISTING MARKETS. The Company attempts to increase vehicle volume from
existing and new suppliers by promoting its ability to increase a supplier's
net returns and to provide a broad selection of services to suppliers. The
Company also believes that a portion of its sales growth in existing markets
has been attributable to recommendations from branch offices of an insurance
company supplier to other branch offices of the same insurance company.
Because a number of the Company's current insurance company suppliers are
large national companies with branch offices throughout the country, the
Company believes that such referrals provide the potential for future growth
in sales in existing, as well as new, geographic markets.*
NEW FACILITIES. Since its formation in 1982, Copart has expanded, primarily
through acquisition, from a single facility in Vallejo, California, to an
integrated network of 49 facilities located in California, Texas, Arkansas,
Oklahoma, Kansas, Washington, Oregon, Georgia, Missouri, New York,
Connecticut, Florida, Pennsylvania, New Jersey, Massachusetts, Maryland,
Ohio, Illinois, Minnesota, Wisconsin, Mississippi, North Carolina, Indiana
and Arizona.
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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The Company's strategy is to offer integrated service to vehicle
suppliers on a regional or national basis by acquiring or opening salvage
facilities in new markets as well as in regions currently served by the
Company. The Company believes that by either opening or acquiring new
operations in such markets, it can capitalize on certain operating
efficiencies resulting from, among other things, the reduction of duplicative
overhead and the implementation of the Company's operating procedures.* In
accordance with the Company's growth strategy, Copart acquired five
facilities in or near Houston, Dallas, Longview and Lufkin, Texas and
Atlanta, Georgia and opened one facility in Portland, Oregon during fiscal
1994. During fiscal 1995, in addition to the NER Acquisition, the Company
acquired six facilities in or near Kansas City, Kansas, Tulsa and Oklahoma
City, Oklahoma, St. Louis, Missouri, Conway and West Memphis, Arkansas and
opened an additional facility in Sacramento, California. During fiscal 1996,
the Company acquired two facilities in or near Jackson, Mississippi and El
Paso, Texas, and opened five new facilities in or near Charlotte, North
Carolina; Jacksonville, Florida; Van Nuys, California; Indianapolis, Indiana
and Phoenix, Arizona. In addition, the Company believes that the
establishment of a national presence both enhances the ability of a salvage
vehicle auction company to enter into state, regional or national supply
agreements with vehicle suppliers and to develop name recognition with
vehicle suppliers and buyers.* The Company, in the normal course of its
business, maintains an active dialogue with numerous acquisition candidates
of various sizes.
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees
to the Company than standard fixed fee consignment programs, (iii) making
available vehicle purchase programs which are designed to reduce vehicle
suppliers' administrative expenses and (iv) initiating the Company's
value-enhancing merchandising procedures. In addition, the Company attempts
to effect cost efficiencies at each of its acquired facilities through, among
other things, implementing the Company's operating procedures, integrating
the Company's management information systems and, when necessary, redeploying
personnel.
Before entering a new market, the Company seeks to establish vehicle
supply arrangements with one or more of the major insurers in the targeted
market. Often this is accomplished by targeting an insurance company in that
market with whom the Company does business in other geographic areas.
Additional factors which the Company considers when acquiring or opening a
new vehicle auction facility include relationships with vehicle suppliers,
market size, supply of salvaged vehicles, quality and location of facility,
growth potential and the region's potential for additional markets.
The Company strives to integrate its new facilities with minimum
disruption to the facility's existing suppliers. Consistent with industry
practice, most salvage vehicle auction companies, including those acquired by
the Company, operate exclusively on a fixed fee consignment basis. The
Company works with suppliers to tailor a vehicle disposition method to fit
their needs. Copart's fee structures and service programs for buyers are
implemented at a new facility gradually, providing Copart the opportunity to
gain knowledge of, and respond to, the existing market. The Company typically
attempts to retain all or most of the management at acquired facilities and
trains management at acquired facilities by rotating one or two managers from
other Company facilities through the new facility for short assignments. If a
new facility is opened or if management of an acquired facility needs
assistance in converting to the Copart system, the Company will assign an
integration team to the new facility, and, where necessary, transfer an
experienced facility manager.
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* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
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The following chart sets forth facilities acquired or opened by Copart
since the beginning of fiscal 1992, through July 31, 1996.
<TABLE>
<CAPTION>
ACQUISITION/
LOCATION OPENING DATE GEOGRAPHIC SERVICE AREA
-------- ------------ -----------------------
<S> <C> <C>
Phoenix, Arizona February 1996 Arizona
El Paso, Texas December 1995 Southwest Texas, Southern New Mexico
Van Nuys, California November 1995 Greater Los Angeles area
Jacksonville, Florida November 1995 Northeast Florida
Indianapolis, Indiana September 1995 Indiana
Jackson, Mississippi August 1995 Mississippi, Western Louisiana
Charlotte, North Carolina August 1995 North Carolina
Hartford, Connecticut May 1995 Connecticut
Marlboro, New York May 1995 New York City, Southern New York
Syracuse, New York May 1995 Syracuse and Northeastern New York
Philadelphia, Pennsylvania May 1995 Philadelphia, Eastern Pennsylvania
Boston, Massachusetts May 1995 Massachusetts
Pittsburgh, Pennsylvania May 1995 Pittsburgh, Western Pennsylvania
Columbus, Ohio May 1995 Ohio
Southampton, New York May 1995 New York City, Long Island
Glassboro, New Jersey May 1995 New York City, New Jersey
Waldorf, Maryland May 1995 Washington D.C., Maryland
Buffalo, New York May 1995 Buffalo, Western New York
Miami, Florida May 1995 Miami, South Florida
Tampa, Florida May 1995 Tampa, Gulf Coast Florida
Chicago, Illinois May 1995 Chicago; Northern Illinois
Minneapolis, Minnesota May 1995 Central Minnesota
Madison, Wisconsin May 1995 Central Wisconsin
Milwaukee, Wisconsin May 1995 Milwaukee metropolitan area
St. Cloud, Minnesota May 1995 Northwestern Minnesota
Rochester, Minnesota May 1995 Southern Minnesota
Duluth, Minnesota May 1995 Northwestern Minnesota
Conway and West Memphis, Arkansas April 1995 Arkansas, Western Tennessee, Northern Mississippi, Southern Kentucky
St. Louis, Missouri March 1995 St. Louis
Oklahoma City and Tulsa, Oklahoma November 1994 Oklahoma; Arkansas; North Texas
Kansas City, Kansas October 1994 Kansas, Missouri
Sacramento, California September 1994 Northern Central Valley area of California, Northern Nevada
Atlanta, Georgia July 1994 Georgia
Lufkin and Longview, Texas May 1994 East Texas, Southern Arkansas, Louisiana
Dallas, Texas March 1994 Northern Texas, Southern Oklahoma
Houston, Texas January 1994 Southern Texas, Louisiana
Portland, Oregon September 1993 Oregon, Southern Washington
Los Angeles, California July 1993 Greater Los Angeles
Seattle, Washington April 1993 Washington
Colton, California December 1992 San Bernardino, San Diego, California desert area
San Martin, California September 1992 San Francisco Bay area, San Jose, Monterey
Bakersfield, California November 1991 Southern Central Valley area of California
</TABLE>
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SUPPLY ARRANGEMENTS AND SUPPLIER MARKETING
The Company currently obtains salvage vehicles from thousands of vehicle
suppliers, including local and regional offices of such suppliers. In fiscal
1996, vehicles supplied by its largest supplier accounted for approximately
16% of the Company's revenues. The Company's agreements with this and other
vehicle suppliers are either oral or written agreements that generally are
subject to cancellation by either party upon 30 to 90 days' notice.
The Company typically contracts with the regional or branch office of an
insurance company or other vehicle supplier. The agreements are customized
to each vehicle supplier's particular needs, often providing for disposition
of different types of salvage vehicles by differing methods. Although the
Company does not have written agreements with all of its vehicle suppliers,
the Company has arrangements to process the vehicles generated by such
suppliers. Such contracts or arrangements generally provide that the Company
will sell virtually all total loss and recovered stolen vehicles generated by
the vehicle supplier in a designated geographic area. The Company's written
agreements with vehicle suppliers are typically subject to cancellation by
either party upon 30 to 90 days' notice. There can be no assurance that
existing agreements will not be canceled or that the terms of any new
agreements will be comparable to those of existing agreements.
The Company markets its services to vehicle suppliers through an
in-house sales force which utilizes mailing of Company sales literature,
telemarketing and follow-up personal sales calls, and participation in trade
shows and vehicle and insurance industry conventions. The Company's
marketing personnel meet with vehicle suppliers and, based upon the Company's
historical data on salvage vehicles and upon vehicle information supplied by
the vehicle suppliers, provide vehicle suppliers with detailed analysis of
the net return on salvage vehicles and a proposal setting forth ways in which
the Company can improve net returns on salvage vehicles and reduce
administrative costs and expenses.
See "Factors Affecting Future Results" below.
BUYERS
The buyers of salvage vehicles at salvage vehicle auctions are primarily
dismantlers, rebuilders, vehicle repair licensees and used automobile
dealers. Dismantlers either dismantle the vehicles and sell the parts, or
sell the entire vehicle to rebuilders, used car dealers or the public.
Rebuilders and vehicle repair licensees are generally wholesale used car
dealers and body shops that repair salvage vehicles for sale to used car
dealers. Used car dealers typically purchase late model, slightly damaged or
intact, recovered stolen vehicles for repair and sale.
The Company maintains a database of thousands of registered buyers of
salvage vehicles in the vehicle dismantling, rebuilding, repair, and/or
resale businesses. The Company believes that it has established a broad
buyer base by providing buyers of salvage vehicles with a variety of programs
and services. In order to gain admission to a Company auction and become a
registered buyer, prospective buyers must pay a one-time membership fee and
an annual fee, have a vehicle dismantler's, dealer's or repair license, have
an active resale license, and provide requested personal and business
information. Membership entitles a buyer to transact business at any Company
auction. A buyer may also bring guests to an auction for a fee. Strict
admission procedures are intended to prevent frivolous bids that would
invalidate an auction. The Company markets to buyers through customer
incentive programs, sales notices, telemarketing and participation in trade
show events. In addition, Copart has initiated programs specifically
designed to address the needs of its wholesale and high volume retail buyers,
including providing streamlined paperwork processing, simplified payment
procedures and personalized customer services. No single buyer accounted for
more than 1% of the Company's net revenues in fiscal 1996.
10
<PAGE>
COMPETITION
The salvage vehicle auction industry is highly fragmented. As a result,
the Company faces intense competition for the supply of salvage vehicles from
vehicle suppliers, as well as competition for buyers of vehicles from other
salvage vehicle auction companies. The Company believes its principal
competitor is Insurance Auto Auctions, Inc. ("IAA"). Over the last several
years, IAA acquired and opened a number of salvage vehicle auction
facilities. IAA is a significant competitor in certain regions in which the
Company operates or may expand in the future. In other regions of the United
States, the Company faces substantial competition from salvage vehicle
auction facilities with established relationships with vehicle suppliers and
buyers and financial resources which may be greater than the Company's. Due
to the limited number of vehicle suppliers and the absence of long-term
contractual commitments between the Company and such salvage vehicle
suppliers, competition for salvage vehicles from such suppliers is intense.
The Company may also encounter significant competition for state, regional
and national supply agreements with vehicle suppliers. Vehicle suppliers may
enter into state, regional or national supply agreements with competitors of
the Company.
The Company has a number of regional and national contracts with various
suppliers. There can be no assurance that the existence of other state,
regional or national contracts entered into by the Company's competitors will
not have a material adverse effect on the Company or the Company's expansion
plans. Furthermore, the Company is likely to face competition from major
competitors in the acquisition of salvage vehicle auction facilities, which
could significantly increase the cost of such acquisitions and thereby
materially impede the Company's expansion objectives or have a material
adverse effect on the Company's results of operations. Potential competitors
could include vehicle suppliers, some of which presently supply salvage
vehicles to the Company and used car auction companies. While most vehicle
suppliers have abandoned or reduced efforts to sell salvage vehicles without
the use of service providers such as the Company, there can be no assurance
that they may not in the future decide to dispose of their salvage vehicles
directly to buyers. Existing or new competitors may be significantly larger
and have greater financial and marketing resources than the Company. There
can be no assurance that the Company will be able to compete successfully in
the future.
See "Factors Affecting Future Results" below.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws
and regulations regarding the protection of the environment. In the salvage
vehicle auction industry, large numbers of wrecked vehicles are stored at
auction facilities for short periods of time. Minor spills of gasoline,
motor oils and other fluids may occur from time to time at the Company's
facilities which may result in localized soil, surface water or groundwater
contamination. Petroleum products and other hazardous materials are
contained in aboveground or underground storage tanks located at certain of
the Company's facilities. Waste materials such as waste solvents or used
oils are generated at some of the Company's facilities which are disposed of
as nonhazardous or hazardous wastes. The Company has put into place
procedures to reduce the amounts of soil contamination that may occur at its
facilities, and has initiated safety programs and training of personnel on
safe storage and handling of hazardous materials. The Company believes that
it is in compliance in all material respects with applicable environmental
regulations and does not anticipate any material capital expenditures for
environmental compliance or remediation except with regard to the Dallas
Operation (as defined below). Environmental laws and regulations, however,
could become more stringent over time and there can be no assurance that the
Company or its operations will not be subject to significant compliance costs
in the future. To date, the Company has not incurred expenditures for
preventive or remedial action with respect to soil contamination or the use
of hazardous materials which have had a material adverse effect on the
Company's financial condition or results of operations. Contamination which
may occur at the Company's facilities and the potential contamination by
previous users of certain acquired facilities create the risk, however, that
the Company could incur substantial expenditures for preventive or
11
<PAGE>
remedial action, as well as potential liability arising as a consequence of
hazardous material contamination, which could have a material adverse effect
on the Company.
On a case-by-case basis, the Company evaluates the potential risks and
possible exposure to liabilities associated with hazardous materials. In
addition, the Company has a policy of conducting environmental site
assessments of all newly-acquired or opened facilities. In connection with
the acquisition and lease of all of its newly-acquired facilities, except in
connection with the Dallas Operation which is described below, the Company's
policy is to obtain indemnification from the prior owner and/or landowner for
any environmental contamination which is present on the property prior to the
Company entering into a lease or acquiring the property. However, there can
be no assurance that prior or future owners and/or landowners will have
assets sufficient to meet their indemnification obligations, if any.
In connection with its acquisition of a facility in the Dallas
metropolitan area (the "Dallas Operation"), the Company will pay $3.0 million
for environmental corrective action and consulting expenses associated with
an approximately six-acre portion of the Dallas Operation's real property
which contains elevated levels of lead which related to prior activities of
the former operators. The Company estimates that, based upon an
investigation of the property by its environmental consultant, the most
probable range of cost of corrective action is approximately $980,000 if the
contaminated soil can be stabilized on-site to $2.9 million if the
contaminated soil must be excavated and disposed of at an off-site disposal
facility. If total costs of corrective action at the Dallas Operation do not
exceed $3.0 million, then the remaining funds after payment of all costs of
corrective action, up to $3.0 million, will be paid as consulting fees to the
former principal shareholder of the Dallas Operation. If the total costs of
corrective action exceed $3.0 million, then the former principal shareholder
of the Dallas Operation will pay the next $1.2 million of costs of corrective
action. The Company and such former principal shareholder are each obligated
to pay up to $1.5 million of the costs for corrective action, if incurred,
between $4.2 million and $7.2 million. If the total costs of corrective
action exceed $7.2 million, then such former principal shareholder will
either pay up to the next $1.0 million, or notify the Company to pay up to
the next $1.0 million in exchange for a dollar-for-dollar credit toward the
purchase price of the Dallas Operation's real property, calculated as the
greater of $1.0 million or the then fair market value. Such former principal
shareholder's obligations under this arrangement are secured by a pledge of
225,000 shares of Common Stock. However, there can be no assurance that such
former principal shareholder will be able to meet his obligations or that the
pledged stock will be sufficient to cover such obligations. In March 1995,
the Texas Natural Resource Conservation Commission ("TNRCC") authorized the
Company to perform a Corrective Measure Study ("CMS") to determine if the
proposed on-site soil stabilization remedy would be effective. In August
1995, the Company's environmental consultant submitted a Baseline Risk
Assessment ("BRA") to the TNRCC, which concluded that neither human health
nor the environment are placed at risk by the lead battery casing chips at
the site. In April 1996, the TNRCC approved the BRA, and the Company's
environmental consultant is preparing and submitting a Corrective Measure
Study. There can be no assurance that the actual cost of corrective action,
or any other liabilities with respect to the site, will not exceed estimates
of the Company's environmental consultant, or that such actual costs will not
have a material adverse effect on the Company.
Metals and hydrocarbon soil contamination was detected at one of
Copart's California facilities, which was determined to be associated with
uses of the property by persons prior to the time that the prior owner became
the occupant of the facility. In addition, metals were detected in samples
collected from groundwater monitoring wells located at this property. Copart
obtained specific indemnification from the landowner of such facility for any
liability for pre-existing environmental contamination. In addition, a small
quantity of tetrachlorethane ("PCE") and toluene was detected in a temporary
ground water monitoring well at the Dallas Operation. The Company's
environmental consultants concluded that both PCE and toluene were from an
off-site source upgradient of the facility, and no further action was
recommended.
12
<PAGE>
In 1991, Copart removed an underground storage tank from one of its
California facilities after monitoring devices indicated that the tank was
leaking. Subsequent testing revealed localized low level contamination of
the soil and ground water where the tank was removed, but no migration of the
contamination. The Company has retained the services of an environmental
consultant to represent the Company before the local county environmental
management department. The Company has been informed by the consultant that
the county agreed to a plan involving periodic monitoring of soil and ground
water to assure that the contamination is not spreading. The cost of this
ongoing monitoring is nominal.
In connection with the acquisition of NER Auction Systems, environmental
consultants were engaged to perform a limited environmental assessment of the
properties on which NER conducted its business. Prior to the acquisition, the
site assessment for the Company's leased facility located in Bellingham,
Massachusetts, reported concentrations of Benzene and MTBE in the groundwater
which slightly exceed the reportable concentrations under the Massachusetts
environmental laws. The consultant has indicated that further investigation
will be required to determine the complete extent of the contamination, and
that remediation will likely be required (the "Bellingham Remediation"). It
is estimated that the most likely total cost of the Bellingham Remediation
will be approximately $50,000, with the maximum remediation costs estimated
to be approximately $350,000. It is unclear at this time if any of the
contamination has migrated off-site and additional remediation costs may be
necessary if any groundwater beyond the site has been contaminated.
Approximately $125,000 of the estimated remediation costs relate to amounts
accrued for operation and maintenance costs expected to be paid out through
1999. Pursuant to the terms of the NER Acquisition, Copart is indemnified as
to any environmental liabilities relating to sites being leased from NER
Auction Group, including the Bellingham site. The total estimate of $50,000
is a current estimate of all remediation costs and could change due to
further site investigation or changes in applicable laws.
The Company does not believe that the metals and hydrocarbon soil
contamination, PCE, storage tank removal or Bellingham Remediation will,
either individually or in the aggregate, have a material adverse effect on
the Company.*
GOVERNMENT REGULATION
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. The acquisition and sale of damaged and recovered stolen
vehicles is regulated by state motor vehicle departments. In addition to the
regulation of sales and acquisitions of vehicles, the Company is also subject
to various local zoning requirements with regard to the location of its
auction and storage facilities. These zoning requirements vary from location
to location. The Company is also subject to environmental regulations. The
Company believes that it is in compliance in all material respects with
applicable regulatory requirements. The Company may be subject to similar
types of regulations by federal, state, and local governmental agencies in
new markets. Although the Company believes that it has all permits necessary
to conduct its business and is in material compliance with applicable
regulatory requirements, failure to comply with present or future regulations
or changes in interpretations of existing regulations could result in
impairment of the Company's operations and the imposition of penalties and
other liabilities. For instance, vehicle inspections mandated by the
California Torres Bill (1994 California Senate Bill No. 1833) which were
suspended in 1995 because of demand which overwhelmed the inspectors are
scheduled to begin again in 1997, with no guarantee that vehicle inspection
waits will be shorter. Recently enacted legislation in Texas, with
inspection requirements similar to those enacted in California, could have a
material adverse effect on the Company's Texas operations.
- ----------------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
13
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The Company's management information system ("MIS") consists of an
expandable, integrated IBM AS/400 computer located in Benicia, California,
integrated computer interfaces (Salvage Lynk) and proprietary software which
enables salvage vehicles to be tracked by the Company and vehicle suppliers
throughout the salvage vehicle auction process. Salvage Lynk provides remote
access to customers via the client's personal computer system to allow direct
inquiry during the Company's salvage vehicle disposal process. By providing
this accessibility, the Company provides a unique marketing benefit to its
customers in streamlining their internal salvage tracking process. The
Company's MIS is an essential part of its strategy to provide superior
service to its clients and buyers, as well as to effectively support internal
operations. The Company continues to research new computer technologies to
enhance its MIS development. Other functions provided by MIS include
accounting, inventory and salvage vehicle supplier and buyer information.
The Company believes that, with planned upgrades and integration's of new
acquisitions, the Company's MIS will serve its information management needs
for the foreseeable future.*
EMPLOYEES
As of July 31, 1996, the Company had approximately 1,030 full-time
employees, of whom approximately 620 were engaged in general and
administrative functions and approximately 410 were engaged in yard and fleet
operations. The Company is not subject to any collective bargaining
agreements and believes that its relationships with its employees are good.
FACTORS AFFECTING FUTURE RESULTS
Historically, a limited number of vehicle suppliers have accounted for a
substantial portion of the Company's revenues. In fiscal 1996, vehicles
supplied by Copart's largest supplier accounted for approximately 16% of
Copart's revenues. The Company's agreements with this and other vehicle
suppliers are either oral or written agreements that typically are subject to
cancellation by either party upon 30 days' notice. There can be no assurance
that existing agreements will not be canceled or that the terms of any new
agreements will be comparable to those of existing agreements. While the
Company believes that, as the salvage vehicle auction industry becomes more
consolidated, the likelihood of large vehicle suppliers entering into
agreements with single companies to dispose of all of their salvage vehicles
on a statewide, regional or national basis increases, there can be no
assurance that the Company will be able to enter into such agreements or that
it will be able to retain its existing supply of salvage vehicles in the
event vehicle suppliers begin disposing of their salvage vehicles pursuant to
state, regional or national agreements with other operators of salvage
vehicle auction facilities. A loss or reduction in the number of vehicles
from a significant vehicle supplier or material changes in the terms of an
arrangement with a substantial vehicle supplier could have a material adverse
effect on the Company's financial condition and results of operations.
The Company's operating results have in the past and may in the future
fluctuate significantly depending on a number of factors. These factors
include changes in the market value of salvage vehicles, buyer attendance at
salvage auctions, delays or changes in state title processing and/or changes
in state or federal laws or regulations affecting salvage vehicles,
fluctuations in ACV's of salvage vehicles, the availability of vehicles and
weather conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any
- ----------------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
14
<PAGE>
indication of future performance. There can be no assurance, therefore, that
the Company's operating results in some future quarter will not be below the
expectations of public market analysts and/or investors.
The market price of the Company's Common Stock could be subject to
significant fluctuations in response to various factors and events, including
variations in the Company's operating results, the timing and size of
acquisitions and facility openings, the loss of vehicle suppliers or buyers,
the announcement of new vehicle supply agreements by the Company or its
competitors, changes in regulations governing the Company's operations or its
vehicle suppliers, environmental problems or litigation. In addition, the
stock market in recent years has experienced broad price and volume
fluctuations that often have been unrelated to the operating performance of
companies.
The Company seeks to increase sales and profitability primarily through
the opening of new facilities, the acquisition of other salvage vehicle
auction facilities, and the increase of salvage vehicle volume and revenue at
existing facilities. There can be no assurance that the Company will be able
to continue to acquire additional facilities on terms economical to the
Company or that the Company will be able to increase revenues at newly
acquired facilities above levels realized at such facilities prior to their
acquisition by the Company. Additionally, as the Company continues to grow,
its openings and acquisitions will have to be more numerous or of a larger
size in order to have a material impact on the Company's operations. The
ability of the Company to achieve its expansion objectives and to manage its
growth is also dependent on other factors, including the integration of new
facilities into existing operations, the establishment of new relationships
or expansion of existing relationships with vehicle suppliers, the
identification and lease of suitable premises on competitive terms and the
availability of capital. The size and timing of such acquisitions and
openings may vary and the Company believes that in the future it will open a
greater number of new facilities than it has in the past. Management
believes that facilities opened by the Company require more time to reach
revenue and profitability levels comparable to its existing facilities and
may have greater working capital requirements than those facilities acquired
by the Company. Therefore, to the extent that the Company opens a greater
number of facilities in the future than it has historically, the Company's
growth rate in revenues and profitability may be adversely affected.
While Copart has acquired a number of companies in recent years, the
Company's acquisition of the NER Auction Group in May 1995 was its largest
acquisition undertaken to date. The successful integration of NER was more
difficult and required a greater period of time than prior acquisitions. In
connection with the integration of NER, the Company completed the closure of
the eastern division office and former NER corporate headquarters in July,
1996.
Currently, Willis J. Johnson, Chief Executive Officer of the Company,
together with one other existing shareholder, beneficially own approximately
30% of the issued and outstanding shares of Common Stock. This controlling
interest in the Company may also have the effect of making certain
transactions, such as mergers or tender offers involving the Company, more
difficult or impossible, absent the support of Mr. Johnson, and such other
existing shareholder.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of July 31, 1996
are as follows:
NAME AGE POSITION
- ---- --- --------
Willis J. Johnson 49 Chief Executive Officer and Director
A. Jayson Adair 27 Executive Vice President and Director
James E. Meeks 47 Senior Vice President and Chief Operating Officer
Joseph M. Whelan 41 Senior Vice President and Chief Financial Officer
Paul A. Styer 40 Senior Vice President, General Counsel and Secretary
WILLIS J. JOHNSON, co-founder of the Company, has served as Chief
Executive Officer of the Company since 1986, and has been a Board member
since 1982. Mr. Johnson was also President of the Company from 1986 through
the closing of the NER Acquisition in May 1995. Mr. Johnson has over 25 years
of experience in owning and operating auto dismantling and vehicle salvage
companies.
A. JAYSON ADAIR has served as Executive Vice President of the Company
since April 1995 and a director since September 1992. From August 1990 until
April 1995, Mr. Adair served as Vice President of Sales and Operations and
from June 1989 to August 1990, Mr. Adair served as the Company's Manager of
Operations.
JAMES E. MEEKS has served as Vice President and Chief Operating Officer
of the Company since September 1992 when he joined the Company concurrent
with the Company's purchase of South Bay Salvage Pool (the "San Martin
Operation"). Mr. Meeks has served as Senior Vice President since April 1995.
From April 1986 to September 1992, Mr. Meeks, together with his family, owned
and operated the San Martin Operation. Mr. Meeks is also an officer,
director and part owner of Cas & Meeks, Inc., a towing and subhauling service
company, which he has operated since 1991. Mr. Meeks has also been an
officer and director of E & H Dismantlers, a self-service auto dismantler,
since 1967. Mr. Meeks has over 25 years of experience in the vehicle
dismantling business.
JOSEPH M. WHELAN has served as Senior Vice President since April 1995
and Chief Financial Officer of the Company since March 1994. From 1989 to
1993, Mr. Whelan served as Senior Vice President and Chief Financial Officer
of Phillips, Inc., the largest privately held owner of educational facilities
in the United States. Mr. Whelan received a B.A. from Vanderbilt University
and a M.B.A. from Tulane University. Mr. Whelan is a certified public
accountant.
PAUL A. STYER has served as General Counsel of the Company since
September 1992, served as Senior Vice President since April 1995 and as Vice
President from September 1992 until April 1995. Mr. Styer served as a
Director of the Company from September 1992 until October 1993. Mr. Styer has
served as Secretary since October 1993. From August 1990 to September 1992,
Mr. Styer conducted an independent law practice. Mr. Styer received a B.A.
from the University of California, Davis and a J.D. from the University of
the Pacific. Mr. Styer is a member of the California State Bar Association.
Officers are elected by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among any of the
directors or executive officers of the Company, except that A. Jayson Adair
is the son-in-law of Willis J. Johnson.
On April 18, 1996, Richard A. Polidori resigned his position as
President and a member of the Board of the Company.
16
<PAGE>
ITEM 2. PROPERTIES
FACILITIES INFORMATION
The following table sets forth certain information regarding the
facilities currently used by the Company.
<TABLE>
<CAPTION>
FACILITY OPENED/ APPROXIMATE EXPIRATION OF PURCHASE OPTION
LOCATION ACQUIRED ACREAGE LEASE TERM ---------------
-------- -------- ------- ----------
<S> <C> <C> <C> <C>
COPART
Vallejo, California (1) 18 February 2000 Yes
Sacramento, California A 12 Company owned Not applicable
Hayward, California O 8 Month-to-month No
Fresno, California A 10 July 2000 Yes
Bakersfield, California A 5 Company owned Not applicable
San Martin, California A 14 August 2002 Yes
Colton, California A 14 November 2002 Right of first refusal
Seattle, Washington A 11 March 1998 Yes
Portland, Oregon O 15 June 1996 Yes
Los Angeles, California A 12 June 1998 Right of first refusal
Houston, Texas A 62 January 2004 Right of first refusal
Dallas, Texas (2) A 42 March 2004 Yes
Lufkin, Texas A 15 May 1999 Yes
Longview, Texas A 10 May 1999 Yes
Atlanta, Georgia A 62 July 2004 Yes
Sacramento, California O 11 Month-to-month Not applicable
Kansas City, Kansas A 27 October 2004 Yes
Oklahoma City, Oklahoma A 12 November 2004 Yes
Tulsa, Oklahoma A 10 November 2004 Yes
St. Louis, Missouri A 21 March 2005 Yes
Conway, Arkansas A 22 March 2005 Yes
West Memphis, Arkansas A 12 April 2005 Yes
Hartford, Connecticut A 30 May 2005 Yes
Marlboro, New York A 25 May 2005 Yes
Syracuse, New York A 12 May 2005 Yes
Philadelphia, Pennsylvania A 40 May 2005 Yes
Boston, Massachusetts A 20 May 2005 Yes
Pittsburgh, Pennsylvania A 20 May 2005 Yes
Columbus, Ohio A 20 May 2005 Yes
Southampton, New York (3) A 13 May 2005 Yes
Glassboro, New Jersey A 18 May 2005 Yes
Waldorf, Maryland A 15 May 2005 Yes
Buffalo, New York A 10 May 2005 Yes
Miami, Florida A 14 May 2005 Yes
Tampa, Florida A 10 May 2005 Yes
Chicago, Illinois A 10 September 1999 Right of first refusal (4)
Minneapolis, Minnesota A 12 December 2001 No
Duluth, Minnesota A 20 February 1998 No
Rochester, Minnesota A 20 August 2003 Right of first refusal (4)
St. Cloud, Minnesota A 20 August 2003 Right of first refusal (4)
Madison, Wisconsin A 10 August 2003 Right of first refusal (4)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FACILITY OPENED/ APPROXIMATE EXPIRATION OF PURCHASE OPTION
LOCATION ACQUIRED ACREAGE LEASE TERM ---------------
-------- -------- ------- ----------
<S> <C> <C> <C> <C>
Milwaukee, Wisconsin A 20 August 2003 Right of first refusal (4)
Jackson, Mississippi A 15 July 2005 Yes
Charlotte, North Carolina O 24 July 2005 Yes
Jacksonville, Florida O 28 October 2005 Yes
Van Nuys, California O 40 Company owned Not applicable
Indianapolis, Indiana O 16 February 2001 No
El Paso, Texas A 3 November 1996 No
Phoenix, Arizona O 13 February 2001 Yes
Hammond, Indiana (5) O 19 September 2001 Right of first refusal
Woodinville, Washington (5) O 10 August 2001 No
Benicia, California (6) N/A 16,400/sq ft April 2000 No
</TABLE>
- -----------------
(1) Copart's initial facility.
(2) In connection with the acquisition of the Dallas Operation, Copart
obtained an option, exercisable from March 2004 through March 2014, to acquire
the Dallas Operation's real property for the purchase price of $2.5 million,
consisting of $500,000 in cash and a $2.0 million promissory note bearing
interest at the then prime rate payable in equal monthly installments over 10
years. Such purchase price may be subject to adjustment in the event that the
total cost of corrective action at the Dallas Operation exceeds $7.2 million.
(3) Leasehold interest held by NER Auction Group on the current Southampton
facility expires on July 31, 1997. Thereafter, the Company and Richard
Polidori, the former principal owner of NER, intend to enter into a lease
relating to property owned by Mr. Polidori on Long Island with acreage, a
purchase option and a lease term as described.
(4) Right of first refusal for these properties is held by the NER Auction
Group entities which are leasing such properties from third party landowners
and as to which Copart is the sublesee.
(5) Opened after July 31, 1996.
(6) Corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
On June 3, 1994, Bill Woltz, doing business as Salvage Pool Systems,
filed a complaint against Copart and Willis J. Johnson, the Company's Chief
Executive Officer and a Director, in the Northern District of California
alleging claims for copyright infringement, breach of implied contract, common
law fraud, negligent misrepresentation and slander. Mr. Woltz is a former
employee and consultant who performed computer programming services for
Copart. On August 25, 1994, the original complaint was dismissed without
prejudice. Mr. Woltz filed a new complaint on October 14, 1994 in the
Northern District of California alleging the same claims contained in his
prior complaint and, in addition, claims for unfair competition, goods sold
and delivered, accounting and libel. The dispute arises out of alleged
contracts between Woltz and Copart, Copart's alleged use and copying of
computer programs, and alleged statements by Copart about the computer
programs and alleged contracts. The complaint seeks an unspecified amount in
damages, an injunction preventing Copart from using or offering to sell or
license the software, costs and attorneys' fees, treble damages, punitive
damages, and a retraction of alleged libelous statements. Copart filed an
answer to the complaint denying all of the allegations and asserting various
defenses. Management believes that the action is without merit and is
contesting the action vigorously. Additionally, the Company has asserted
counterclaims against Woltz for ownership of software that Woltz developed
while a Copart employee, conversion and possession of Copart's property. In
February 1996 the Company filed a Motion for Summary Judgment. On August 19,
1996, the Court entered an Order in which it denied summary judgment on
plaintiff's copyright infringement claim and reserved ruling on plaintiff's
seven state law causes of action. However, in that Order the Court invited
the Company to file a further summary judgment
18
<PAGE>
motion based on certain copyright issues. The Company intends to file such a
motion by December 1996. No trial date has yet been set.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE AND DISTRIBUTIONS
The following table summarized the high and low sales prices per share for
each quarter during the last two fiscal years. As of July 31, 1996, there
were 12,641,213 shares outstanding. The Company's Common Stock has been
quoted on the Nasdaq National Market under the symbol CPRT since March 17,
1994. As of July 31, 1996, the Company had 259 shareholders of record.
1995 High Low
- ---- ---- ---
First Quarter 18 5/8 13 7/8
Second Quarter 20 15 3/8
Third Quarter 20 5/8 18
Fourth Quarter 23 5/8 19 1/8
1996 High Low
- ---- ---- ---
First Quarter 23 7/8 19 1/4
Second Quarter 30 1/8 20 3/4
Third Quarter 30 1/4 23 1/4
Fourth Quarter 28 1/2 12 1/4
The Company has not paid a cash dividend since 1984 and does not anticipate
paying any cash dividends in the foreseeable future.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The tables below summarize the Selected Consolidated Financial Data of the
Registrant as of and for each of the last five fiscal years. This selected
financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Report. The selected financial data presented
below have been derived from the Company's consolidated financial statements
that have been audited by KPMG Peat Marwick LLP, independent public
accountants, whose report is included herein covering the consolidated
financial statements as of July 31, 1996 and 1995 and for each of the three
years in the period ended July 31, 1996. The selected operating data for the
years ended July 31, 1993 and 1992 and the balance sheet data as of July 31,
1994, 1993 and 1992 are derived from audited consolidated financial statements
not included herein:
<TABLE>
<CAPTION>
($ in 000s, except per share and
other data) 1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Revenues (1) $118,248 $ 58,117 $ 22,794 $10,436 $ 6,202
Operating income 17,802 11,261 4,112 1,422 834
Income before income taxes
and extraordinary item 18,190 11,437 3,710 729 882
Extraordinary item, net (2) -- -- (1,633) -- --
Net income 11,185 6,894 590 495 481
Per share:
Income before
extraordinary item $ 0.85 $ 0.65 $ 0.30 $ 0.07 $ 0.07
Extraordinary item, net -- -- (0.22) -- --
-------- -------- -------- ------- -------
Net income $ 0.85 $ 0.65 $ 0.08 $ 0.07 $ 0.07
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted average shares (000) 13,216 10,614 7,305 6,780 6,780
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
BALANCE SHEET DATA
Cash and cash equivalents (3) $ 13,026 $ 13,779 $ 17,871 $ 1,786 $ 538
Working capital (deficit) 40,586 32,756 21,890 2,941 (246)
Total assets 158,066 135,158 62,569 15,944 4,073
Total debt 11,260 3,734 4,019 8,575 1,244
Shareholders' equity 126,245 113,116 49,288 4,132 702
OTHER
Salvage vehicles processed 391,100 223,300 101,000 45,400 28,700
Gross proceeds (000) $506,916 $317,788 $144,397 $57,876 $35,269
Number of auction facilities 49 42 15 10 5
</TABLE>
Notes
(1) See Note 2 to the Consolidated Financial Statements for a discussion of
acquistions.
(2) See Note 6 to the Consolidated Financial Statements for a discussion of
the extraordinary item.
(3) See Note 9 to the Consolidated Financial Statements for a discussion of
initial public offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company processes salvage vehicles principally on a consignment
method, on either the Percentage Incentive Program (or the "PIP") or on a
fixed fee consignment basis. Using either consignment method, only the fees
associated with vehicle processing are recorded in revenue. The Company also
processes a percentage of its salvage vehicles pursuant to purchase contracts
(the "Purchase Program") under which the Company records the gross proceeds of
the vehicle sale in revenue. For the fiscal years ended July 31, 1996, 1995,
and 1994, approximately 25%, 28%, and 50% of the vehicles sold by Copart,
respectively, were processed under the PIP, and approximately 6%, 2% and less
than 1% of the vehicles sold by Copart, respectively, were processed pursuant
to the Purchase Program. The decrease in the percentage of vehicles sold
under the PIP resulted from the acquisition by Copart of various companies
that conducted business on a fixed fee consignment basis, which is consistent
with industry practice. As a result of the acquisition of NER Auction Group
("NER") on May 2, 1995, which processed almost all of its vehicles on a fixed
fee consignment basis, the percentage of the Company's vehicles processed
under the PIP decreased. The Company attempts to convert acquired operations
to the PIP Program which typically results in higher net returns to vehicle
suppliers and higher fees to the Company than standard fixed fee consignment
programs. However, due to a number of factors, including the timing and size
of new acquisitions, market conditions, and acceptance of the PIP and/or
Purchase Program, by vehicle suppliers, the percentage of vehicles processed
under these programs in future periods may vary. In addition to auction fees
paid by vehicle suppliers and vehicle buyers, approximately 27%, 31%, and 38%
of Copart's revenues for the fiscal years ended July 31, 1996, 1995 and 1994,
respectively, were attributable to buyer fees, which are fees received from
buyers in addition to amounts they pay to purchase salvage vehicles.
Costs attributable to yard and fleet expenses consist primarily of
operating personnel (which includes yard management, clerical and yard
employees), rent, contract vehicle towing, insurance, fleet maintenance and
repair, fuel and acquisition costs of salvage vehicles under the Purchase
Program. Costs associated with general and administrative expenses consist
primarily of executive, accounting, data processing and sales personnel,
professional fees and marketing expenses.
The results of the Company's operations reflect the increase in the
number of vehicles processed in the eastern United States, the sale of these
vehicles generated lower margins than those in Copart's operations in the
western, midwest and southwestern United States. The results also reflect
additional vehicles processed under purchase programs as part of the Company's
marketing thrust to secure new vehicle suppliers.
The period-to-period comparability of Copart's operating results and
financial condition is substantially affected by certain business acquisitions
and new openings made by Copart during such periods.
ACQUISITIONS AND NEW OPERATIONS
Copart has experienced significant growth as it acquired 38 salvage
vehicle auction facilities and established seven new facilities since the
beginning of fiscal 1992. All of the acquisitions have been accounted for
using the purchase method. Accordingly, the excess of the purchase price over
the net tangible assets acquired (consisting principally of goodwill) is being
amortized over a period not to exceed 40 years.
As part of the Company's overall expansion strategy of offering
integrated service to vehicle suppliers, the Company anticipates further
attempts to open or acquire new salvage yards in new regions, as well as the
regions currently served by Company yards. As part of this strategy, during
fiscal 1996, Copart
21
<PAGE>
acquired two facilities in or near Jackson, Mississippi, and El Paso, Texas,
and opened five new facilities in or near Charlotte, North Carolina;
Jacksonville, Florida; Indianapolis, Indiana; Van Nuys, California; and
Phoenix, Arizona. During fiscal 1995, Copart acquired NER, plus six
facilities in or near Kansas City, Kansas; Tulsa and Oklahoma City, Oklahoma;
St. Louis, Missouri; and Conway and West Memphis, Arkansas; and opened one
facility in Sacramento, California. In addition, Copart acquired five
facilities in or near Houston, Dallas, Lufkin and Longview, Texas; and
Atlanta, Georgia; and opened one facility in Portland, Oregon during fiscal
1994. The Company believes that these acquisitions and openings solidify the
Company's coverage of the West Coast, expand the Company's coverage of the
South, Southwest and Midwest, give the Company a substantial presence in the
Northeast, the Great Lakes states, Georgia and Florida. The Company expects
to incur future amortization charges in connection with anticipated
acquisitions attributable to goodwill, covenants not to compete and other
purchase-related adjustments. *
The Company seeks to increase revenues and profitability at acquired
facilities by, among other things, (i) implementing its buyer fee structure,
(ii) introducing and converting certain vehicle suppliers to the PIP, which
typically results in higher net returns to vehicle suppliers and higher fees
to the Company than standard fixed fee consignment programs, (iii) making
available vehicle purchase programs which are designed to reduce vehicle
suppliers' administrative expenses and (iv) initiating the Company's
merchandising procedures. In addition, the Company attempts to effect cost
efficiencies at each of its acquired facilities through, among other things,
implementing the Company's operational procedures, integrating the Company's
management information systems and, when necessary, redeploying personnel.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the consolidated statements of income of Copart expressed as a
percentage of revenues. There can be no assurance that any trend in operating
results will continue in the future.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Yard and fleet 70.6 65.0 64.7
General and administrative 9.2 9.8 10.6
Depreciation and amortization 5.1 5.8 6.7
----- ----- -----
Total operating expenses 84.9 80.6 82.0
----- ----- -----
Operating income 15.1 19.4 18.0
Other income (expense) 0.3 0.3 (1.7)
----- ----- -----
Income before income taxes and extraordinary item 15.4 19.7 16.3
Income taxes 5.9 7.8 6.5
----- ----- -----
Income before extraordinary item 9.5 11.9 9.8
Extraordinary item, net -- -- (7.2)
----- ----- -----
Net income 9.5% 11.9% 2.6%
----- ----- -----
----- ----- -----
</TABLE>
- ----------------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
22
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues were approximately $118.2 million during fiscal 1996, an
increase of approximately $60.1 million, or 103%, over fiscal 1995 based on
391,100 vehicles processed. Approximately $45.8 million of the increase in
revenues was the result of the acquisition of the Kansas City, Oklahoma City,
Tulsa, St. Louis, Conway, West Memphis, NER, Jackson, and El Paso operations;
and the opening of Copart's Charlotte, Jacksonville, Indianapolis, and Phoenix
facilities. Existing yard revenues increased by approximately $14.3 million,
or 33% over fiscal 1995, of which revenues from Purchase Program vehicles
accounted for approximately $11.5 million of the increase. Under the Purchase
Program the Company records the gross proceeds of the vehicle sale as revenue.
The remainder of the increase in revenue at these facilities was primarily
attributable to increased per unit revenues of approximately 9% and increased
vehicle volume of approximately 3%.
Yard and fleet expenses were approximately $83.5 million during fiscal
1996, an increase of approximately $45.8 million, or 121%, over fiscal 1995.
Approximately $34.2 million of the increase was the result of the acquisition
of the Kansas City, Oklahoma City, Tulsa, St. Louis, Conway, West Memphis,
NER, Jackson, and El Paso operations; and the opening of Copart's Charlotte,
Jacksonville, Indianapolis, and Phoenix facilities. The remainder of the
increase in yard and fleet expenses was attributable to yard and fleet
expenses from existing operations, including the cost of Purchase Program
vehicles. Yard and fleet expenses increased to 70.6% of revenues during
fiscal 1996, as compared to 65.0% of revenues during fiscal 1995, primarily as
a result of the Company processing additional vehicles under the Purchase
Program.
General and administrative expenses were approximately $10.9 million
during fiscal 1996, an increase of approximately $5.2 million, or 91%, over
fiscal 1995, due primarily to increased personnel expense resulting from
acquisitions, increased hiring in anticipation of additional growth and
additional investments in marketing and MIS staff. General and administrative
expenses decreased to 9.2% of revenues during fiscal 1996, as compared to 9.8%
of revenues during fiscal 1995, primarily as a result of the Company
processing additional vehicles under the Purchase Program which has higher
revenue per unit.
Depreciation and amortization expense was approximately $6.0 million
during fiscal 1996, an increase of approximately $2.6 million, or 76%, over
fiscal 1995. Such increase was due primarily to the amortization of goodwill
and covenants not to compete and depreciation of acquired assets resulting
from the acquisition of new salvage auction facilities.
The effective income tax rate of 39% applicable to fiscal 1996 is lower
than the fiscal 1995 effective income tax rate, due to savings associated with
state and local tax planning.
Due to the foregoing factors, Copart realized net income of $11.2 million
for fiscal 1996, an increase of 62% compared to net income of $6.9 million for
fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues were approximately $58.1 million during fiscal 1995, an increase
of approximately $35.3 million, or 155%, over fiscal 1994. Approximately
$24.3 million of the increase in revenues was the result of the acquisition of
the Houston, Dallas, Lufkin, Longview, Atlanta, Kansas City, Oklahoma City and
Tulsa, St. Louis, Conway and West Memphis and NER operations and the opening
of Copart's Portland facility. Existing yard revenues increased by
approximately $11.0 million, or 61%, over fiscal 1994, of which revenues from
Purchase Program vehicles accounted for approximately $7.6 million of the
increase. The remainder of the increase in revenues at existing operations
was primarily attributable to increased buyer fees of approximately 7% and
increased vehicle volume of approximately 12%.
23
<PAGE>
Yard and fleet expenses were approximately $37.8 million during fiscal
1995, an increase of approximately $23.0 million, or 156%, over fiscal 1995.
Approximately $15.7 million of the increase was the result of the acquisition
of the Houston, Dallas, Lufkin, Longview, Atlanta, Kansas City, Oklahoma City
and Tulsa, St. Louis, Conway and West Memphis and NER operations and the
opening of Copart's Portland facility. The remainder of the increase in yard
and fleet expenses was attributable to yard and fleet expenses from existing
operations, including the cost of Purchase Program vehicles. Yard and fleet
expense increased to 65.0% of revenues during fiscal 1995, as compared to
64.7% of revenues during fiscal 1994.
General and administrative expenses were approximately $5.7 million
during fiscal 1995, an increase of approximately $3.3 million, or 136%, over
fiscal 1994, due primarily to increased personnel expense resulting from
acquisitions and increased hiring in anticipation of additional growth.
General and administrative expenses decreased to 9.8% of revenues during
fiscal 1995, as compared to 10.6% of revenues during fiscal 1994 due to costs
being spread over a greater revenue base.
Depreciation and amortization expense was approximately $3.4 million
during fiscal 1995, an increase of approximately $1.9 million, or 123%, over
fiscal 1994. Such increase was due primarily to the amortization of goodwill
and covenants not to compete and depreciation of acquired assets resulting
from the acquisition of new salvage auction facilities.
Interest expense was approximately $491,000 during fiscal 1995, a
decrease of $429,300 over fiscal 1994. This decrease was attributable to the
repayment in fiscal 1994 of the indebtedness incurred in the February 1993
debt financing with the proceeds from the IPO. In fiscal 1994, Copart
recognized an extraordinary item on the loss on extinguishment of debt
associated with the February 1993 debt financing, which is shown net of income
tax benefit.
The effective income tax rate of 40% applicable to fiscal 1995 is
consistent with the fiscal 1994 effective income tax rate.
Due to the foregoing factors, Copart realized net income of $6.9 million
for fiscal 1995, compared to income before extraordinary item of $2.2 million
fiscal 1994 as noted above.
LIQUIDITY AND CAPITAL RESOURCES
Copart has financed its growth principally through cash generated from
operations, debt financing in February 1993, the issuance by Copart of
1,071,600 shares of Common Stock at $7.00 per share in a private placement to
certain of its existing shareholders in November 1993, its March 1994 initial
public offering ("IPO") of 2,300,000 shares of Common Stock at $12.00 per
share, its follow-on offering in May 1995 of 1,897,500 shares of Common Stock
at $19.25 per share, the equity issued in conjunction with certain
acquisitions and borrowings under the Bank Credit Facility (as defined below)
in connection with the NER Acquisition.
At July 31, 1996, Copart had working capital of approximately $40.6
million, including cash and cash equivalents of approximately $13.0 million.
The Company is able to process, market, sell and receive payment for processed
vehicles quickly. Therefore, the Company does not require substantial amounts
of working capital, as it receives payment for vehicles at approximately the
same time as it remits payments to vehicle suppliers. The Company's primary
source of cash is from the collection of sellers' fees and reimbursable
advances from the proceeds of auctioned salvage vehicles and from buyers'
fees.
In May, 1995 Copart entered into a bank credit facility provided by Wells
Fargo Bank, N.A. and U.S. Bank of California (the "Bank Credit Facility").
The Bank Credit Facility consists of a revolving line of credit of $10 million
which matures in November 1997 and a $18.5 million term loan facility which
matures in May 2002. The term loan amortizes on a straight-line basis over its
term. The Company may reborrow up to the unamortized principal amount of the
term loan. Amounts outstanding under the Bank
24
<PAGE>
Credit Facility accrue interest at either the prime rate most recently
announced by Wells Fargo or at a rate based on LIBOR plus a spread of 1.75%
subject to reductions based on certain credit ratios. The current spread has
been reduced to 1.25%. As of July 31, 1996, there are no outstanding
borrowings under this facility.
The Company has entered into various operating lease lines for the
purpose of leasing up to $10.5 million of yard and fleet equipment, of which
approximately $1.4 million was available as of July 31, 1996.
Copart generated cash from operations of approximately $11.3 million,
$5.2 million and $4.7 million in fiscal years 1996, 1995 and 1994,
respectively. The increase in cash from operations from fiscal 1994 to fiscal
1995 and from fiscal 1995 to fiscal 1996 reflects Copart's increased
profitability.
During the fiscal year ended July 31, 1996, Copart used cash for the
acquisition of the Jackson, Mississippi and El Paso, Texas facilities, which
had an aggregate cash cost of approximately $2.8 million. During the fiscal
year ended July 31, 1995, Copart's principal use of cash was for the
acquisition of the NER, Kansas City, Oklahoma City and Tulsa, St. Louis,
Conway and West Memphis salvage vehicle auction facilities, which had an
aggregate cash cost of approximately $38.3 million. Copart financed the cash
portion of the NER acquisition of approximately $24.7 million principally with
the proceeds from the Bank Credit Facility. The Company used a portion of the
net proceeds of its May 1995 follow-on offering to repay the amounts borrowed
under the Bank Credit Facility. In addition, the Company issued $21.3 million
in value of its Common Stock in conjunction with the fiscal 1995 acquisitions.
Copart's principal use of cash in fiscal 1994 was for the acquisition of the
Houston, Lufkin, Longview and Atlanta operations, which had an aggregate cash
cost of approximately $11.3 million, and repayment of $7.0 million related to
the February 1993 debt financing.
Capital expenditures (excluding those associated with fixed assets
attributable to acquisitions) were approximately $8.4 million, $5.1 million
and $2.1 million for fiscal 1996, 1995 and 1994, respectively. During the
fiscal year ended July 31, 1996, Copart acquired approximately 40 acres of
land at the Van Nuys facility for the purchase price of $10.5 million, for
which the Company paid $3.0 million in cash and issued the seller a promissory
note secured by the real property in the principal amount of $7.5 million,
payable interest only at the rate of 7.2% per annum, with the principal
payable in 5 years. Copart's capital expenditures have related primarily to
opening and operating facilities and acquiring yard equipment. Historically,
while Copart has sub-contracted for a significant portion of its vehicle
transport services, the Company has implemented a program for converting long
haul transports to its own fleet of vehicle carriers at each facility. Based
upon the potential for increased revenues from Company-owned vehicle towing
services, the Company has entered into agreements to acquire approximately
$6.0 million of additional multi-vehicle transport trucks and forklifts and is
disposing certain older equipment.
In fiscal 1996 and 1995, the Company generated approximately $0.6 and
$0.3 million through the exercise of employee incentive stock options,
respectively. In fiscal 1995, the Company generated approximately $33.8
million of net cash primarily through the issuance of common stock in its
follow-on offering. In fiscal 1994, Copart generated approximately $24.5
million of net cash from financing activities, primarily through the issuance
in the IPO and private placement of Common Stock in the amount of
approximately $32.2 million reduced by principal payments on notes payable of
approximately $7.7 million.
Cash and cash equivalents decreased by approximately $0.8 million and
$4.1 million in fiscal 1996 and 1995, respectively. The Company's liquidity
and capital resources have not been materially affected by inflation and are
not subject to significant seasonal fluctuations.
The Company believes that the proceeds of its follow-on offering of
Common Stock, cash generated from operations, borrowing availability under the
Bank Credit Facility and equipment leasing lines of credit will be sufficient
to satisfy the Company's working capital requirements and fund openings
25
<PAGE>
and acquisitions of new facilities for the next 12 months. * However, there
can be no assurance that the Company will not be required to seek additional
debt or equity financing prior to such time, depending upon the rate at which
the Company opens or acquires new facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a) for an index to the financial statements and
supplementary financial information which are attached thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item
is incorporated herein by reference from the Company's Proxy Statement under
the heading "Election of Directors."
Information regarding executive officers is included in Part I hereof
under the caption "Executive Officers of the Registrant" and is incorporated
by reference herein.
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended is incorporated herein by reference from the
Company's Proxy Statement under the heading "Election of Directors - Section
16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement under the heading "Election of
Directors-Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement under the heading "Election of
Directors-Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the Company's Proxy Statement under the heading "Certain Transactions."
- ----------------------------------
* This statement is a forward-looking statement reflecting current
expectations. Actual future performance may differ materially from the
Company's current expectations. The reader is advised to review "Factors
Affecting Future Results" for a fuller discussion of factors that could
affect future performance.
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Independent Auditors' Report............................... 31
Consolidated Balance Sheets at July 31, 1996 and 1995...... 32
Consolidated Statements of Income for the three years ended
July 31, 1996............................................. 33
Consolidated Statements of Shareholders' Equity for the
three years ended July 31, 1996........................... 34
Consolidated Statements of Cash Flows for the three years
ended July 31, 1996....................................... 35
Notes to Consolidated Financial Statements................. 37
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts..................... 50
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
*3.1 Amended and Restated Articles of Incorporation of the
Registrant
***3.2 Bylaws of the Registrant, as amended
***10.1+ Copart, Inc. 1992 Stock Option Plan, as amended
*10.2+ 1994 Employee Stock Purchase Plan, with form of
Subscription Agreement
*10.3+ 1994 Director Option Plan, with form of Subscription
Agreement
*10.4 Indemnification Agreement, dated December 1, 1992,
among the Registrant and Willis J. Johnson, Reba J.
Johnson, A. Jayson Adair, Michael A. Seebode, Steven
D. Cohan and Paul A. Styer
*10.5 Indemnification Agreement, dated July 1, 1993,
between the Registrant and Willis J. Johnson, Marvin
L. Schmidt, James E. Meeks and Steven D. Cohan
*10.6 Indemnification Agreement, dated November 9, 1993,
between the Registrant and James Grosfeld
*10.7 Form of Indemnification Agreement to be entered into
by the Registrant and each of Harold Blumentstein
and Patrick Foley
*10.8+ Employment Contract for Chief Executive, dated
February 17, 1993, between Willis J. Johnson and the
Registrant
*10.9+ Employment Contract, dated August 1, 1992, between A.
Jayson Adair and the Registrant
27
<PAGE>
*10.10+ Employment for Senior Executive, dated September 1,
1992, between Paul A. Styer and the Registrant
*10.11 Employment Contract for Senior Executive, dated
September 1, 1992, between James E. Meeks and the
Registrant
*10.12 Common Stock Warrant, dated November 9, 1993, issued to
James Grosfeld
***10.13 Credit Agreement among Copart, Inc. and Wells Fargo
Bank, National Association, U.S. Bank of
California and Wells Fargo Bank, National
Association, as Agent, dated May 1, 1995
****10.14 Agreement for Purchase and Sale of Assets of NER
Auction Systems, dated January 13, 1995, among
Registrant, the list of Sellers as set forth
therein, Richard A. Polidori, Gordon
VanValkenberg, and Stephen Powers
10.15 Contract of Sale by and between the Stroh Companies,
Inc. as Seller an Copart, Inc. as Purchaser, dated
April 4, 1996
11.1 Copart, Inc. and Subsidiary Computation of Net
Income Per Share
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney (See page 29 of this Form 10-K)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
(c) See response to Item 14(a)(3) above
(d) See response to Item 14(a)(2) above
- -------------------------
* Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-1, as amended (File No. 33- 74250).
+ Denotes a compensation plan in which an executive officer participates.
*** Incorporated by reference from exhibit to registrant's Form 10-K for its
fiscal year ended July 31, 1995, filed with the Securities and Exchange
Commission.
**** Incorporated by reference from exhibit to registrant's Registration
Statement on Form S-3, as amended (File No. 33- 91110) filed with the
Securities and Exchange Commission.
28
<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.
Registrant
COPART, INC.
October 28, 1996 BY: /s/ Willis J. Johnson
-----------------------------------
Willis J. Johnson
Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Willis J. Johnson and Joseph M. Whelan
and each of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
29
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity in Which Signed Date
--------- ------------------------ ----
/s/ Willis J. Johnson Chief Executive Officer October 28, 1996
----------------------- (Principal Executive Officer)
Willis J. Johnson and Director
/s/ Joseph M. Whelan Senior Vice President and October 28, 1996
----------------------- Chief Financial Officer
Joseph M. Whelan (Principal Financial and
Accounting Officer)
/s/ A. Jayson Adair Executive Vice President October 28, 1996
----------------------- and Director
A. Jayson Adair
/s/ James Grosfeld Director October 28, 1996
-----------------------
James Grosfeld
/s/ Marvin L. Schmidt Senior Vice President October 28, 1996
----------------------- of Corporate Development
Marvin L. Schmidt and Director
/s/ Jonathan Vannini Director October 28, 1996
-----------------------
Jonathan Vannini
/s/ Harold Blumenstein Director October 28, 1996
-----------------------
Harold Blumenstein
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Copart, Inc.:
We have audited the consolidated financial statements of Copart, Inc. and
subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Copart,
Inc. and subsidiaries as of July 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year
period ended July 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
KPMG Peat Marwick LLP
San Francisco, California
September 27, 1996
31
<PAGE>
<TABLE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
----------------------
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,026,200 $ 13,779,200
Accounts receivable, net 29,992,000 23,901,600
Income taxes receivable 742,200 --
Vehicle pooling costs 9,253,300 6,721,400
Inventory 1,456,400 3,252,400
Deferred income taxes 378,400 131,000
Prepaid expenses and other assets 2,450,800 209,300
------------- -------------
Total current assets 57,299,300 47,994,900
Property and equipment, net 26,204,200 13,082,000
Intangibles and other assets, net 74,562,300 74,081,100
------------- -------------
Total assets $ 158,065,800 $ 135,158,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 772,800 $ 582,700
Accounts payable and accrued liabilities 10,370,000 9,550,000
Deferred revenue 5,570,500 5,106,700
------------- -------------
Total current liabilities 16,713,300 15,239,400
Deferred income taxes 610,300 633,000
Long-term debt, less current portion 10,487,000 3,151,000
Other liabilities 4,010,200 3,019,000
------------- -------------
Total liabilities 31,820,800 22,042,400
------------- -------------
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized;
12,641,213 and 12,372,224 shares issued and outstanding
at July 31, 1996 and July 31, 1995, respectively 106,473,800 104,529,800
Retained earnings 19,771,200 8,585,800
------------- -------------
Total shareholders' equity 126,245,000 113,115,600
------------- -------------
Commitments and contingencies
Total liabilities and shareholders' equity $ 158,065,800 $ 135,158,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Years Ended July 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 118,247,600 $ 58,116,700 $ 22,793,700
------------- ------------- -------------
Operating expenses:
Yard and fleet 83,541,800 37,753,400 14,747,600
General and administrative 10,907,500 5,704,400 2,413,200
Depreciation and amortization 5,996,700 3,397,900 1,521,000
------------- ------------- -------------
Total operating expenses 100,446,000 46,855,700 18,681,800
------------- ------------- -------------
Operating income 17,801,600 11,261,000 4,111,900
------------- ------------- -------------
Other income (expense):
Interest expense (450,800) (491,000) (920,300)
Interest income 680,200 582,500 250,300
Other income 158,900 84,200 268,400
------------- ------------- -------------
Total other income (expense) 388,300 175,700 (401,600)
------------- ------------- -------------
Income before income taxes and
extraordinary item 18,189,900 11,436,700 3,710,300
Income taxes 7,004,500 4,542,400 1,487,900
------------- ------------- -------------
Income before extraordinary item 11,185,400 6,894,300 2,222,400
Extraordinary item - loss on
extinguishment of debt, net of income
tax benefit of $1,088,600 -- -- (1,632,800)
------------- ------------- -------------
Net income $ 11,185,400 $ 6,894,300 $ 589,600
------------- ------------- -------------
------------- ------------- -------------
Per share:
Income before extraordinary item $ 0.85 $ 0.65 $ 0.30
Extraordinary item -- -- (0.22)
------------- ------------- -------------
Net income $ 0.85 $ 0.65 $ 0.08
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares and equivalents
outstanding 13,215,636 10,614,201 7,304,851
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
--------------------------------
Outstanding Retained Shareholders'
Shares Amount Earnings Equity
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCES AT JULY 31, 1993 4,359,807 $ 3,030,200 $ 1,101,900 $ 4,132,100
Shares issued for acquisitions 1,021,750 12,405,000 -- 12,405,000
Shares issued in connection with
private placement 1,071,600 7,486,500 -- 7,486,500
Shares issued in connection with
initial public offering 2,300,000 24,674,800 -- 24,674,800
Net income -- -- 589,600 589,600
----------- ------------- ------------- -------------
BALANCES AT JULY 31, 1994 8,753,157 47,596,500 1,691,500 49,288,000
Shares issued for acquisitions 1,366,666 21,310,100 -- 21,310,100
Shares issued in connection with
public offering 1,897,500 33,844,900 -- 33,844,900
Exercise of stock options 156,100 269,100 -- 269,100
Exercise of warrants 188,341 1,301,800 -- 1,301,800
Shares issued for Employee
Stock Purchase Plan 10,460 207,400 -- 207,400
Net income -- -- 6,894,300 6,894,300
----------- ------------- ------------- -------------
BALANCES AT JULY 31, 1995 12,372,224 104,529,800 8,585,800 113,115,600
Shares issued for acquisition 288 6,200 -- 6,200
Exercise of stock options 157,508 586,600 -- 586,600
Exercise of warrants 87,431 860,300 -- 860,300
Shares issued for Employee
Stock Purchase Plan 21,062 434,200 -- 434,200
Shares issued for software 2,700 56,700 -- 56,700
Net income -- -- 11,185,400 11,185,400
----------- ------------- ------------- -------------
BALANCES AT JULY 31, 1996 12,641,213 $ 106,473,800 $ 19,771,200 $ 126,245,000
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,185,400 $ 6,894,300 $ 589,600
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,996,700 3,397,900 1,521,000
Amortization of OID -- -- 192,200
Loss on extinguishment of debt -- -- 2,721,400
Deferred rent 991,200 19,000 --
Deferred income taxes (270,100) 71,800 (49,900)
(Gain) loss on sale of assets (62,300) (17,000) 117,800
Employee stock purchase plan compensation 91,600 68,600 --
Changes in operating assets and liabilities:
Acounts receivable (5,528,500) (4,905,500) (1,677,500)
Vehicle pooling costs (2,366,800) (1,487,100) (730,900)
Inventory 1,796,000 (3,172,500) (79,900)
Prepaid expenses and other current assets (1,738,800) 503,400 (343,000)
Accounts payable and accrued liabilities 820,000 1,925,900 1,840,600
Deferred revenue 248,000 751,900 171,600
Income taxes 118,100 1,168,900 474,700
------------- ------------- -------------
Net cash provided by operating activities 11,280,500 5,219,600 4,747,700
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable -- 146,400 219,600
Purchase of property and equipment (8,412,800) (5,055,800) (2,058,600)
Proceeds from sale of property and equipment 516,600 17,000 107,500
Purchase of property and equipment in
connection with acquisitions (174,500) (4,870,400) (375,500)
Purchase of intangible assets in connection
with acquisitions (2,296,800) (24,869,900) (8,691,400)
Purchase of net current assets in connection
with acquisitions (511,200) (8,562,500) (2,331,500)
Purchase of software development costs (672,100) -- --
Deferred preopening costs (714,700) -- --
Other intangible asset additions (123,500) -- --
------------- ------------- -------------
Net cash used in investing activities (12,389,000) (43,195,200) (13,129,900)
------------- ------------- -------------
</TABLE>
Continued on next page
35
<PAGE>
COPART, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years ended July 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 33,844,900 32,161,300
Proceeds from exercise of stock options 586,600 269,100 --
Proceeds from issuance of Employee
Stock Purchase Plan Shares 342,600 138,800 --
Proceeds from issuance of notes payable -- 20,525,700 --
Principal payments on notes payable (573,700) (20,894,200) (7,694,700)
------------- ------------- -------------
Net cash provided by financing activities 355,500 33,884,300 24,466,600
------------- ------------- -------------
Net (decrease) increase in cash and
cash equivalents (753,000) (4,091,300) 16,084,400
Cash and cash equivalents at beginning of year 13,779,200 17,870,500 1,786,100
------------- ------------- -------------
Cash and cash equivalents at end of year $ 13,026,200 $ 13,779,200 $ 17,870,500
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 450,800 $ 491,000 $ 782,800
------------- ------------- -------------
------------- ------------- -------------
Income taxes paid $ 7,160,300 $ 3,298,400 $ 312,400
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See note 14 for noncash financing and investing activities.
See accompanying notes to consolidated financial statements.
36
<PAGE>
COPART, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATION ACTIVITIES
Copart, Inc. and its subsidiaries (the "Company") provide vehicle
suppliers with a full range of services to process and sell salvage vehicles.
The Company auctions salvage vehicles, which are either damaged vehicles
deemed a total loss for insurance or business purposes or are recovered
stolen vehicles for which an insurance settlement with the vehicle owner has
already been made.
Gross proceeds generated from auctioned vehicles were approximately
$506,916,000, $317,788,000 and $144,397,200, for the years ended July 31,
1996, 1995 and 1994, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries. Significant intercompany transactions
and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recorded at the date the vehicles are sold at auction and
delivered to the buyers.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
VEHICLE POOLING COSTS
Vehicle pooling costs consist of labor, towing, outside services and
other costs directly attributable to the gathering and processing of vehicles
prior to their sale. Vehicle pooling costs are recognized as expenses in the
period the vehicle is sold at auction. The Company continually evaluates and
adjusts the components of vehicle pooling costs , as necessary.
INVENTORY
Inventories of purchased vehicles are stated at the lower of specific
cost or estimated realizable value.
DEFERRED PREOPENING COSTS
Costs related to the opening of new auction facilities, such as
preopening payroll and various training expenses, are deferred until the
auction facilities open and are amortized over the subsequent 12 months.
These costs are included in prepaid expenses and other assets.
37
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Assets acquired before July 31, 1991 are depreciated using
accelerated methods. For assets acquired subsequent to July 31, 1991,
depreciation expense is provided on the straight-line method over the
estimated useful lives of the related assets, generally five to nineteen
years. Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease terms or the useful lives of the respective assets.
INTANGIBLE ASSETS
Intangible assets consist of covenants not to compete, goodwill, options
to purchase leased property and other costs. Amortization, except for the
options to purchase leased property, is provided on the straight-line method
over the estimated lives, not to exceed forty years. The Company continually
evaluates the recoverability of goodwill as well as other intangible assets
by assessing whether the amortization of the balance over the remaining life
can be recovered through expected and undiscounted future results. As part of
this review, the Company takes into consideration any events and
circumstances which might have diminished the fair values.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes indicate that
the carrying amount of an asset may not be recoverable. Upon adoption, the
Company identified no long-lived assets or identifiable intangibles which
were impaired.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximates fair value as defined in SFAS
No. 107.
NET INCOME PER SHARE
Net income per share is computed by using the weighted average number of
common shares and equivalents assumed to be outstanding during the periods.
Common stock options and warrants to purchase common stock were included in
the calculations of net income per share.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 123 will be
effective for fiscal years beginning after December 15, 1995, and will
require that the Company either recognize in its consolidated financial
statements costs on a
38
<PAGE>
fair value basis related to its employee stock based compensation plans, such
as stock option and stock purchase plans, or make pro forma disclosures of
such costs in a note to the consolidated financial statements.
The Company expects to continue to use the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123,
to account for all of its employee stock-based compensation plans. The
adoption of SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of income or financial position.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) ACQUISITIONS
FISCAL 1996 TRANSACTIONS
On August 1, 1995, the Company acquired certain assets of Mississippi
Salvage Disposal Company, Inc., of Jackson, Mississippi. On November 16,
1995, the Company acquired certain assets of Sun City Salvage Pool, Inc., of
El Paso, Texas. The consideration paid for these acquisitions consisted of
$2,782,500 in cash. The Company also paid $200,000 for an option to purchase
land. The acquired net assets consisted of accounts and advances receivable,
inventory, fixed assets, goodwill and covenants not to compete. The
acquisitions were accounted for using the purchase method of accounting, and
the operating results subsequent to the acquisition dates are included in the
Company's consolidated statements of income. The excess of the purchase
price over fair market value of the net identifiable assets acquired of
$1,746,800 has been recorded as goodwill and is being amortized in a
straight-line basis over forty years. In conjunction with these
acquisitions, the Company entered into leases for the use of these
facilities. In addition, the Company paid $125,000 in June 1996 for
contingent consideration related to the fiscal 1994 Lufkin and Longview
acquisitions, and paid $6,200 in stock consideration, in November 1995,
related to the fiscal 1995 St. Louis acquisition.
FISCAL 1995 TRANSACTIONS
On October 17, 1994, the Company acquired all of the stock of Kansas
City Salvage Pool, Inc. for $3,947,600 in cash and 93,104 shares of common
stock valued at $1,512,900. The acquisition was accounted for using the
purchase method, and the operating results subsequent to the acquisition date
are included in the Company's consolidated statements of income. The excess
of the purchase price over the fair value of the net identifiable assets
acquired at $4,689,200 has been recorded as goodwill and is being amortized
on a straight-line basis of 40 years. In conjunction with this acquisition,
the Company entered into a lease for the use of the facilities.
On November 13, 1994, the Company acquired certain assets of Auto Pools
of Oklahoma City and Tulsa, Inc., Auto Storage Pool, Inc. and Auto Pools of
Tulsa, Inc. of Oklahoma City and Tulsa, Oklahoma. On March 1, 1995, the
Company acquired certain assets of Missouri Auto Salvage Pool, Inc. of St.
Louis, Missouri. On April 7, 1995, the Company acquired certain assets and
liabilities of Mid-Ark Salvage Pool, Inc. of Conway and West Memphis,
Arkansas. The consideration paid for these acquisitions consisted of
$4,391,300 in cash and 112,466 shares of common stock valued at $2,055,500.
The Company also paid $500,000 for options to purchase the St. Louis, Conway,
and West Memphis facilities. The acquired net assets consisted of accounts
and advances receivables, inventory, fixed assets, goodwill and covenants not
to compete. The acquisitions were accounted for using the purchase
39
<PAGE>
method of accounting, and the operating results subsequent to the acquisition
dates are included in the Company's consolidated statements of income. The
excess of the purchase price over fair market value of the net identifiable
assets acquired of $4,471,000 has been recorded as goodwill and is being
amortized in a straight-line basis between thirty and forty years. In
conjunction with these acquisitions, the Company entered into leases for the
use of these facilities. In addition, the Company paid $119,400 in May, 1995
for contingent consideration related to the fiscal 1994 Lufkin and Longview
acquisitions.
On May 2, 1995, the Company acquired certain assets and liabilities of
NER Auction Group with 20 locations in 11 states in the northeast and great
lakes regions and Florida for $22,732,000 in cash and 1,161,103 shares of
common stock valued at $17,741,700. The Company also paid $2,000,000 for
options to purchase land and buildings at certain facilities. The
acquisition was accounted for using the purchase method, and the operating
results subsequent to the acquisition date are included in the Company's
consolidated statements of income. The excess of the purchase price over the
fair value of the identifiable net assets acquired of $31,615,200 has been
recorded as goodwill and is being amortized on a straight-line basis over
forty years. In conjunction with this acquisition, the Company entered into
leases for all of the facilities.
FISCAL 1994 TRANSACTIONS
On January 10, 1994, the Company acquired certain operating assets from
Yeates Company, Inc. (Houston Auction Pool) of Houston, Texas for $7,324,800
in cash. The acquisition was accounted for using the purchase method, and the
operating results subsequent to the acquisition date are included in the
Company's consolidated statements of income. The excess of the purchase price
over the fair value of the net identifiable assets acquired of $6,009,000 has
been recorded as goodwill and is being amortized on a straight-line basis
over forty years. In conjunction with this acquisition, the Company has
entered into a lease for use of the facilities.
On March 16, 1994, the Company acquired all of the assets and liabilities
(including the assumption of an environmental liability for $3,000,000) of
North Texas Salvage Pool, Inc. for $200,000 in cash and, 979,583 shares of
common stock valued at $11,755,000. The Company also paid $25,000 for options
to purchase the land and buildings. The acquisition was accounted for using
the purchase method, and the operating results subsequent to the acquisition
date are included in the Company's consolidated statements of income. The
excess of the purchase price over the fair value of the net identifiable
assets acquired of $14,082,900 has been recorded as goodwill and is being
amortized on a straight-line basis over forty years. In conjunction with this
acquisition, the Company has entered into a lease for use of the facilities.
On May 1, 1994, the Company, through a wholly owned subsidiary, acquired
certain operating assets of the Lufkin and Longview Partnership of Lufkin and
Longview, Texas. On July 15, 1994, the Company, through a wholly owned
subsidiary, acquired certain operating assets of Hughes Auto Disposal, Inc.
of Atlanta, Georgia. The consideration paid for these acquisitions consisted
of cash of $3,630,000 and the issuance of 42,167 shares of the Company's
common stock. The acquired net assets consisted of accounts and advances
receivable, inventory, fixed assets, options to purchase the related land and
facilities, goodwill and covenants not to compete. The acquisitions were
accounted for using the purchase method of accounting, and the operating
results subsequent to the acquisition dates are included in the Company's
consolidated statements of income. The excess of purchase price over fair
value of the net identifiable assets acquired of $2,040,500 has been recorded
as goodwill and is being amortized on a straight-line basis between thirty
and forty years. In conjunction with the acquisitions, the Company entered
into leases for the use of the facilities. The lease pertaining to Hughes
Auto Disposal, Inc. acquisition contains a purchase option to acquire the
related land and facilities.
40
<PAGE>
The following unaudited pro forma financial information assumes the 1996
and 1995 acquisitions, debt repayment and secondary offering occurred at the
beginning of fiscal 1995. These results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of fiscal 1995 or of the
results of which may occur in the future.
Years ended July 31,
--------------------
1996 1995
---- ----
Revenues $118,248,000 $ 84,820,000
------------ ------------
------------ ------------
Operating income $ 17,802,000 $ 15,852,000
------------ ------------
------------ ------------
Net income $ 11,185,000 $ 9,578,000
------------ ------------
------------ ------------
Net income per share $ 0.85 $ 0.72
------------ ------------
------------ ------------
(3) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
July 31,
--------
1996 1995
---- ----
Accounts receivable $29,730,500 $21,947,100
Related party receivable 360,500 2,053,500
----------- -----------
30,091,000 24,000,600
Less allowance for doubtful accounts 99,000 99,000
----------- -----------
$29,992,000 $23,901,600
----------- -----------
----------- -----------
Accounts receivable includes trade accounts receivable and advance
charges. Trade accounts receivable include fees to be collected from
insurance companies and buyers. Advance charges receivable represent amounts
paid to third parties on behalf of insurance companies for which the Company
will be reimbursed when the vehicle is sold and approximate $9.8 million and
$7.8 million as of July 31, 1996 and 1995, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31,
--------
1996 1995
---- ----
Transportation and other equipment $11,488,100 $10,185,700
Office furniture and equipment 4,361,600 2,668,500
Land, buildings and leasehold improvements 17,582,800 4,677,300
----------- -----------
33,432,500 17,531,500
Less accumulated depreciation 7,228,300 4,449,500
----------- -----------
$26,204,200 $13,082,000
----------- -----------
----------- -----------
41
<PAGE>
Included in property and equipment as of July 31, 1996 and 1995, are
$1,330,600 and $663,700 respectively, of equipment under capital leases.
Accumulated amortization related to this equipment was $404,200 and $220,800
as of July 31, 1996 and 1995, respectively.
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following:
JULY 31,
--------
1996 1995
---- ----
Covenants not to compete $ 4,787,500 $ 4,462,500
Goodwill 70,404,400 68,395,800
Options to purchase leased property 3,455,000 3,255,000
Software 809,800 81,000
Other 215,400 322,500
------------ ------------
79,672,100 76,516,800
Less accumulated amortization 5,109,800 2,435,700
------------ ------------
$ 74,562,300 $ 74,081,100
------------ ------------
------------ ------------
(6) SUBORDINATED NOTES PAYABLE
In 1993, the Company consummated a private placement note financing of
$10 million and borrowed $7,000,000. In connection with this financing, the
Company issued 1,326,307 shares of common stock to the noteholders and
warrants to purchase 405,944 shares of common stock to a placement agent.
During fiscal 1994, the unamortized amounts of debt offering costs of $539,900
and original issue discount of $2,181,500 were written off in connection with
the repayment of the related debt and recorded as an extraordinary item.
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of the following:
JULY 31,
--------
1996 1995
---- ----
Trade accounts payable $ 347,600 $ 1,461,400
Accounts payable to insurance companies 7,810,100 4,860,600
Accrued payroll 1,455,400 1,000,700
Other accrued liabilities 756,900 2,227,300
------------ ------------
$ 10,370,000 $ 9,550,000
------------ ------------
------------ ------------
42
<PAGE>
(8) LONG-TERM DEBT
Long-Term debt consists of the following:
JULY 31,
--------
1996 1995
---- ----
Note payable to a corporation, secured by land,
payable in monthly interest only installments
of $45,000 through May 2001, when balance is
due, bearing interest at 7.2% $ 7,500,000 --
Unsecured note payable to an individual,
payable in monthly installments of $33,000
through September 1997 when the balances become
due, bearing interest at 10% 1,801,500 2,006,500
Notes payable under capital leases, secured by
equipment, payable in monthly installments of
$1,600 to $17,800 through July 1999, bearing
interest from 3.9% to 10.4% 908,300 449,400
Notes payable secured by land, payable in
monthly installments of $2,600 to $3,100
through July 2000, bearing interest at 8% 642,100 657,400
Unsecured notes payable to individuals, payable
in monthly installments of $3,300 to $5,000
through February 2000, bearing interest at 10%
to 12% 229,700 346,900
Notes payable to financial institutions,
secured by equipment, payable in monthly
installments of $1,400 to $3,200 through
September 1999, bearing interest from 8% to 9.5% 178,200 273,500
----------- -----------
11,259,800 3,733,700
Less current portion 772,800 582,700
----------- -----------
$10,487,000 $ 3,151,000
----------- -----------
----------- -----------
The aggregate maturities of long-term debt are as follows:
YEARS ENDING JULY 31,
- ---------------------
1997 $ 772,800
1998 2,031,200
1999 573,500
2000 382,300
2001 7,500,000
-----------
$11,259,800
-----------
-----------
The Company has entered into a bank credit facility which consists of a
revolving line of credit of $10 million which matures in November 1997 and a
$18.5 million term loan facility which matures in May 2002. The term loan
amortizes on a straight-line basis over its term. The Company may reborrow up
to the unamortized principal amount of the term loan. Amounts outstanding
under the bank credit facility accrue interest at either the prime rate or at
a rate based on LIBOR plus a spread of 1.75% subject to reductions based on
certain credit ratios. The current spread has been reduced to 1.25%. As of
July 31, 1996, there were no outstanding borrowings under this facility. The
Company is subject to customary covenants, including restrictions on payment
of dividends, under the facility, with which it is in compliance.
43
<PAGE>
(9) SHAREHOLDERS' EQUITY
On May 24, 1995 the Company completed a secondary offering of 1,897,500
shares of common stock. Proceeds to the Company, net of related costs of the
offering, totaled $33,844,900. On March 17, 1994, the Company completed an
IPO of 2,300,000 shares of common stock. Proceeds to the Company, net of
related costs of the offering, totaled $24,674,800. In November 1993, in a
private placement financing to certain shareholders which generated proceeds
to the Company of $7,486,500, the Company issued 1,071,600 shares of common
stock and a warrant expiring in November 1998 to purchase 300,000 shares of
common stock at $7.00 per share.
In fiscal 1996, 1995 and 1994, the Company issued 288, 1,366,666 and
1,021,750 shares of common stock with a fair market value of $6,200,
$21,310,100 and $12,405,000 in connection with certain acquisitions,
respectively.
The Company adopted the Copart, Inc. 1992 Stock Option Plan (the "Plan"),
as amended, presently covering 1,500,000 shares of the Company's common stock.
The Plan provides for the grant of incentive stock options to employees and
non-qualified stock options to employees, officers, directors and consultants
at prices not less than 100% and 85% of the fair market value for incentive
and non-qualified stock options, respectively, as determined by the Board of
Directors at the grant date. Incentive and non-qualified stock options may
have terms of up to ten years and vest over periods determined by the Board of
Directors. Options generally vest ratably over a two or five year period.
In March 1994, the Company adopted the Copart, Inc. 1994 Director Option
Plan under which 40,000 shares of the Company's common stock are presently
reserved. In general, new non-employee directors will automatically receive
grants of non-qualified options to purchase 3,000 shares and subsequent grants
to purchase 1,500 shares at specified intervals.
<TABLE>
<CAPTION>
1992 Stock Option Plan
----------------------
Incentive Non-qualified Director Price
stock options stock options Option Plan per share
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding at July 31, 1993 480,000 162,500 -- $ 1.00 - 2.00
Granted 214,000 20,000 6,000 12.00
--------- -------- ------- --------------
Outstanding at July 31, 1994 694,000 182,500 6,000 1.00 - 12.00
Exercised (156,100) -- -- 1.00 - 2.00
Granted 160,000 -- 3,000 17.00 - 21.13
--------- -------- ------- --------------
Outstanding at July 31, 1995 697,900 182,500 9,000 1.00 - 21.13
Canceled (33,100) -- (2,300) 2.00 - 21.13
Exercised (155,300) -- (2,200) 1.00 - 19.38
Granted 147,500 -- 1,500 12.50 - 23.44
--------- -------- ------- --------------
Outstanding at July 31, 1996 657,000 182,500 6,000 $ 1.00 - 23.44
--------- -------- ------- --------------
--------- -------- ------- --------------
Vested at July 31, 1996 210,900 177,200 3,900 $ 1.00 - 19.38
--------- -------- ------- --------------
--------- -------- ------- --------------
</TABLE>
In March 1994, the Company authorized the issuance of 5,000,000 shares of
preferred stock, no par value, none of which are issued.
The Company adopted the Copart, Inc. Employee Stock Purchase Plan
effective January 1994. The plan provides for the purchase of up to 85,000
shares of common stock of the Company by employees pursuant to the terms of
the plan, as defined. Shares of common stock issued pursuant to the plan during
44
<PAGE>
fiscal 1996 and 1995 were 21,062 and 10,460, respectively. Additional
compensation expense of $91,600 and $68,600 was recognized in fiscal 1996 and
1995, respectively.
At July 31, 1996, the Company has 100,584 outstanding warrants expiring
in 1997 to purchase shares of common stock at $2.04 per share in connection
with the financing described in note 6.
(10) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Years ended July 31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 6,362,400 $ 4,031,200 $ 1,261,500
Deferred (233,800) 66,200 (46,900)
------------ ------------ ------------
6,128,600 4,097,400 1,214,600
------------ ------------ ------------
State:
Current 912,200 439,400 276,300
Deferred (36,300) 5,600 (3,000)
------------ ------------ ------------
875,900 445,000 273,300
------------ ------------ ------------
$ 7,004,500 $ 4,542,400 $ 1,487,900
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The reconciliation between the amount computed by applying the U.S.
federal statutory tax rate of 34% to income before income tax expense and the
actual income tax expense follows:
<TABLE>
<CAPTION>
Years ended July 31,
--------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate 34% 34% 34%
State income taxes, net of federal income tax benefit 4 3 6
Amortization of goodwill 1 1 5
Other -- 2 (5)
---- ---- ----
39% 40% 40%
---- ---- ----
---- ---- ----
</TABLE>
45
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
Years ended July 31,
-----------------------
1996 1995
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable $ 38,700 $ 30,200
Accrued vacation 148,600 125,500
State taxes 317,200 96,300
--------- ---------
Total gross deferred tax assets 504,500 252,000
--------- ---------
Deferred tax liabilities:
Amortization of goodwill (424,000) (202,100)
Accrual to cash basis accounting (126,100) (242,000)
Depreciation (186,300) (309,900)
--------- ---------
Total gross deferred tax liabilities (736,400) (754,000)
--------- ---------
Net deferred tax liability $(231,900) $(502,000)
--------- ---------
--------- ---------
In fiscal 1996 and 1995, the Company recognized a tax benefit of $860,300
and $1,301,800, respectively upon the exercise of certain stock warrants that
were issued to a placement agent in connection with the financing described
in note 6.
(11) MAJOR CUSTOMERS
One customer accounted for 16% of revenue in fiscal 1996, two customers
accounted for 37% of revenue in fiscal 1995, and three customers accounted for
approximately 53% of revenue in fiscal 1994. No other customer accounted for
more than 10% of revenues. No buyer of auto salvage accounted for more than
10% of gross proceeds in any period.
(12) COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases certain facilities under operating leases and has
either a right of first refusal to acquire or option to purchase certain
facilities at fair value. Facilities rental expense for the years ended July
31, 1996, 1995 and 1994 aggregated, $5,536,400, $2,833,600, and $1,615,900,
respectively.
The Company has operating leasing lines with certain financial
institutions of up to $10,500,000 for the purpose of leasing yard and fleet
equipment of which approximately $1,445,100 was available as of July 31, 1996.
46
<PAGE>
Noncancelable future minimum lease payments under capital and operating
leases with initial or remaining lease terms in excess of one year at July 31,
1996 are as follows:
YEARS ENDING JULY 31, CAPITAL OPERATING
- --------------------- LEASES LEASES
------ ------
1997 $ 408,700 $ 6,448,700
1998 352,600 6,529,100
1999 213,100 6,339,600
2000 -- 6,083,300
2001 -- 4,751,700
Thereafter -- 10,472,700
---------- ------------
974,400 $ 40,625,100
Less amount representing interest 66,100 ------------
---------- ------------
$ 908,300
----------
----------
COMMITMENT:
The Company has entered into agreements to acquire approximately $6
million of multi-vehicle transport trucks and forklifts.
CONTINGENCIES:
Copart is subject to legal proceedings and claims which arise in the
ordinary course of business. In addition, the Company is undergoing an
examination of its fiscal 1992 through 1994 federal income tax returns. In
the opinion of management, any ultimate liability with respect to these
actions will not materially affect the financial position of Copart.
(13) RELATED PARTY TRANSACTIONS
The Company leases certain of its facilities from affiliates of the
Company under lease agreements. Rental payments under these leases aggregated
$1,517,900, $589,300 and $149,100 for the years ended July 31, 1996, 1995 and
1994, respectively, and expire on various dates through 2005.
An affiliate provided $559,800, $535,800 and $562,800 of tow services to
the Company in fiscal 1996, 1995 and 1994, respectively.
(14) NONCASH FINANCING AND INVESTING ACTIVITIES
In fiscal 1996, 2,700 shares, valued at $56,700, were issued to an
outside consultant for services rendered in connection with the development of
computer software. In addition, 288 shares of common stock were issued as
contingent consideration related to the acquisition of the St. Louis facility.
In fiscal 1996 and 1995, the Company acquired (i) $62,900 and $21,310,100
of intangible assets through the issuance of common stock, respectively and
(ii) $599,800 and $133,100 of tangible assets through the issuance of notes
payable in connection with capital leases, respectively. In addition, in
fiscal 1996, the Company acquired real property for the purchase price of
$10.5 million of which $3 million was paid in cash, and $7.5 million was paid
through the issuance of a note payable.
In fiscal 1996 and 1995, 94,607 and 210,673 warrants were exercised in a
non-cash transaction which resulted in the issuance of 87,431 and 188,431
shares of common stock, respectively.
47
<PAGE>
In fiscal 1994, the Company acquired: (i) $14,957,000 of intangible
assets and $478,300 of tangible assets through the assumption of a note
payable on a capital lease, assumption of certain liabilities, and the
issuance of common stock; (ii) $300,000 of tangible assets through issuance of
a note payable; and (iii) $332,800 of tangible assets through issuance of
notes payable in connection of capital leases.
(15) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1996
Revenues $ 26,416,400 $ 26,071,100 $ 34,330,100 $ 31,430,000 $118,247,600
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Operating income $ 4,283,200 $ 4,881,200 $ 4,537,600 $ 4,099,600 $ 17,801,600
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income $ 2,617,700 $ 3,021,500 $ 2,789,100 $ 2,757,100 $ 11,185,400
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share $ 0.20 $ 0.23 $ 0.21 $ 0.21 $ 0.85
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
FISCAL QUARTER
--------------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1995
Revenues $ 9,686,700 $ 10,983,500 $ 16,004,900 $ 21,441,600 $ 58,116,700
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Operating income $ 2,012,000 $ 2,530,100 $ 3,112,600 $ 3,606,300 $ 11,261,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income $ 1,262,100 $ 1,586,200 $ 1,900,700 $ 2,145,300 $ 6,894,300
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share $ 0.13 $ 0.16 $ 0.19 $ 0.17 $ 0.65
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
48
<PAGE>
FORM 10-K
The Company will provide, without charge to each Shareholder, upon written
request a copy of its Form 10-K as required to be filed with the Securities &
Exchange Commission pursuant to rule 13a-1, under the Securities Exchange Act
of 1934. Your written request should be directed to: Chief Financial
Officer, Copart, Inc.
ANNUAL MEETING
The Annual meeting of Shareholders will be held at 5500 E. Second Street,
Benicia, California 94510 at 8:00 a.m. December 5, 1996.
49
<PAGE>
SCHEDULE II
COPART, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT CHARGED TO COSTS APPLICATIONS TO BALANCE AT
DESCRIPTION AND YEAR BEGINNING OF YEAR AND EXPENSES BAD DEBT END OF YEAR
-------------------- ----------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Reserve for doubtful accounts:
July 31, 1996 $ 99,000 -- -- $ 99,000
--------- --------- --------- ---------
--------- --------- --------- ---------
July 31, 1995 $ 80,000 $ 19,000 -- $ 90,000
--------- --------- --------- ---------
--------- --------- --------- ---------
July 31, 1994 $ 39,400 $ 40,600 -- $ 80,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
50
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CONTRACT OF SALE
by and between
THE STROH COMPANIES, INC.,
as Seller
and
COPART, INC.,
as Purchaser
--------------------------------
Dated as of March __, 1996
--------------------------------
Property:
7521 Woodman Avenue
Van Nuys, CA
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
1. Property ....................................................... 1
2. Purchase Price and Escrow Provisions ........................... 1
3. Condition of Property; Title ................................... 4
4. Time and Place of Closing; Contingency Period; Loan Documents .. 4
5. Conditions to Closing .......................................... 9
6. Seller's Representations and Agreements ........................ 13
7. Purchaser's Representations and Agreements ..................... 16
8. Apportionments ................................................. 19
9. Closing Matters ................................................ 22
10. Title Examination; Survey ...................................... 23
11. Risk of Loss ................................................... 25
12. Brokerage ...................................................... 27
13. Remedies ....................................................... 27
14. Notices ........................................................ 29
15. Choice of Law .................................................. 30
16. Miscellaneous .................................................. 30
EXHIBITS
--------
A: Legal Description of Land (Section 1)
B: Personal Property (Section 1)
C: Deed (Section 5)
D: Leases and Security Deposits (Section 5(a)(i)(3))
E: Certificates, Licenses and Permits (Section 5(a)(i)(7))
<PAGE>
F: Dlilgence Materials
G: California Escrow Provisions (Section 2(c))
H: Bill of Sale (Section 5(a)(i)(2))
I: Assignment and Assumption of Leases, Security Deposits and Prepaid Rents
(Section 5(a)(i)(3))
J: General Assignment and Assumption (Section 5(a)(i)(4))
K: [Intentionally Omitted]
L: Tenant Letter Form (Section 5(a)(i)(11))
M: FIRPTA Affidavit (Section 6(a)(iv))
N: Form of Tenant Estoppel Certificate (Section 5(a)(i)(12))
O: Service Contracts (Section 6(a)(viii))
P: Environmental Disclosure (Section 6(a)(x))
<PAGE>
CONTRACT OF SALE
AGREEMENT, made as of March ___, 1996, by and between THE STROH
COMPANIES, INC., a Delaware corporation having an office at 100 River Place,
Detroit, MI 48207-4291 ("SELLER"), and COPART, INC., a California corporation
having an office at 5500 E. Second Street, Second Floor, Benicia, CA 94510
("PURCHASER").
W I T N E S S E T H:
In consideration of the mutual covenants and provisions herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby covenant and
agree as follows:
1. PROPERTY. Seller hereby agrees to sell and Purchaser
hereby agrees to purchase, upon the terms and conditions set forth in this
Agreement, the property (the "PROPERTY") consisting of (a) all those certain
plots, pieces or parcels of land located in the City of Los Angeles, of
County of Los Angeles, State of California, and having a street address at
7521 Woodman Avenue, Van Nuys, CA, and more particularly described in Exhibit
A hereto (the "LAND"), (b) all buildings and all other structures, facilities
or improvements presently located or hereinafter located in or on the Land
(the "IMPROVEMENTS"), (c) all fixtures, machinery, systems, equipment and
items of personal property owned by Seller attached or appurtenant to,
located on and used in connection with the ownership, use, operation or
maintenance of the Land or the Improvements, including, without being
limited. to, the personal property set forth in Exhibit B hereto
(collectively, the "Personal Property") (d) all strips, gores, easements,
privileges, licenses, permits, approvals, authorizations, rights and
appurtenances relating to any of the foregoing, and (e) all of Seller's
right, title and interest in any sewer facility credits relating to the Land
and the Improvements.
2. PURCHASE PRICE AND ESCROW PROVISIONS. (a) The purchase
price for the Property is TEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($10,500,000.00) (the "PURCHASE PRICE").
(b) The Purchase Price shall be payable as follows:
(i) Within three (3) business days after the execution and
delivery of this Agreement, Purchaser shall pay ONE HUNDRED THOUSAND
DOLLARS ($100,000.00) (the "DOWNPAYMENT"), by check delivered and
deposited as provided in Section 2(c) below, subject to collection,
payable to the order of Escrow Agent (as defined in Section 2(c)
below), or wire transfer of same day funds to Escrow Agent's account in
accordance with Escrow Agent's written wiring instructions. The
Downpayment shall be held in accordance with Sections 2(c) and (e)
hereof, and shall only be refundable to Purchaser (a) until the
expiration of the Contingency Period (as
<PAGE>
2
hereinafter defined), in accordance with Sections 4(c)(i) and 4(c)(ii)
hereof and (b) from and after the expiration of the Contingency Period,
if the Closing (as hereinafter defined) does not occur for any reason
other than default by Purchaser, in accordance with Section 13(c)(i).
On the Closing Date, the Downpayment and all interest earned thereon
shall be credited against the Purchase Price.
(ii) At least one (1) business day prior to the Closing Date (as
hereinafter defined), Purchaser shall execute and deliver to Escrow
Agent the following (the "LOAN DOCUMENTS"), which shall be in the form
agreed upon pursuant to Section 4(g) hereof: (a) a purchase money
note in the amount of $7,500,000.00 (the "PURCHASE LOAN") payable to
the order of Seller (the "NOTE"); (b) a purchase money deed of trust,
security agreement and financing statement securing the Note and
creating a first priority lien on the Property subject only to the
Permitted Title Exceptions (as hereinafter defined) (the "DEED OF
TRUST"); (c) an assignment of rents and leases securing the Note and
granting a present, absolute assignment to Seller of all rents derived
from leases affecting the Property (the "ASSIGNMENT OF RENTS AND
LEASES"); (d) an environmental indemnity from Copart, Inc. and (e) a
UCC financing statement for the Personal Property.
(iii) At least one (1) business day prior to the Closing Date, an
amount, subject to adjustment or withholding pursuant to the terms of
this Agreement, equal to the balance of the Purchase Price (I.E., the
Purchase Price less the sum of (a) the Downpayment and all interest
thereon and (b) $7,500,000.00) shall be paid by wire transfer of
immediately available funds to Escrow Agent's account in accordance
with Escrow Agent's written instructions.
(c) Within three (3) business days after the execution of this
Agreement by Seller and Purchaser, Seller and Purchaser shall open escrow
("ESCROW") with Continental Lawyers Title Company at its offices at 800 East
Colorado Boulevard, Pasadena, CA ("ESCROW AGENT"), by depositing with Escrow
Agent an executed copy of this Agreement and by Purchaser depositing with the
Escrow Agent the Downpayment. Failure by Purchaser to timely deposit the
Downpayment shall result in the automatic termination of this Agreement and
Escrow. The terms of this Agreement, together with Escrow Agent's standard
general instructions, shall be the instructions to Escrow Agent with respect
to the purchase of the Property. The terms of this Agreement shall control
over any inconsistent provisions of Escrow Agent's standard general
instructions, which instructions shall be executed by the parties hereto
following the receipt thereof.
(d) Escrow and title insurance costs, fees and expenses shall be
paid in accordance with Section 9(a) hereof.
<PAGE>
3
(e) Escrow Agent shall invest and deliver the Downpayment in
accordance with the provisions set forth on the attached Exhibit G.
(f) Prior to the Closing the parties shall deposit the following
items with Escrow Agent:
(i) Seller shall deposit:
(a) the Deed;
(b) the Bill of Sale, the Lease Assignment, the General
Assignment, the California Form 590-RE, and the FIRPTA Affidavit;
and
(c) any other documents to be delivered by Seller and to be
recorded at Closing.
(ii) Purchaser shall deposit:
(a) the Loan Documents;
(b) the Lease Assignment and the General Assignment; and
(c) the balance of the Purchase Price for the Property.
(g) Upon receipt by Escrow Agent of confirmation from each of
Seller and Purchaser that all of the conditions set forth in Section 5 have
been satisfied, Escrow Agent is hereby instructed to take the following
action:
(i) record the Deed (with documentary transfer taxes affixed
after recordation), the Deed of Trust and the Assignment of Rents and
Leases and file with the Secretary of State of California the UCC
financing statement for the Personal Property;
(ii) deliver and disburse to Seller (a) the Note and the balance
of the Purchase Price and all other amounts, subject to adjustment or
withholding pursuant to the terms of this Agreement, and (b) the Deed
of Trust, the Assignment of Rents and Leases and the UCC financing
statements, as recorded or filed, as applicable (to the extent the
foregoing documents are returned to Escrow Agent by the recorder's
office following the recording or filing thereof);
(iii) deliver and disburse to Purchaser the Bill of Sale, the
Lease Assignment, the General Assignment and the FIRPTA Affidavit and
the balance of funds, if any, after the disbursements provided for in
clause (ii) above; and
<PAGE>
4
(iv) cause the Title Company to issue the owner's and
mortgagee's title policies to Purchaser and Seller, respectively.
3. CONDITION OF PROPERTY; TITLE. (a) Purchaser agrees to
purchase the Property in its present "as is" condition, including, without
limitation, the presence of any asbestos or asbestos containing materials or
other Hazardous Materials (as hereinafter defined), subject to reasonable
use, wear, tear and natural deterioration of the Property between the date
hereof and the Closing Date and except as otherwise expressly provided
herein. Except as set forth in this Agreement and the Exhibits hereto,
Seller has not made any representations as to the physical condition or any
other matter or thing affecting or related to the Property.
(b) Purchaser shall accept title to the Property subject to the
matters agreed upon by the parties on or prior to the Contingency Date
pursuant to Section 10. If Seller shall so request, Purchaser will allow
Escrow Agent, upon the Closing, to pay from the cash balance of the Purchase
Price due Seller as much thereof as may be necessary to satisfy any lien(s)
or encumbrance(s) which Seller is obligated or elects to cure hereunder,
provided the Title Company agrees to remove such liens and encumbrances from
the Title Policy.
4. TIME AND PLACE OF CLOSING; CONTINGENCY PERIOD; LOAN
DOCUMENTS. (a) CLOSING. The closing of the transactions contemplated hereby
(the "CLOSING") shall take place at 8:00 a.m. on May 31, 1996 (the "AGREED
DATE") at the offices of Escrow Agent at 800 East Colorado Boulevard,
Pasadena, California, or at such other place or time as Seller and Purchaser
may mutually agree. Subject to Seller's right to adjourn the Closing
pursuant to Section 10(c)(iii) hereof, TIME IS OF THE ESSENCE for the parties
to consummate the Closing on or prior to the Agreed Date. The term "CLOSING
DATE", as used in this Agreement, shall mean the date when the Deed has been
duly delivered, accepted and recorded.
(b) PRE-CLOSING. Prior to the Agreed Date, the parties shall
cooperate with each other to (i) examine and approve, to the extent
practicable, all of Seller's Closing Documents and all of Purchaser's Closing
Documents (as defined in Section 5 hereof), (ii) agree, to the extent
practicable, upon the apportionments pursuant to Section 8 hereof and (iii)
settle such other matters as are customarily determined in advance of closing.
(c) PURCHASER'S TERMINATION RIGHT. (i) Purchaser shall have
the right, in its sole and absolute discretion, to terminate this Agreement
upon written notice to Seller and Escrow Agent at any time prior to 5:00 p.m.
(Los Angeles time) on May 15, 1996 (the "CONTINGENCY DATE"). TIME IS OF THE
ESSENCE as to receipt of notice of termination on or prior to Contingency
Date. In the event that Purchaser shall have not given Seller and Escrow
Agent such notice on or prior to the Contingency Date, Purchaser shall be
deemed to have waived its right to terminate under this Section 4(c)(i). The
period from the date hereof through the Contingency Date is herein referred
to as the "CONTINGENCY PERIOD".
<PAGE>
5
(ii) Upon termination of this Agreement pursuant to the Section
4(c)(i) (or Sections 4(g) or 10(c)(ii), as applicable), Purchaser shall be
entitled to the Downpayment and all interest earned thereon and the parties
shall jointly instruct Escrow Agent to promptly return the Downpayment,
together with interest earned thereon, to Purchaser. Upon such return, this
Agreement shall be deemed terminated, and neither party shall have any
further liability or obligation to the other hereunder, except for such
liabilities and obligations as are specifically stated to survive the
termination of this Agreement (and the obligation contained in the following
sentence). If this Agreement is so terminated, Purchaser shall, within five
(5) days following such termination, deliver to Seller copies of all
engineering, environmental and other physical due diligence reports prepared
for Purchaser by Purchaser's third-party consultants (excluding proprietary
matters and without representation or warranty and subject to other
limitations on which such due diligence reports were prepared ) and return to
Seller all of the items delivered to Purchaser pursuant to Section 4(d).
(d) DUE DILIGENCE ITEMS. Purchaser acknowledges receipt of the
following:
(i) a copy of the soils reports, engineering studies, grading
plans, topographical maps and seismic tests, studies, reports or
analyses relating to the Property described on Exhibit "F" hereto;
(ii) copies of the real property tax bills for the Property for
the 1993-1994, 1994-1995 and 1995-1996 tax years;
(iii) a copy of the reports, correspondence, test results and
recommendations relating to the Property described on Exhibit "F"
hereto;
(iv) the description on Exhibit "F" hereto of (a) all pending
causes, claims, proceedings or legal actions instituted against Seller
with respect to the Property, and (b) to Seller's actual knowledge, all
causes, claims, proceedings or legal actions threatened against Seller
with respect to the Property;
(v) complete copies of all of (a) the Leases (as defined in
Section 5(a)(i)(3) hereof) and (b) the Permits (as defined in Section
5(a)(i)(7) hereof);
(vi) the list set forth on Exhibit "F" hereof of all tangible
personal property owned or leased by Seller as of the date hereof which
is included in the sale, which property is attached or appurtenant to,
located on and used in connection with the Land and the Improvements;
(vii) the list set forth on Exhibit "F" hereof, and complete
copies, of certificates of insurance evidencing the insurance policies
currently maintained by
<PAGE>
6
Seller with respect to the Property, and the list set forth on Exhibit
"F" hereof, and complete copies of, all claims and settlements made
within the last three (3) years; and
(viii) the list set forth on Exhibit "F" hereof of all building
plans and specifications for the Improvements in Seller's possession or
reasonably available to Seller (the "PLANS AND SPECIFICATIONS").
(e) INSPECTION. During the Contingency Period and thereafter so
long as this Agreement has not been terminated, upon reasonable prior notice
to Seller, Purchaser shall have reasonable access during normal business
hours to all of Seller's tenant files for the Property and to all of Seller's
other books and records and files relating to the Property that are not
confidential in nature and to the Plans and Specifications, and Purchaser
shall have the right to communicate directly with any private,
quasi-governmental or governmental authority or entity regarding the
Property, including, without limitation, any party that performed work for or
on behalf of Seller (and Seller shall authorize such parties to communicate
with Purchaser); PROVIDED, HOWEVER, to the extent Seller's books and records
relating to the Property are intermingled with books and records pertaining
to other property of Seller, Seller shall provide Purchaser with copies of
such books and records appropriately redacted; PROVIDED, FURTHER, HOWEVER,
Purchaser shall not be entitled to communicate or otherwise meet with any of
the Tenants unless a representative of Seller is present (and Seller hereby
agrees to make itself or its representative reasonably available for such a
meeting). In addition, Purchaser shall have the right to inspect the
physical condition of the Property at Purchaser's sole cost and expense at
reasonable times during the Contingency Period in accordance with the
following:
(i) Purchaser shall have the right to commence its physical
inspection of the Property after Seller's receipt of written evidence
that Purchaser has procured the insurance required by Section
4(e)(iii). Purchaser's physical inspection of the Property shall be
conducted at times that are reasonably and mutually acceptable to
Purchaser, Seller and any Tenants (as defined in Section 5(a)(i)(3)
hereof). Such inspection shall be conducted in a manner that does not
unreasonably disturb the Tenants and other occupants of the Property
and their use thereof and Purchaser and Purchaser's agents shall
perform inspections only while accompanied by one or more
representatives of Seller (and Seller hereby agrees to make itself or
its representatives reasonably available for such inspections). Upon
completion of its inspection, tests or surveys, Purchaser shall
restore the Property to its condition prior to such inspection, tests
or surveys. No borings may be conducted except upon the prior written
approval of Seller, in its good faith discretion and taking into
account the rights of the Tenants and other occupants of the Property.
(ii) Purchaser agrees that Purchaser shall, effective upon the
expiration of the Contingency Period, be deemed to have represented and
warranted that (a) Purchaser
<PAGE>
7
has conducted such tests, surveys and inspections, and made such
boring, percolation, geologic, environmental and soils tests and other
studies of the Property, and (b) Seller has provided Purchaser with
adequate opportunity to make such inspection of the Property
(including, an inspection for zoning, land use, environmental and other
laws, regulations and restrictions), in each case, as Purchaser has, in
Purchaser's discretion, deemed necessary or advisable as a condition
precedent to Purchaser's purchase of the Property and to determine the
physical, environmental and land use characteristics of the Property
(including without limitation, its subsurface) and its suitability for
Purchaser's intended use.
(iii) Purchaser shall obtain at Purchaser's sole cost and
expense, prior to commencement of any investigative activities on the
Property, a policy of commercial general liability insurance covering
any and all liability of Purchaser and Seller with respect or arising
out of any investigative activities or other activities while on the
Property. Such policy of insurance shall be kept and maintained in
force during the term of this Agreement and shall cover claims arising
as a result of the acts of Purchaser, Purchaser's employees, agents,
contractors, suppliers, consultants or other related parties during the
term of this Agreement in respect of such activities. Such policy of
insurance shall have liability limits of not less than $1,000,000.00
combined single limit per occurrence for bodily injury, personal injury
or property damage liability, and shall (a) include general liability
insurance covering all liability of Purchaser, Purchaser's employees,
agents, contractors, suppliers, consultants or other related parties
with respect to any investigative activities on the Property, extended
coverage and coverage for contractual liability (limited to bodily
injury and/or property damage and including the matters set forth in
Section 4(e)(iv)), owner's protective liability, independent
contractor's liability and completed operations liability, (b) be in
form and substance and issued by an insurance company reasonably
satisfactory to Seller, and (c) name Seller as an additional insured.
Purchaser agrees that if said aggregate limit applied to the Property
is reduced by the payment of a claim or the establishment of a reserve,
Purchaser shall take all practical immediate action to have the
aggregate limit restored by endorsement to the existing policy or the
purchase of an additional insurance policy complying with these
requirements. Upon request from time to time Purchaser shall provide
Seller with information regarding the insurance covering the Property.
(iv) Purchaser shall indemnify Seller from and against all
liability to persons or in respect of property resulting from
Purchaser's inspection and testing of the Property (including, without
limitation, repairing any and all damages to any portion of the
Property and restoring the Property to its condition prior to any
inspection, test or survey), arising out of or related to Purchaser's
conducting such inspections, surveys, tests, and studies, except to the
extent such liability arises from Seller's acts, if any, in conducting
such inspections, surveys, tests, and studies with Purchaser. The
<PAGE>
8
foregoing indemnification shall not include any liability to Seller
arising from the results or information derived from any such
inspections, surveys, tests, and studies. Purchaser shall keep the
Property free and clear of mechanic's liens or materialmen's liens
related to Purchaser's right of inspection and the activities
contemplated by Section 4(e). Purchaser's indemnification obligations
set forth herein shall survive the Closing and shall survive the
termination of this Agreement and Escrow.
(f) RELEASE. Purchaser irrevocably and unconditionally waives
and releases Purchaser's right (if any) to recover from Seller and its
directors, officers, employees, representatives and agents, any and all
damages, losses, liabilities, costs or expenses whatsoever, and claims
therefor, whether direct or indirect, known or unknown, or foreseen or
unforeseen, which may arise from or be related to the presence, existence,
use, generation, release, discharge, storage, disposal or transportation of
any asbestos or asbestos-containing materials located on the Property to the
extent disclosed by Seller in writing, known by Purchaser or disclosed by any
written material obtained by Purchaser in connection with Purchaser's due
diligence on or prior to the Closing Date. Purchaser hereby agrees,
represents and warrants that Purchaser realizes and acknowledges that factual
matters now unknown to it and Seller may have given or may hereafter give
rise to causes of action, claims, demands, debts, controversies, damages,
costs, losses and expenses which are presently unknown, unanticipated and
unsuspected, and Purchaser further agrees, represents and warrants that the
waivers and releases herein have been negotiated and agreed upon in light of
that realization and that Purchaser nevertheless hereby intends, and by
consummating the transactions contemplated hereby shall be deemed
affirmatively, to release, discharge and acquit Seller from any such Released
Claims. Purchaser expressly waives the benefits of Section 1542 of the
California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THE CREDITOR DOES NOT KNOW
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE
DEBTOR.
-------- --------
-------- --------
SELLER'S PURCHASER'S
INITIALS INITIALS
The provisions of this Section 4(f) shall survive the Closing.
<PAGE>
9
(g) LOAN DOCUMENTS. The parties shall endeavor to agree upon
and finalize prior to May 8, 1996 the form of the Loan Documents. If the
form of the Loan Documents is not finalized by such date for any reason, then
from and after such date, either party may terminate this Agreement upon
written notice to the other and Escrow Agent at any time prior to the Loan
Documents being finalized. Upon termination of this Agreement pursuant to
the preceding sentence, the provisions of Section 4(c)(ii) shall apply.
5. CONDITIONS TO CLOSING. (a) PURCHASER'S CONDITIONS.
Purchaser's obligation to pay the Purchase Price, to accept title to the
Property and otherwise to consummate the transactions contemplated hereby
shall be subject to the satisfaction of the following conditions precedent on
and as of the Closing Date:
(i) Seller shall deliver to Purchaser (and to Escrow Agent, to
the extent required pursuant to Section 2(f) hereof) on or before the
Closing Date the following ("SELLER'S CLOSING DOCUMENTS"):
(1) a Grant Deed (the "DEED") in the form annexed hereto
as Exhibit C, for recording, duly executed and acknowledged by
Seller, sufficient to convey to Purchaser fee simple title to the
Property (to the extent that the same shall consist of real
property) free of all liens and encumbrances other than the
Permitted Title Exceptions;
(2) a bill of sale, in substantially the form annexed
hereto as Exhibit H (the "BILL OF SALE"), duly executed and
acknowledged by Seller;
(3) an assignment by Seller and assumption by Purchaser,
in substantially the form annexed hereto as Exhibit I (the "LEASE
ASSIGNMENT"), duly executed and acknowledged by Seller and by
Purchaser, of all of Seller's obligations, right, title and
interest in, to and under the leases and the amendments,
extensions, modifications and supplements thereto set forth on
Exhibit D hereto, as updated to the Closing Date (the "LEASES"),
and of all security deposits and prepaid rents made by the
tenants or any other persons having rights under the Leases (the
"TENANTS"); PROVIDED, HOWEVER, the Lease Assignment shall not
include the Copart Leases;
(4) an assignment by Seller and assumption by Purchaser,
in substantially the form annexed hereto as Exhibit J (the
"GENERAL ASSIGNMENT"), duly executed and acknowledged by Seller
and by Purchaser, of all of Seller's obligations, right, title
and interest in, to and under the Permits (as defined in Section
5(a)(i)(7) hereof), the Service Contracts and the sewer facility
credits;
<PAGE>
10
(5) a certificate of a duly authorized officer of Seller
to the effect that the warranties and representations of Seller
set forth in this Agreement are true and complete in all material
respects on and as of the Closing Date (which certificate shall
be subject to the survival limitations applicable to the
representations and warranties contained in Section 6) ("SELLER'S
REPRESENTATIONS CERTIFICATE");
(6) original, fully executed, complete copies of all
Leases other than the Copart Leases (or, if any such original
copy is unavailable, a duplicate copy thereof, certified by
Seller as accurate, complete and identical to original thereof);
(7) to the extent the same are in Seller's possession, the
originals (or, if any such original copy is unavailable, a
duplicate copy thereof, certified by Seller as accurate, complete
and identical to original thereof) of the certificates, licenses
and permits for the Property (including all amendments,
modifications, supplements and extensions thereof) listed in
Exhibit E hereto (the "PERMITS"), except to the extent the same
are required to be and are affixed at the Property;
(8) to the extent the same are in Seller's possession, a
complete set of keys for the Property, each marked to indicate
its purpose;
(9) a letter by Seller and Purchaser to the Tenants in the
form annexed hereto as Exhibit L informing them of the change in
ownership of the Property;
(10) the Foreign Investment in Real Property Tax Act
affidavit required by Section 6(a)(iv) hereof;
(11) a completed California Form 590-RE;
(12) estoppel letters from each of the Tenants under the
SMSA Lease and the Moving Lease (each as defined in Exhibit D)
dated within thirty (30) days prior to the Closing Date and
substantially in the form annexed hereto as Exhibit K hereto;
PROVIDED, HOWEVER, an estoppel letter from the Tenant under the
Moving Lease shall satisfy the conditions hereof notwithstanding
the inclusion within such estoppel letter of a qualification to
the effect that such Tenant is entitled to a rent abatement for
the period from January 1, 1997 to March 31, 1997. With respect
to each such estoppel letter received by Purchaser, upon the
earlier of the Closing Date or five (5) business days after
Purchaser's receipt of such estoppel letter, Purchaser shall
notify Seller in writing whether Purchaser accepts such estoppel
letter or rejects such estoppel
<PAGE>
11
letter on the grounds that such estoppel letter, in Purchaser's
opinion, fails to satisfy the conditions set forth in this
Section 5(a)(i)(12). Purchaser's failure to timely notify Seller
of its acceptance or rejection of any such estoppel letter shall
be deemed to be an acceptance of such estoppel letter. If
Purchaser rejects any estoppel letter and Seller agrees that such
estoppel letter fails to satisfy the conditions set forth in this
Section 5(a)(i)(12), then this Agreement shall terminate upon
notice from Seller to Purchaser, and upon such termination
neither party shall have any liability to the other hereunder,
except that Seller shall be obligated to instruct Escrow Agent to
return to Purchaser the Downpayment and any interest thereon),
and except for such liabilities and obligations as are
specifically stated to survive the termination of this Agreement;
(13) a certificate from the Secretary or an Assistant
Secretary of Seller with respect to the due authorization of
Seller to enter in this Agreement and consummate the transactions
contemplated hereby; and
(14) such additional documentation as reasonably necessary
or desirable in connection with the transactions contemplated by
this Agreement.
(ii) Purchaser shall receive from Continental Lawyers Title
Company (the "TITLE COMPANY"), a current ALTA Form B owner's form of
title insurance policy in the form agreed to pursuant to Section 10(b)
hereof, or an irrevocable and unconditional binder to issue the same,
in an amount equal to the Purchase Price, dated, or updated to, the
Closing Date, insuring, at its ordinary premium rates (including,
without limitation, normal fees for upgrades, endorsements and
affirmative insurance requested by Purchaser), Purchaser's title to the
Property subject only to the Permitted Title Exceptions (as hereinafter
defined).
(iii) [Intentionally Omitted]
(iv) Subject to Section 6(e) hereof, the representations and
warranties of Seller contained in this Agreement shall be true and
complete in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing
Date.
<PAGE>
12
(b) SELLER'S CONDITIONS. Seller's obligation to deliver title
to the Property and to otherwise consummate the transactions contemplated
hereby shall be subject to compliance by Purchaser with the following
conditions precedent on and as of the Closing Date:
(i) Purchaser shall deliver to Escrow Agent, in accordance with
Section 2(b)(iii) hereof, the balance of the Purchase Price due
pursuant to Section 2(b) hereof and such other amounts as are due
Seller hereunder, subject to adjustment of such amount pursuant to
Section 8 hereof.
(ii) Purchaser shall deliver to Seller (and to Escrow Agent, to
the extent required pursuant to Section 2(f) hereof, with an original
to Seller) on or before the Closing Date the following, each of which
shall be in form and substance satisfactory to Seller ("PURCHASER'S
CLOSING DOCUMENTS"):
(1) a certificate of a duly authorized Secretary of
Purchaser to the effect that the warranties and representations
of Purchaser set forth in this Agreement are true and complete in
all material respects on and as of the Closing Date;
(2) duly executed and acknowledged counterparts of the
Lease Assignment and the General Assignment;
(3) a receipt for the security deposits transferred to
Purchaser;
(4) appropriate transfer tax returns of Purchaser, if
applicable;
(5) the Loan Documents, duly executed, and where
appropriate, acknowledged by Purchaser and in appropriate form
for recording; and
(6) such additional documentation as reasonably necessary
or desirable in connection with the transactions contemplated by
this Agreement.
(iii) The representations and warranties of Purchaser contained
in this Agreement shall be true and complete in all material respects
at and as of the Closing Date as if such representations and warranties
were made at and as of the Closing Date.
(iv) Seller shall receive from the Title Company, a current ALTA
mortgagee's form of title insurance policy, or an irrevocable and
unconditional binder to issue the same, in an amount equal to the
principal amount of the Note, dated, or updated to, the Closing Date,
insuring, or committing to insure, at its ordinary premium rates, that
<PAGE>
13
the Deed of Trust creates a first priority lien on the Property subject
only to the Permitted Title Exceptions (as hereinafter defined).
(c) CONDITIONS GENERALLY. The foregoing conditions are for the
benefit only of the party for whom they are specified to be conditions
precedent and such party may, in its sole discretion, waive any or all of
such conditions and close title under this Agreement without any increase in,
abatement of or credit against the Purchase Price.
6. SELLER'S REPRESENTATIONS AND AGREEMENTS.
(a) REPRESENTATIONS. Seller represents and warrants to
Purchaser as follows:
(i) Seller is a corporation that has been duly organized and is
validly existing in good standing under the laws of the State of
Delaware and is qualified to do business in and is in good standing
under the laws of the State of California.
(ii) Seller has full power and right to enter into and perform
its obligations under this Agreement and the other agreements
contemplated herein to be executed and performed by it, including,
without being limited to, conveying the Property as herein provided.
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby on the part of
Seller (a) have been duly authorized by all necessary corporate acts on
the part of Seller and (b) do not and will not (1) except as to the
transfer of the Permits, require any governmental or other consent, (2)
violate or conflict with any judgment, decree or order of any court
applicable to or affecting Seller, (3) violate or conflict with any law
or governmental regulation applicable to Seller, (4) violate or
conflict with the organizational documents of Seller and (5) result in
the breach of or constitute a default under any agreement, contract,
indenture or other instrument or other obligation to which Seller is a
party or is otherwise bound. Upon the assumption that this Agreement
constitutes the legal, valid and binding obligation of Purchaser, this
Agreement constitutes the legal, valid and binding obligation of Seller.
(iv) Seller is not a "foreign person" within the meaning of
section 1445 of the United States Internal Revenue Code of 1986, as
amended, and the regulations issued thereunder (the "Code"), and Seller
shall deliver to Purchaser on the Closing Date an affidavit in the form
annexed hereto as Exhibit M.
(v) (a) There are no leases, tenancies or rights to occupy
presently affecting the Property other than the Leases; (b) Seller has
heretofore delivered to Purchaser true and complete copies of each of
the Leases; (c) the Leases are in full force and
<PAGE>
14
effect, except to the extent that, on or prior to the Closing Date, (1)
any such Lease shall have expired in accordance with its terms (and not
because of any termination or other acceleration of the stated
expiration date therefor), or (2) with respect to the SMSA Lease or
Moving Lease (as such Leases are defined in Exhibit D), the respective
Tenants thereof have terminated such Leases pursuant to an express
right granted thereunder; (d) to the best of Seller's knowledge, Seller
is not in default in any material respect under any Lease; (e) Seller
has not sent notice to any Tenant claiming that such Tenant is in
default under its Lease, except to the extent that any such default as
to which notice has been given has been cured to the knowledge of
Seller; (f) the Leases have not been modified or amended, except as set
forth on Exhibit D hereto; and (g) there are no security deposits paid
by Tenants under their Leases, except as set forth on Exhibit D hereto.
For purposes of the representations set forth in this Section 6(a)(v)
being made as of the Closing Date, the term "Leases" shall include New
Leases (as hereinafter defined).
(vii) To Seller's actual knowledge, the Permits listed on
Exhibit E hereto are all of the material certificates, licenses and
permits from governmental authorities held by Seller in connection with
the ownership of the Property and Seller has delivered to Purchaser
true and complete copies of the Permits.
(viii) Except as set forth in Exhibit O hereto, Seller is
neither a party to any written or oral agreement of any type pertaining
to the operation, maintenance, management and/or repair of the Property
("SERVICE CONTRACTS") nor has assumed in writing any such agreement,
except for any such agreement that will be terminated prior to the
Closing.
(ix) There is no action or proceeding instituted by Seller or in
which Seller is a named party before any court, agency or official with
respect to the validity of any statutes, ordinances, regulations or
restrictions or any permits or approvals thereunder relating to the
Property.
(x) Seller has not received written notice that the Property is
subject to any removal or remediation order from any federal, state or
local regulatory authority regarding the disposal or storage of any
materials (including, without limitation, asbestos and asbestos
containing materials) (collectively, "HAZARDOUS MATERIALS") regulated
by any applicable local, state or federal law, rule or regulation
pertaining to contamination, clean-up or disclosure (collectively,
"ENVIRONMENTAL LAWS") on or about the Property, whether such order
relates to actions or omissions by Seller or any other party. Except
as set forth in any of the Environmental Reports (as defined in Exhibit
F hereto) or Exhibit P hereto, all operations or activities upon, or
use or occupancy of, the Property and Improvements, or any portion
thereof, by Seller, or, to the best of Seller's knowledge, by any prior
tenant or occupant or owner of the
<PAGE>
15
Property, or any portion thereof, or any current tenant or occupant of
the Property (other than Copart), or any portion thereof, is in all
material respects in compliance with all Environmental Laws, and
neither Seller nor, to the best of Seller's knowledge, any prior tenant
or occupant of the Property or any portion thereof, has engaged in or
permitted any dumping, discharge, disposal, spillage or leakage
(whether legal or illegal, accidental or intentional) of any Hazardous
Materials at, on, in, under or about the Property or any portion
thereof in violation of any Environmental Law. Except as set forth in
any of the Environmental Reports or Exhibit P hereto, (a) to the best
of Seller's knowledge, there has been no production, storage or
disposal on the Property of any Hazardous Materials, and (b) there are
not now and, to the best of Seller's knowledge, have never been any
underground storage tanks located on the Property.
(xi) The documents listed in Addendum F(i)(iii) attached to
Exhibit F hereto together with the LAFD Application for Certificate of
Disclosure of Hazardous Substances (file 036081-001-0) referred to in
Exhibit P constitute all of the reports, surveys, evaluations,
investigations and assessments in Seller's possession with respect to
Hazardous Materials on the Property.
(b) MISCELLANEOUS AGREEMENTS. Seller, during the term of this
Agreement, will (i) operate and maintain the Property in substantially the
same manner as it has heretofore operated and maintained the same, subject to
the rights of Tenants under the Leases as in effect on the date hereof, (ii)
not, without Purchaser's consent, which consent Purchaser agrees not to
unreasonably withhold or delay, enter into any new service, maintenance or
operating agreement unless the same may be terminated by Seller (and, after
the Closing, by Purchaser) upon not more than thirty (30) days written notice
without the payment of any premium or penalty by Purchaser, (iii) not enter
into any leases for all or any portion of the Property nor modify, amend,
supplement, extend, renew or terminate any existing Lease or consent to the
surrender or assignment of any existing Lease or to any subleasing under any
existing Lease, in each case without Purchaser's prior consent, which consent
Purchaser agrees not to unreasonably withhold or delay (any such lease,
amendment, supplement, extension, renewal or termination with Purchaser's
consent being herein a "NEW LEASE"), and if Purchaser shall consent or not
object to a New Lease, Schedule D hereof shall be amended to include the
appropriate information, (iv) not take any action which will or would cause
any of the representations or warranties in this Agreement to become untrue
or be violated, and (v) not apply any of the security deposits, in whole or
in part, given by Tenants under the Leases to the payment of delinquent rent.
Seller shall deliver to Purchaser a notice of each proposed action
hereunder, stating, if applicable, whether Seller is willing to consent to
such action and setting forth the relevant information therefor and, if
applicable, the number of days within which Seller must respond to the
proposed action under the terms of the applicable Lease or other agreement,
and any other material information supplied to Seller as to the proposed
action. Purchaser shall have ten (10) days after delivery to it of such
notice and information to determine whether or not to approve such action. If
Purchaser shall not give notice of its
<PAGE>
16
disapproval within such ten (10) day period, Purchaser shall be deemed to
have approved such action. If any Lease or other agreement (or any provision
thereof) requires that Seller's consent not be unreasonably withheld or
delayed, then Purchaser shall not unreasonably delay or withhold its consent
to such action. If any Lease or other agreement provides Seller with fewer
than ten (10) days within which to grant any such approval or disapproval,
such ten (10) day period provided for above shall be reduced to two (2) days
less than the number of days provided for in such Lease or other agreement.
Notwithstanding anything to the contrary set forth in this Section 6(b) or
elsewhere in this Agreement, during the Contingency Period, Seller reserves
the right to negotiate the purchase and sale of the Property with other
prospective purchasers.
(c) ACCESS. Subject to and in accordance with the provisions of
Section 4(e), Seller shall, during normal business hours upon reasonable
prior notice, allow Purchaser or its representatives access for the purpose
of inspection of the Property.
(d) SURVIVAL. The representations and warranties of Seller
contained in this Agreement, and the covenants contained in clauses (ii) and
(iii) of Section 6(b) shall survive for one (1) year after the Closing.
Purchaser shall have no right to make, and hereby waives, any claim based
upon such representations and warranties or such covenants after the date
that is one (1) year after the Closing.
(e) CERTAIN LIMITATIONS ON SELLER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of Seller set forth in
Section 6(a) are subject to the following express limitations:
(i) Seller does not represent or warrant that any particular
Lease will be in force or effect as of the Closing or that the Tenants
will not be in default under their respective Leases, except to the
extent so represented in Seller's Representation Certificate; and
(ii) the termination of any Lease shall not affect the
obligations of Purchaser hereunder.
7. PURCHASER'S REPRESENTATIONS AND AGREEMENTS.
(a) REPRESENTATIONS. Purchaser represents and warrants to Seller as follows:
(i) Purchaser is a corporation that has been duly organized and
is validly existing in good standing under the laws of the State of
California;
(ii) Purchaser has full power and right to enter into and
perform its obligations under this Agreement, the Loan Documents and
the other agreements contemplated herein to be executed and performed
by it;
<PAGE>
17
(iii) Purchaser is not in the hands of a receiver nor is
application for a receiver pending, Purchaser has not made an
assignment for the benefit of creditors, nor has Purchaser filed, or
had filed against it, any petition in bankruptcy; and
(iv) The execution and delivery of this Agreement, the Purchaser
Closing Documents and the Loan Documents and the consummation of the
transactions contemplated hereby on the part of Purchaser (1) have been
(or, with respect to the Loan Documents, will be as of the Closing
Date) duly authorized by all necessary corporate acts on the part of
Purchaser, and (2) do not and will not (a) require any governmental or
other consent, (b) violate or conflict with any judgment, decree or
order of any court applicable to or affecting Purchaser, (c) violate or
conflict with any law or governmental regulation applicable to
Purchaser, (d) violate or conflict with the organizational documents of
Purchaser and (e) do not and will not result in the breach of, or
constitute a default under, any agreement, contract, indenture or other
instrument or obligation to which Purchaser is a party or is otherwise
bound. Upon the assumption that this Agreement constitutes the legal,
valid and binding obligation of Seller, this Agreement constitutes the
legal, valid and binding obligation of Purchaser, and the Loan
Documents, when executed and delivered by Purchaser, will constitute
the legal, valid and binding obligation of Purchaser.
(v) (a) Purchaser has not relied on any verbal or written
representations, warranties, promises or guaranties whatsoever made by
Seller or any of the employees, agents or attorneys of Seller to
Purchaser with respect to the physical condition or operation of
Property, the actual or projected revenue and expenses of the Property,
the zoning and other laws, regulations and rules applicable to the
Property or the compliance of the Property therewith, the quantity,
quality or condition of the articles of personal property and fixtures
included in the transactions contemplated hereby, the use or occupancy
of the Property or any part thereof or any other matter or thing
affecting or related to the Property or the transactions contemplated
hereby, except as, and solely to the extent, herein (and in the
Exhibits hereto) expressly and specifically set forth, and (b)
Purchaser has entered into this Agreement after having made and relied
solely on (1) its own independent investigation, inspection, analysis,
appraisal, examination and evaluation of the facts and circumstances,
(2) Seller's representations and warranties contained in this Agreement
and the Exhibits hereto and (3) the written materials Seller has
provided to Purchaser pursuant to this Agreement (PROVIDED, HOWEVER,
that Seller shall not be liable for any untrue or inaccurate statements
contained in any such written materials prepared by a consultant or
other third party)).
(b) RELEASE. Purchaser irrevocably and unconditionally waives
and releases Purchaser's right (if any) to recover from Seller and its
directors, officers, employees, representatives and agents, any and all
damages, losses, liabilities, costs or expenses whatsoever, and claims
therefor, whether direct or indirect, known or unknown, or foreseen or
<PAGE>
18
unforeseen, which may arise from or be related to any breach of a
representation or warranty made by Seller in this Agreement (including any
Exhibit hereto) to the extent actually known to Purchaser on or prior to the
Closing Date (the "RELEASED CLAIMS"). The foregoing waiver and release
shall not affect Purchaser's rights under Section 5(a)(iv) hereof. Only in
this connection and to the extent permitted by law, Purchaser hereby agrees,
represents and warrants that Purchaser realizes and acknowledges that factual
matters now unknown to it and Seller may have given or may hereafter give
rise to causes of action, claims, demands, debts, controversies, damages,
costs, losses and expenses which are presently unknown, unanticipated and
unsuspected, and Purchaser further agrees, represents and warrants that the
waivers and releases herein have been negotiated and agreed upon in light of
that realization and that Purchaser nevertheless hereby intends, and by
consummating the transactions contemplated hereby shall be deemed
affirmatively, to release, discharge and acquit Seller from any such Released
Claims. Purchaser expressly waives the benefits of Section 1542 of the
California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THE CREDITOR DOES NOT KNOW
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE
DEBTOR.
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SELLER'S PURCHASER'S
INITIALS INITIALS
The foregoing provisions of this Section 7(b) are not intended to affect the
rights of Purchaser with respect to any breach of a representation or
warranty made by Seller in this Agreement (including the Exhibits hereto)
that is not disclosed in writing by Seller to Purchaser prior to the Closing,
which rights shall be subject to Section 6(d) hereof. The provisions of this
Section 7(b) shall survive the Closing.
(c) SURVIVAL. The representations and warranties set forth in
this Section 7, as applicable at the Closing Date, shall survive for one (1)
year after the Closing. Seller shall have no right to make, and hereby
waives, any claim based upon such representations and warranties after the
date that is one (1) year after the Closing.
<PAGE>
19
8. APPORTIONMENTS. (a) The following items shall be
apportioned at the Closing as of the close of business on the day immediately
preceding the Closing Date:
(i) Rents and all other charges (including cost reimbursement
payments) payable under the Copart Lease as of the Closing Date
(whether or not collected).
(ii) Rents and all other charges (including cost reimbursement
payments) payable under the Leases other than the Copart Leases as and
when collected; PROVIDED, HOWEVER, that if any rents under any of such
Leases shall be accrued and unpaid at the Closing Date, the rents
collected by Purchaser on or after the Closing Date shall first be
applied to all rents due at the time of such collection with respect to
the period after the Closing Date with the balance payable to Seller to
the extent of rents delinquent as of the Closing Date; and, PROVIDED
FURTHER that Purchaser shall not be required to institute any
proceeding to collect any rents accrued and unpaid on the Closing Date.
If Seller shall not have received all accrued and unpaid rents due it
as of the Closing Date within ninety (90) days thereafter, Seller, at
it sole cost and expense, shall be entitled to bring such actions or
proceedings not affecting possession or enforcing landlord's liens as
it shall desire to collect any such accrued and unpaid rents, and
Purchaser shall cooperate with Seller in any such action.
(iii) Real estate taxes and assessments.
(iv) Water rates and charges.
(v) Sewer and vault taxes and rents.
(vi) Annual license, permit and inspection fees with respect
only to those Permits transferred to Purchaser at the Closing.
(vii) All charges and payments for fuel and steam, gas,
electricity and all other utility services supplied to the Property
which are not charged directly to Tenants; PROVIDED, HOWEVER, that if
there is no meter or if the current bill for any of such utilities has
not been issued prior to the Closing Date, the charges therefor shall
be adjusted at the Closing on the basis of the charges for the prior
period for which bills were issued and shall be further adjusted when
the bills for the current period are issued.
(viii) Payments and other charges under Service Contracts which
are transferred to Purchaser at the Closing.
(ix) All other income from and expenses related to the Property
of every type and nature.
<PAGE>
20
If any of the foregoing cannot be apportioned at the Closing because of the
unavailability of the amounts which are to be apportioned, or additional
information regarding any of the foregoing apportioned at the Closing is made
available after the Closing, such items shall be apportioned or
reapportioned, as the case may be, as soon as practicable after the Closing
Date.
(b) Seller shall furnish readings of the water, gas and electric
meters located on the Property, if any, other than meters measuring the
computation of utilities which are the direct responsibility of any Tenant,
to a date not more than thirty (30) days prior to the Closing Date and the
unfixed water rates and charges, sewer taxes and rents and gas and
electricity charges, if any, based thereon for the intervening time shall be
apportioned on the basis of such last readings. If such readings are not
obtainable by the Closing Date, then, at the Closing, any water rates and
charges, sewer taxes and rents and gas and electricity charges which are
based on such readings shall be prorated based upon the per diem charges
obtained by using the most recent period for which such readings shall then
be available. Upon the taking of subsequent actual readings, the
apportionment of such charges shall be recalculated and Seller or Purchaser,
as the case may be, promptly shall make a payment to the other based upon
such recalculation.
(c) The amount of any unpaid real property taxes and
assessments, water rates and charges and sewer taxes and rents which Seller
is obligated to pay and discharge may, at the option of Seller, be paid out
of the cash balance of the Purchase Price (and therefore reducing the cash to
be paid by Purchaser to Seller at Closing), provided that official bills
therefor, indicating the interest and penalties, if any, thereon, are
furnished by Seller by the Closing.
(d) If any refunds of real property taxes or assessments, water
rates and charges or sewer taxes and rents shall be made after the Closing,
the same shall be held in trust by Seller or Purchaser, as the case may be,
and shall first be applied to the unreimbursed costs incurred in obtaining
the same, then paid to any Tenant who is entitled to the same and the
balance, if any, shall be paid to Seller to the extent such refunds are for
the period prior to the Closing Date and to Purchaser to the extent such
refunds are for the period commencing with the Closing Date.
(e) In the event the apportionments hereinabove provided which
are to be made at the Closing result in a credit balance to either party,
such sum shall be paid at the Closing by increasing or decreasing, as
appropriate, the Purchase Price by the amount of such credit balance in favor
of Seller or Purchaser, as the case may be.
(f) If any proceeding for reassessment or other proceeding to
determine the assessed value of the Property or the real property taxes
payable with respect to the Property shall have been commenced prior to the
date hereof and be continuing as of the Closing Date,
<PAGE>
21
Seller shall be entitled to control the prosecution of such proceeding or
proceedings to completion and to settle or compromise any claim therein.
Purchaser agrees to cooperate with Seller and to execute any and all
documents reasonably requested by Seller in furtherance of the foregoing.
(g) No insurance policies of Seller are to be transferred to
Purchaser, and no apportionment of the premiums therefor shall be made.
Purchaser acknowledges that it shall be responsible for securing its own
insurance for the Property.
(h) [Intentionally Omitted].
(i) (i) If any rents (including cost reimbursement payments)
are payable or accruable under the Leases on the basis of estimates or
formulae and are subject to adjustment after the Closing Date, such rents
shall be apportioned at the Closing to the extent collected on the basis of
the then current charges or accruals, as applicable, and shall be subject to
reapportionment on the basis of the amounts as finally determined to be owing
under the Leases. Apportionment of escalation rent shall be made on the
basis of a 365 day year and the actual number of days elapsed. Within a
reasonable time after Purchaser has made its calculations of the final cost
reimbursement payments in respect of the pertinent fiscal periods and prior
to billing tenants therefor, Purchaser shall prepare and submit to Seller a
final calculation of the amounts and other items to be apportioned pursuant
to this Agreement as of the Closing Date (the "Final Report"). Seller shall
raise any objections it has to the Final Report within fifteen (15) days
after the submission thereof by written notice to Purchaser given within said
fifteen (15) day period and stating in reasonable detail Seller's objections,
and Purchaser shall allow Seller and its authorized representatives
reasonable access during business hours to its books and records pertinent to
the Property to permit Seller to review the Final Report and to ascertain its
accuracy.
(ii) If Seller shall raise any objections to the Final Report as
provided above, the parties shall meet within ten (10) days after submission
of Seller's notice thereof and attempt to resolve such objections. If any
objections are not resolved within said ten (10) day period, such objections
may thereafter be submitted by either party to any certified public
accountant reasonably acceptable to the parties for determination. The
determination of such firm shall be final and conclusive on the parties and
judgment may be entered thereon in any court of competent jurisdiction.
(iii) The Final Report shall be deemed amended by agreement of
the parties or determination of such firm, and, within ten (10) days after
such agreement or determination (or, if Seller raises no objections to the
Final Report, the expiration of the fifteen (15) day objection period),
Purchaser shall bill the tenants therefor. Thereafter, Seller promptly shall
pay to Purchaser, or Purchaser shall pay to Seller promptly upon collection,
as the case may
<PAGE>
22
be, the amount determined to be due from such party to the other in
accordance with this Section 8 based upon the Final Report, as the same may
have been amended.
(iv) If a determination is required, the parties shall bear the
fees and expenses of the firm handling such determination equally.
(j) The obligations of the parties hereto under this Section 8
shall survive the Closing.
9. CLOSING MATTERS. The following items shall be provided for
at the Closing:
(a) PAYMENT OF RECORDING, TITLE AND OTHER FEES.
(i) TRANSFER TAXES AND RECORDING FEES. Seller shall pay
to the appropriate governmental (state, county, city and other)
authority all documentary, stamp, intangible and other transfer
taxes in connection with the transfer of the Property. Purchaser
shall pay all state, city, county, municipal and other
governmental recording fees and charges in connection with the
transactions contemplated by this Agreement.
(ii) TITLE AND SURVEYOR FEES. (a) Seller shall pay the
cost of (1) all premiums, charges and fees of the Title Company
and surveyor in connection with a CLTA Standard Coverage owner's
title policy (without endorsement) and the Survey to be delivered
to Purchaser hereunder; PROVIDED, HOWEVER, that if an ALTA
owner's form of title insurance policy shall be delivered at the
Closing, Seller shall only be obligated to pay the premiums for a
current form CLTA policy (the "CLTA COST") and Purchaser shall
pay the incremental amount necessary to obtain such other form
policy and any CLTA Endorsements; (2) one-half (1/2) of the
escrow fees; and (3) all costs incurred in the preparation of the
Deed.
(B) Purchaser shall pay (1) all premiums, charges and
fees of the Title Company in connection with the increased cost
of the title policy to the extent that such cost shall exceed the
CLTA Cost and the cost of all endorsements to the title policy;
and (2) one-half (1/2) of the escrow fees. If escrow fails to
close because of the default of either Seller or Purchaser,
without limiting the rights and remedies of the other party, the
defaulting party shall bear all costs and fees of escrow.
(iii) OTHER CHARGES. Other charges, if any, shall be paid
in the manner in which purchasers and sellers of real property in
Los Angeles County, California customarily divide such charges.
<PAGE>
23
(b) Seller shall pay over to Purchaser all prepaid rents or
other sums held by Seller and not applied against the Tenant's
obligations thereunder for the period prior to the Closing Date.
(c) Seller shall pay all brokerage commissions and finders' fees
applicable to the current terms of Leases existing on the date hereof.
Purchaser shall be responsible for all brokerage commissions which
Seller has disclosed in writing to Purchaser prior to the Contingency
Date in respect of (a) renewals and extensions of the Leases
(including, without being limited to, any brokerage commissions due in
respect of a Tenant waiving or failing to exercise a cancellation
right) and (b) expansions of the premises demised thereunder, whether
or not such renewals, extensions or expansions are provided for in the
Leases.
The obligations of the parties under this Section 9 shall survive the Closing.
10. TITLE EXAMINATION; SURVEY. (a) Purchaser acknowledges
receipt from the Title Company of the Title Company's ALTA title insurance
commitment, dated January 30, 1996, under Order No. 5093787-39 (the "ORIGINAL
REPORT") and all the documents underlying the exceptions thereto. Seller and
Purchaser hereby confirm that the Title Company shall deliver to Seller and
Purchaser any updates or continuations thereof or any supplements thereto
("TITLE UPDATES"). Purchaser further acknowledges receipt of an as-built
ALTA survey of the Property prepared by Psmoas and Associates dated March 26,
1996 (the "SURVEY").
(b) The parties shall endeavor to agree prior to the Contingency
Date upon the form of the owner's title insurance policy to be issued to
Purchaser by the Title Company at the Closing, including the endorsements
thereto and the matters subject to which Purchaser shall accept title to the
Property (such matters being the "PERMITTED TITLE EXCEPTIONS"), such
agreement to be evidenced by a "Pro-Forma" title insurance policy prepared by
the Title Company.
(c) (i) Within fifteen (15) days of the date hereof, Purchaser
shall deliver to Seller a written statement (a "PURCHASER'S TITLE NOTICE")
setting forth in reasonable detail its objections to any liens or
encumbrances affecting, or other defects in or objections to, title to the
Property ("TITLE DEFECTS") disclosed by the Original Report, and within five
(5) business days after the issuance of each Title Update (or by the earlier
to occur after the issuance of each Title Update of the Agreed Date or the
Closing), Purchaser shall deliver to Seller a Purchaser's Title Notice
setting forth in reasonable detail its objections to any other Title Defects
disclosed by such Title Update. The failure by Purchaser to deliver any such
Purchaser's Title Notice within the time period specified for the Original
Report shall constitute a waiver by Purchaser of any Title Defect set forth
in the Original Report, and any such Title Defect not so objected shall
constitute a Permitted Title Exception. The failure by Purchaser to deliver
any such Purchaser's Title Notice within the time period specified for
<PAGE>
24
any Title Update shall constitute a disapproval by Purchaser of any Title
Defect set forth in such Title Update.
(ii) If Purchaser disapproves (or is deemed to have disapproved)
any Title Defect shown in the Original Report or any Title Update by timely
delivering a Purchaser's Title Notice (or by failing to deliver a Purchaser's
Title Notice in the case of any Title Update), then Seller shall indicate (a)
which Title Defects Seller intends to remove from the Title Policy (and as
exceptions to title to the Property) and the manner in which Seller intends
to do so, (b) which Title Defects Seller shall remove from the Title Policy
(and as exceptions to title to the Property) and the manner in which Seller
shall do so and (c) which Title Defects Seller does not intend to remove, by
delivering written notice thereof to Purchaser ("SELLER'S TITLE NOTICE")
within ten (10) business days after receiving a Purchaser's Title Notice
(and with respect to Title Defects on Title Updates for which Seller has not
received a Purchaser's Title Notice, at any time). If Seller fails to timely
deliver Seller's Title Notice, then Seller shall be deemed to have elected
not to remove any of the Title Defects referred to in the applicable
Purchaser's Title Notice or set forth in the applicable Title Update (as to
which Purchaser has disapproved or is deemed to have disapproved). Purchaser
shall have the right to disapprove Seller's Title Notice, or Seller's
election or deemed election not to remove any Title Defects referred to in
the applicable Purchaser's Title Notice, as applicable, by delivering written
notice thereof to Seller within five (5) days after the earlier of (x)
receipt of Seller's Title Notice or (y) the deadline for delivery of Seller's
Title Notice; and Purchaser's failure to timely do so shall constitute
Purchaser's disapproval thereof. If Purchaser disapproves or is deemed to
have disapproved of Seller's Title Notice or Seller's election not to remove
any Title Defects referred to in Purchaser's Title Notice, such disapproval
or deemed disapproval shall constitute an election by Purchaser to terminate
this Agreement as of the date of disapproval or deemed disapproval, in which
event the provisions of Section 13(c)(i) shall apply. If Purchaser approves
Seller's Title Notice, then the removal of any Title Defect as to which
Seller has notified Purchaser that it shall remove or intends to remove the
same shall be a condition to Purchaser's obligation to consummate the
transactions contemplated hereby, and by the Closing Date (subject to
adjournment as provided in clause (iii) below) Seller shall remove any Title
Defect as to which Seller has notified Purchaser that it shall remove the
same.
Notwithstanding the foregoing, Purchaser hereby objects to all
liens in respect of due and unpaid monetary obligations or securing unpaid
indebtedness (other than liens for non-delinquent real property taxes and
assessments) ("MONETARY LIENS") and Seller agrees to cause all Monetary Liens
for mortgages or deeds of trust or other security instruments entered into by
Seller, mechanic's liens for work done by Seller and judgment liens for
judgments against Seller to be removed at Seller's sole cost at or prior to
the Closing Date, up to an aggregate amount not to exceed $100,000.00.
Regarding the standard nonspecific exception in the Title Policy for parties
in possession, Purchaser hereby objects thereto, and Seller agrees to deliver
to the Title Company an appropriate affidavit (provided the form thereof is
<PAGE>
25
acceptable to Seller) certifying that the only tenants under written leases
with Seller in respect of the Property are the Tenants under the Leases. With
respect to the standard nonspecific exception in the Title Policy for
materials furnished to and labor performed in connection with the
construction of improvements on the Property within the last ninety (90) days
prior to the Closing, Purchaser hereby objects thereto, and Seller agrees to
provide the Title Company with an appropriate affidavit with respect to
materials furnished to and labor performed in connection with the
construction of improvements on the Property by or on behalf of Seller within
such period, but not as to any of the materials furnished or labor performed
by or on behalf of any Tenants of the Property. Seller also agrees to
provide the Title Company with an appropriate "gap period" affidavit with
respect to any agreements or instruments affecting title to the Property and
entered into or granted by Seller during the period commencing on the latest
date prior to the Closing for which the land records of Los Angeles County
are current and ending on the Closing Date.
(iii) Seller shall be entitled to reasonable adjournments of the
Closing (but in no event more than thirty (30) days) to attempt to remove any
Title Defect, and notwithstanding anything to the contrary, Seller shall not
be required to bring any action or proceeding, or take any steps, or
otherwise incur any expense to remove any Title Defect except to the extent
Seller has notified Purchaser in Seller's Title Notice that it shall remove
any such Title Defect.
11. RISK OF LOSS. (a) Neither Seller nor Purchaser shall have
the right to terminate this Agreement if the Property is destroyed or damaged
by fire or other casualty. If there is damage to or destruction of the
Property by fire or other casualty, there shall be no abatement of the
Purchase Price, Seller shall assign to Purchaser (without recourse) at the
Closing the rights of Seller to the proceeds, if any, under Seller's
insurance policies covering the Property with respect to such damage or
destruction, and Purchaser shall be entitled to receive and keep any monies
received from such insurance policies. Purchaser shall have the right to
participate with Seller in the settlement of all insurance claims, and Seller
shall not agree to any adjustment of claims without the prior written consent
of Purchaser, which consent shall not be unreasonably withheld or delayed.
If Purchaser reasonably rejects or otherwise reasonably withholds its consent
to any such adjustment acceptable to Seller, then Purchaser may contest the
claim and if Purchaser so seeks to contest any such claim in court or by
other proceeding, Purchaser shall be responsible for the payment of all
reasonable attorneys fees and other expenses incurred by Seller in commencing
and prosecuting any action under the applicable insurance policies.
Notwithstanding anything to the contrary contained in the preceding portions
of this Section 11(a), if there is damage to or destruction of the Property
by a casualty that is not covered by Seller's insurance and the reasonably
estimated cost to repair the damage or destruction caused thereby exceeds
$100,000, Seller shall notify Purchaser of such casualty promptly following
the occurrence thereof, and Purchaser shall have the right to terminate this
Agreement by giving notice to the other not later than ten (10) days after
the giving of Seller's notice. If Purchaser elects to terminate
<PAGE>
26
this Agreement as aforesaid, this Agreement shall terminate and be of no
further force and effect and neither party shall have any liability to the
other hereunder, except that Seller shall be obligated to instruct Escrow
Agent to return to Purchaser the Downpayment and interest earned thereon;
PROVIDED, HOWEVER, Seller shall have the right to require Purchaser to
consummate the transactions contemplated hereby (subject to the other
provisions of this Agreement) by giving notice to Purchaser not later than
ten (10) days after the giving of Purchaser's notice to terminate, provided
that Purchaser shall be entitled to an abatement of the Purchase Price in the
amount reasonably estimated to repair the damage or destruction caused by
such uninsured casualty.
(b) If, prior to the Closing Date, all or any material portion
of the Property is taken by eminent domain (or is the subject of a pending
taking which has not yet been consummated) or access to the Property or the
available parking area therefor is reduced as a result of eminent domain or
restricted or reduced as a result of eminent domain, in any such case such
that the Property as it is currently used is not in compliance with
applicable zoning requirements or any Tenant can terminate its Lease by
reason of such taking or pending taking, Seller shall notify Purchaser of
such fact promptly after obtaining knowledge thereof and Purchaser shall have
the right to terminate this Agreement by giving notice to Seller not later
than ten (10) days after the giving of Seller's notice. For purposes hereof,
a "material portion" of the Property shall mean such a portion of the
Property as shall have a value, as reasonably determined by Seller, in excess
of $100,000. If Purchaser elects to terminate this Agreement as aforesaid,
this Agreement shall terminate and be of no further force and effect and
neither party shall have any liability to the other hereunder, except that
Seller shall be obligated to instruct Escrow Agent to return to Purchaser the
Downpayment and interest earned thereon. If Purchaser shall not elect to
cancel this Agreement, or if there has not been a taking by eminent domain or
otherwise that gives rise to the right of Purchaser to terminate, then the
sale of the Property shall be consummated as herein provided at the Purchase
Price (without abatement) and Seller shall assign to Purchaser (without
recourse) at the Closing all of Seller's right, title and interest in and to
all awards, if any, for the taking to be delivered, and Purchaser shall be
entitled to receive and keep all awards to be delivered for the taking of the
Property or such portions thereof. Unless or until this Agreement is
terminated, Seller shall take no action with respect to any eminent domain
proceeding without the prior written consent of Purchaser, which shall not be
unreasonably withheld, unless any such action is necessary to preserve
Seller's rights in any such proceeding.
(c) The parties' obligations, if any, under this Section 11
shall survive the Closing. The provisions of this Section 11 are and shall
be an express provision contrary to and in lieu of the provisions of the
Uniform Vendor and Purchaser Act of the State of California (Section 1662 of
The Civil Code of the State of California) which the parties agree shall be
inapplicable to the transactions contemplated hereby and the parties further
agree that the provisions of this Section 11 shall govern.
<PAGE>
27
12. BROKERAGE. Each of Purchaser and Seller represents and
warrants to the other that it has not hired, retained or dealt with any
broker, consultant, intermediary or finder in connection with the
negotiation, execution or delivery of this Agreement or the consummation of
the transactions contemplated hereby other than Cushman & Wakefield of
California Inc. Seller shall pay the brokerage commission due such broker
pursuant to a separate agreement, and Seller hereby agrees to indemnify
Purchaser from and against liability arising out of or in connection with any
claims by such broker with respect to this Agreement. Seller and Purchaser
each covenant and agree to indemnify each other from and against liability
arising out of or in connection with any claim by any other broker or agent
that the aforesaid representation or warranty is untrue. The provisions of
this Section 12 shall survive the Closing.
13. REMEDIES. (a) IN THE EVENT THE CLOSING AND THE
CONSUMMATION OF THE TRANSACTION HEREIN CONTEMPLATED DOES NOT OCCUR AS AND AT
THE TIME HEREIN PROVIDED BY REASON OF A DEFAULT OF PURCHASER, PURCHASER AND
SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE
THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE PURCHASER AND SELLER DO
HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT
SELLER WOULD SUFFER IN THE EVENT THAT PURCHASER DEFAULTS AND FAILS TO
COMPLETE THE PURCHASE OF THE PROPERTY IS AND SHALL BE, AS SELLER'S SOLE AND
EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY), AN AMOUNT EQUAL TO THE
DOWNPAYMENT (INCLUDING ANY INTEREST THEREON). SAID AMOUNT SHALL BE THE FULL,
AGREED AND LIQUIDATED DAMAGES FOR THE BREACH OF THIS AGREEMENT BY PURCHASER,
ALL OTHER CLAIMS TO DAMAGES OR OTHER REMEDIES BEING HEREIN EXPRESSLY WAIVED
BY SELLER, EXCEPT FOR SUCH LIABILITIES OR OBLIGATIONS WHICH ARE SPECIFICALLY
STATED TO SURVIVE THE TERMINATION OF THIS AGREEMENT. THE PAYMENT OF SUCH
AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY
WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS
INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA
CIVIL CODE SECTIONS 1671, 1676 AND 1677. SELLER HEREBY WAIVES THE PROVISIONS
OF CALIFORNIA CIVIL CODE SECTION 3389. UPON DEFAULT BY PURCHASER, THIS
AGREEMENT SHALL BE TERMINATED AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS
OR OBLIGATIONS HEREUNDER, EACH TO THE OTHER, EXCEPT FOR THE RIGHT OF SELLER
TO COLLECT SUCH LIQUIDATED DAMAGES FROM PURCHASER AND ESCROW HOLDER AND
EXCEPT FOR SUCH LIABILITIES OR OBLIGATIONS WHICH ARE SPECIFICALLY STATED TO
SURVIVE THE TERMINATION OF THIS AGREEMENT.
<PAGE>
28
---------- ----------
---------- ----------
Seller's Purchaser's
Initials Initials
(b) As material consideration to Seller's entering into this
Agreement with Purchaser, subject to Section 13(c) hereof, Purchaser
expressly waives the (i) remedy of specific performance on account of
Seller's default under this Agreement and (ii) any right under California
Code of Civil Procedure, Part II, Title 4.5 (Sections 409 through 409.9) or
at common law or otherwise to record or file a lis pendens or a notice of
pendency of action or similar notice against all or any portion of this
Property.
(c) In the event that on the Closing Date, Seller shall be
unable to perform its obligations or to satisfy any condition applicable to
Seller hereunder (including the conditions set forth in Section 5(a)) in
accordance with the provisions of this Agreement or title to the Property
shall not be in accordance with this Agreement and provided that Purchaser is
not in default of Purchaser's obligations under this Agreement, the Purchaser
shall have the right, at Purchaser's option, either (i) to terminate this
Agreement and the Escrow by giving written notice thereof to Seller and to
Escrow Agent, whereupon the sole liability of Seller shall be to instruct the
Escrow Agent to return the Downpayment (and any interest thereon) to
Purchaser, and upon such return, this Agreement shall be deemed terminated
and Seller shall not have any further liability or obligation to Purchaser
hereunder nor shall Purchaser have any further liability or obligation to
Seller hereunder, except for such liabilities or obligations as are
specifically stated to survive the termination of this Agreement, or (ii) to
obtain specific performance by Seller of its obligations under this
Agreement, PROVIDED, HOWEVER, that (a) as a condition precedent to
Purchaser's right under this Section 13(c) to obtain specific performance by
Seller and to commence an action therefore and to record a notice of lis
pendens or other notice or filing in the county records, Purchaser shall
fully perform all of its obligations under this Agreement, including, without
being limited to, delivery to Escrow Agent of the Loan Documents and the
balance of the Purchase Price pursuant to Section 2(b) hereof and the
performance of all other obligations of Purchaser under this Agreement; and
(b) Seller shall not be obligated, nor may Purchaser seek in such action for
specific performance to compel Seller, to perform any obligation as to which
(1) Seller does not have exclusive control for the full performance thereof
nor can such exclusive control be readily obtained or (2) Seller has not been
the cause of such default and the reason for the failure of such act to be
performed or (3) Seller does not have the express affirmative obligation to
perform under this Agreement (as for example, Purchaser may not compel Seller
to remove any Title Defect unless Seller shall have notified Purchaser in
Seller's Title Notice that Seller shall remove such Title Defect or unless
Seller is obligated to remove such Title Defect pursuant to the second
paragraph of Section 10(c)(ii)); PROVIDED, HOWEVER, that Seller and
<PAGE>
29
Purchaser agree that the foregoing do not apply to the act of execution and
delivery by Seller of the Deed.
14. NOTICES. All notices and other communications required or
permitted hereby shall be in writing and shall be deemed to have been duly
and sufficiently given if (a) personally delivered with proof of delivery
thereof (any notice or communication so delivered being deemed to have been
received at the time so delivered), or (b) sent by Federal Express (or other
similar overnight courier) designating early morning delivery (any notice or
communication so delivered being deemed to have been received on the business
day following receipt by the courier), or (c) sent by United States
registered or certified mail, postage prepaid, at a post office regularly
maintained by the United States Postal Service (any notice or communication
so sent being deemed to have been received two (2) business days after
mailing in the United States), or (d) sent by telecopier or facsimile (any
notice or communication so delivered shall be effective upon receipt and
shall be deemed to have been received (i) on the business day so sent, if so
sent prior to 4:30 P.M. (based on the recipient's time) of the business day
so sent, and (ii) on the business day following the day so sent, if so sent
on a nonbusiness day or on or after 4:30 P.M. (based on the recipient's time)
of the business day so sent, in any such case addressed to the respective
parties as follows:
(i) if to Seller:
The Stroh Companies, Inc.
100 River Place
Detroit, MI 48207-4291
Attention: Vincent M. Abatemarco
Telephone: (313) 446-2475
Fax: (313) 446-2816
with a copy to:
Shearman & Sterling
153 East 53rd Street
New York, New York 10022
Attention: Benzion J. Westreich, Esq.
Telephone: (212) 848-4668
Fax: (212) 848-5252
(ii) if to Purchaser:
Copart, Inc.
5500 E. Second Street
Second Floor
<PAGE>
30
Benicia, CA 94510
Attention: Paul A. Styer, Esq.
Telephone: (707) 748-5007
Fax: (707) 748-5088
(iii) if to Escrow Agent:
Continental Lawyers Title Company
800 East Colorado Boulevard
Pasadena, CA 91101
Attention: Andrea Mendoza
Telephone: (818) 304-0040
Fax: (818) 793-4906
Either party may, by notice given as aforesaid, change the person or persons
and/or address or addresses, or designate an additional person or persons or
an additional address or addresses, for its notices, PROVIDED, HOWEVER, that
notices of change of address or addresses shall only be effective upon
receipt.
15. CHOICE OF LAW. The interpretation, enforcement and
performance of this Agreement shall be governed by the laws of the State of
California applicable to agreements made and to be performed wholly within
such State.
16. MISCELLANEOUS. (a) ENTIRE AGREEMENT; EXHIBITS. This
Agreement, together with the Exhibits hereto, constitute the entire agreement
of the parties hereto regarding the subject matter of this Agreement and all
prior or contemporaneous agreements, understandings, representations and
statements, oral or written, are hereby merged herein. Exhibits A through P
annexed hereto are hereby incorporated herein and made a part hereof by
reference as fully as though set forth herein.
(b) AMENDMENTS. This Agreement may not be modified, amended,
altered, supplemented or cancelled except pursuant to the terms hereof or an
instrument in writing signed by the parties hereto.
(c) ACCEPTANCE OF THE DEED. The acceptance of the Deed to the
Property by Purchaser shall be deemed an acknowledgment by Purchaser that
Seller has fully complied with all of its obligations hereunder and that
Seller is discharged therefrom and that Seller shall have no further
obligation or liability with respect to any of the agreements made by Seller
in this Agreement, except for those provisions of this Agreement which
expressly provide that any obligation of Seller shall survive the Closing,
including, but not limited to, the provisions of Sections 4(e)(iv), 4(f),
6(a), 7, 8, 9, 12 and 16(p).
<PAGE>
31
(d) INDEMNIFICATION GENERALLY. (i) Wherever it is provided in
this Agreement or in any agreement or document delivered pursuant hereto that
a party shall indemnify another party hereunder against liability or damages,
such phrase and words of similar import shall mean that the indemnifying
party hereby agrees to and does indemnify, defend and hold harmless the
indemnified party and such party's direct and indirect shareholders or
partners and their respective past, present and future officers, directors,
employees and agents from and against any and all costs, claims, demands,
suits, causes of action, judgments, interests, damages, losses, liabilities
and expenses (including, without being limited to, reasonable attorneys' fees
and disbursements) to which they or any of them may become subject or which
may be incurred by or asserted against any or all of them attributable to,
arising out of or in connection with the matters provided for in such
provision.
(ii) If any action, suit or proceeding is commenced, or if any
claim, demand or assessment is asserted in respect of which a party is
indemnified hereunder or under any agreement or document delivered pursuant
hereto, the indemnified party shall give notice thereof to the indemnifying
party and the indemnifying party shall be entitled to control the defense,
compromise or settlement thereof, at its own cost and expense, with counsel
reasonably satisfactory to the indemnified party, and the indemnified party
shall cooperate fully and make available to the indemnifying party such
information under its control or in its possession relating thereto and may,
at its own cost and expense, participate in such defense.
(e) BINDING EFFECT. This Agreement does not constitute an offer
to sell and shall not bind Seller unless and until Seller elects to be bound
hereby by executing and delivering to Purchaser an executed original
counterpart hereof and depositing the Downpayment in accordance with the
terms of this Agreement and such funds having cleared.
(f) PARTIAL INVALIDITY. If any term or provision of this
Agreement or the application thereof to any persons or circumstances shall,
to any extent, be invalid or unenforceable, the remainder of this Agreement
or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
(g) RECORDATION OF AGREEMENT; WAIVER OF LIS PENDENS. Neither
Seller nor Purchaser may record this Agreement. Subject to Section 13(c),
Purchaser hereby waives, to the extent permitted by law, any right to file a
lis pendens or other form of attachment against the Property in connection
with this Agreement or the transactions contemplated hereby. To the extent
that any such filing is made in violation of this Agreement, Purchase shall
indemnify Seller against any damages incurred by Seller in connection
herewith. The provisions of this Section 16(g) shall survive termination of
this Agreement.
<PAGE>
32
(h) FURTHER ASSURANCES. The parties mutually agree to execute
and deliver to each other, at the Closing, such other and further documents
as may be reasonably required by the parties to carry into effect the
purposes and intents of this Agreement, provided such documents are
customarily delivered in real estate transactions in the City of Los Angeles
and do not impose any material obligations upon any party hereunder except as
set forth in this Agreement.
(i) NONIMPUTATION. Neither party to this Agreement nor any
other corporation or entity referred to herein shall have imputed to it or be
deemed to have the knowledge of any agent, officer, servant or employee
thereof unless and until such agent, officer, servant or employee has actual
knowledge of the relevant event, notice, condition, occurrence, fact or
situation or has reasonable cause to know, or should reasonably be aware
thereof and then only if such event, notice, condition, occurrence, fact or
situation is related to matters as to which such agent, officer, servant or
employee is entrusted and has authority to deal with.
(j) PREVAILING PARTY COSTS. In the event any dispute between
the parties hereto results in litigation, the prevailing party shall be
reimbursed and indemnified by the party not prevailing in such dispute for
all costs and expenses reasonably incurred by the prevailing party in
enforcing or establishing its rights hereunder, including, without being
limited to, court costs and reasonable attorneys' fees. The prevailing party
shall be determined by the court based upon an assessment of which party's
major arguments or positions taken in the proceedings could fairly be said to
have prevailed over the other party's major arguments or positions on major
disputed issues.
(k) HEADINGS; SECTION AND EXHIBIT REFERENCES. The Section
headings used herein are for reference purposes only and do not control or
affect the meaning or interpretation of any term or provision hereof and
shall not be deemed in any manner to modify, explain, qualify or restate any
of the provisions of this Agreement. All references in this Agreement to
Sections and Exhibits are to the Sections hereof and the Exhibits annexed
hereto, respectively.
(l) COUNTERPARTS. This Agreement may be executed in any number
of counterparts with the same effect as if all parties hereto had executed
the same document. All such counterparts shall be construed together and
shall constitute one instrument.
(m) ASSIGNMENT. Purchaser shall have the right to assign its
rights, interests or obligations hereunder to an affiliate (as hereinafter
defined) of Purchaser provided such assignment is made no less than one (1)
day prior to the Closing and Purchaser gives notice thereof to Seller. Any
other assignment shall be null and void and without any force or effect
unless approved by Seller. Subject to and without limiting the preceding two
sentences, this Agreement shall bind and inure to the benefit of the
respective heirs, executors, administrators, personal representatives,
successors and assigns of the parties hereto. As used
<PAGE>
33
in this paragraph, the term "AFFILIATE" means, as to any person, any other
person that, directly or indirectly, controls, is controlled by or is under
common control with such person, and the term "CONTROL" (including the terms
"CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL with") of a person
means the possession, direct or indirect, of the power to vote 100% of the
voting stock of such person (if such person is a corporation) or 100% of the
partnership interests of such person (if such person is a partnership).
(n) NO WAIVER. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed
as a waiver of any of such provisions, or the right of any party thereafter
to enforce each and every such provision. No waiver of any breach of this
Agreement shall be held to be a waiver of any other or subsequent breach.
(o) NO OTHER PARTIES. Except as otherwise expressly provided
herein, the execution and delivery of this Agreement shall not be deemed to
confer any rights upon, nor obligate any of the parties hereto, to any person
or entity other than the parties hereto.
(p) TERMINATION OF COPART LEASES. Upon the Closing, the Copart
Leases shall be deemed to be terminated. Notwithstanding the termination of
the Copart Leases, Copart shall remain liable for any escalation payments for
operating expenses and/or taxes accruing prior to the Closing. In addition,
the Closing shall constitute an acknowledgment by Seller and Copart that
neither party is in default of any obligations owing to the other under the
Copart Leases. The provisions of this Section 16(p) shall survive the
Closing.
<PAGE>
34
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed as of the day and year first above written.
SELLER:
THE STROH COMPANIES, INC.
By:
------------------------
Name: Christopher T. Sortwell
Title: Treasurer
PURCHASER:
COPART, INC.
By:
------------------------
Name:
Title:
Escrow Agent hereby agrees to abide by the terms of Section 2 hereof and
Exhibit G hereto.
ESCROW AGENT:
CONTINENTAL LAWYERS TITLE COMPANY
By:
-------------------------
Name:
Title:
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LAND
ALL THAT CERTAIN piece, parcel and tract of land, situated in the
State of California, County of Los Angeles and City of Los Angeles, described
as follows:
PARCEL 1:
THAT PORTION OF LOT A, AS SHOWN ON A MAP OF THE LANDS OF LOS ANGELES FARMING
AND MILLING COMPANY, IN THE CITY OF LOS ANGELES, IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, ATTACHED TO DEED RECORDED JULY 20, 1910, AS PER
MAP RECORDED IN BOOK 4232 PAGE 118 OF DEEDS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY, BOUNDED AS FOLLOWS:
BOUNDED ON THE NORTHEAST BY THE SOUTHWESTERLY LINE OF THE LAND DESCRIBED IN
DEED TO THE SOUTHERN PACIFIC RAILROAD COMPANY RECORDED AUGUST 26, 1902 AS
INSTRUMENT NO. 39 IN BOOK 1634 PAGE 94 OF DEEDS, IN SAID RECORDER'S OFFICE;
BOUNDED ON THE EAST BY THE WESTERLY LINE OF TRACT NO. 1081, IN SAID CITY,
COUNTY AND STATE, AS PER MAP RECORDED IN BOOK 17 PAGE 130 OF MAPS, IN SAID
RECORDER'S OFFICE; BOUNDED ON THE SOUTH BY THE NORTHERLY LINES OF LOTS 215
AND 216 AND THE WESTERLY PROLONGATION OF SAID NORTHERLY LINES OF TRACT 1000,
IN SAID CITY, COUNTY AND STATE, AS PER MAP RECORDED IN BOOK 19 PAGES 1 ET
SEQ., OF MAPS, IN SAID RECORDER'S OFFICE; AND BOUNDED ON THE WEST BY THE
NORTHERLY PROLONGATION OF THE CENTER LINE OF HAZELTINE AVE., 50 FEET WIDE AS
DESCRIBED IN THE DEED TO TECHNICOLOR MOTION PICTURE CORPORATION RECORDED
SEPTEMBER 26, 1946 AS INSTRUMENT NO. 1065 IN BOOK 23761 PAGE 237, OFFICIAL
RECORDS, IN SAID RECORDER'S OFFICE.
EXCEPT THEREFROM THAT PORTION OF SAID PARCEL 1 DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST NORTHERLY CORNER OF TRACT NO. 1081 IN SAID CITY, COUNTY
AND STATE, AS PER MAP RECORDED IN BOOK 17 PAGES 130 AND 131 OF MAPS, IN SAID
RECORDERS; THENCE ALONG THE WESTERLY LINE OF SAID TRACT NO. 1081 SOUTH 285.90
FEET TO A LINE THAT IS PARALLEL WITH AN DISTANT NORTHERLY, 30 FEET, MEASURED
AT RIGHT ANGELES, FROM THAT CERTAIN CENTER LINE COURSE AND ITS WESTERLY
PROLONGATION DESCRIBED IN DEED RECORDED IN BOOK 4857 PAGE 393 OFFICIAL
RECORDERS IN SAID RECORDERS OFFICE AS HAVING A LENGTH OF
<PAGE>
A-2
480.98 FEET; THENCE ALONG SAID PARALLEL LINE NORTH 88 DEG. 40' 09" WEST 41.05
FEET TO THE EASTERLY TERMINUS OF THAT CERTAIN CURVE DESCRIBED IN THE EASEMENT
DEED TO THE CITY OF LOS ANGELES RECORDED ON FEBRUARY 19, 1960 AS DOCUMENT NO.
2092 IN BOOK D 755 PAGE 555, OFFICIAL RECORDS, IN SAID RECORDERS OFFICE;
THENCE NORTHWESTERLY ALONG SAID CURVE TO A LINE THAT IS PARALLEL WITH AND
DISTANT EASTERLY 51 FEET FROM THAT CERTAIN CENTER LINE DESCRIBED IN SAID
EASEMENT DEED; THENCE NORTHERLY ALONG SAID LAST MENTIONED PARALLEL LINE TO
THE SOUTHERLY LINE OF THE SOUTHERN PACIFIC RAILROAD COMPANY'S RIGHT OF WAY,
AS SHOWN ON SAID MAP OF SAID TRACT NO. 1081; THENCE EASTERLY ALONG SAID
SOUTHERLY LINE A DISTANCE OF 37.57 FEET TO THE POINT OF BEGINNING.
PARCEL 2:
A EASEMENT FOR STREET PURPOSES OVER THAT PORTION OF LOT A, AS SHOWN ON A MAP
OF THE LANDS OF THE LOS ANGELES FARMING AND MILLING COMPANY, IN THE CITY OF
LOS ANGELES, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, ATTACHED TO
THE DEED RECORDED JULY 20, 1910 IN BOOK 4232 PAGE 118 OF DEEDS, IN THE OFFICE
OF THE COUNTY RECORDER OF SAID COUNTY, INCLUDED WITHIN A STRIP OF LAND 25
FEET IN WIDTH, EXTENDING FROM THE EASTERLY PROLONGATION OF THE NORTHERLY LINE
OF LOT 217 OF TRACT NO. 1000, AS PER MAP RECORDED IN BOOK 19 PAGE 1, ET SEQ.,
OF MAPS, IN SAID RECORDERS OFFICE TO THE WESTERLY PROLONGATION OF THE
NORTHERLY LINE OF THE LAND DESCRIBED IN PARCEL 1 IN THE DEED TO JOS. SCHLITZ
BREWING COMPANY, RECORDED MAY 15, 1969 AS INSTRUMENT NO. 368 IN BOOK D 4370
PAGE 24, OFFICIAL RECORDS, IN SAID RECORDER'S OFFICE, THE EASTERLY LINE OF
SAID 25 FOOT STRIP BEING THE WESTERLY LINE OF PARCEL 1 IN SAID DEED TO JOS.
SCHLITZ BREWING COMPANY.
Assessor's Parcel Number: 2215-2-1 and 2215-2-3
<PAGE>
EXHIBIT B
DESCRIPTION OF PERSONAL PROPERTY
1 steel desk
2 office chairs (wood structure, cloth padded)
1 wood bookcase
1 steel safe
1 4-drawer, filing cabinet
1 supply steel cabinet
1 wood steel framed table
1 water cooler
3 small plastic trash containers
3 100 ft. hoses
2 weeder grass cutters
1 submersible sump pump (3 horsepower) located Southeast of bottling plant
1 sump pump located in powerhouse basement
<PAGE>
EXHIBIT C
DEED
----
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
____________________________
____________________________
____________________________
Attn: ________________________
MAIL TAX STATEMENTS TO:
Copart, Inc.
5500 E. Second Street
Second Floor
Benecia, CA 94510
Attn: ____________________________
- ------------------------------------------------------------------------------
SPACE ABOVE THIS LINE FOR RECORDER'S USE
CORPORATION GRANT DEED
A.P.N.________________
The undersigned grantor declares:
Documentary transfer tax is $_______
(x) computed on full value of property conveyed, or
( ) computed on full value less value of liens and encumbrances remaining at
time of sale.
( ) Unincorporated area:( ) City of Los Angeles, and
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE
STROH COMPANIES, INC., a corporation organized under the laws of the State of
Delaware, hereby GRANTS to COPART, INC., a California corporation, all that
real property situated in the City of Los Angeles, County of Los Angeles,
State of California, described in Exhibit A attached hereto.
<PAGE>
C-2
TOGETHER WITH all buildings, facilities, structures and other improvements
located thereon and all tenements, hereditaments, appurtenances, privileges
and other rights and interest benefitting or relating thereto (collectively,
the "Property").
TO HAVE AND TO HOLD the same unto Grantee and the successors and
assigns of Grantee, forever.
Grantor hereby covenants that Grantor has not conveyed the
Property, or any right, title or interest therein, to any person other than
Grantee, other than the matters set forth on Exhibit B hereto
[matters entered into by Grantor].
In Witness Whereof, said corporation has caused its corporate
name and seal to be affixed hereto and this instrument to be executed.
Dated: ______________________ , 1996 GRANTOR:
THE STROH COMPANIES, INC.,
a Delaware corporation
By:
-------------------------------
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
STATE OF __________ )
) ss.
COUNTY OF _________ )
On ____________, 1996, before me, ______________, a Notary
Public, personally appeared CHRISTOPHER T. SORTWELL, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he executed the same in his authorized capacity, and that by his signature on
the instrument the person, or the entity upon behalf of which the person
acted, executed said instrument.
WITNESS my hand and official seal.
Signature ___________________________ (SEAL)
<PAGE>
EXHIBIT A
Legal Description of the Property
<PAGE>
EXHIBIT B
List of Matters Executed by Grantor
<PAGE>
EXHIBIT D
LEASES
Lease by and between The Stroh Companies, Inc.,as Landlord and Copart, Inc.,
as Tenant, dated as of August 31, 1995, as amended by Letter Agreement
between The Stroh Companies, Inc.and Copart, Inc. regarding the fire
sprinkler system, dated as of August 31, 1995. (the "COPART LEASE").
Security Deposit: $15,279.
License by and between The Stroh Companies, Inc.,as Licensor and Copart,
Inc., as Licensee, dated as of August 31, 1995, as amended by Letter
Agreement between The Stroh Companies, Inc.and Copart, Inc. regarding the
fire sprinkler system, dated as of August 31, 1995 (the "COPART LICENSE";
together with the Copart Lease, the "COPART LEASES"). Security Deposit:
$14,721.
Lease by and between The Stroh Companies, Inc., as Landlord, and Los Angeles
SMSA Limited Partnership, as Tenant, dated as of January 31, 1995 (the "SMSA
LEASE").
Lease by and between The Stroh Companies, Inc., as Lessor, and California
Moving and Storage Company, as Lessee, dated December 1, 1994 (the "MOVING
LEASE"). Security Deposit: $13,650.
<PAGE>
EXHIBIT E
CERTIFICATES, LICENSES AND PERMITS
City of Los Angeles Steam Boiler or Pressure Vessel Certificate of
Inspection and Permit to Operate, No. AC 4103, issued April 19, 1995.
County of Los Angeles Public Health License No. 400496, issued October
17, 1995.
<PAGE>
EXHIBIT F
DUE DILIGENCE ITEMS
(i) and (iii) The list of soil reports, engineering studies, grading plans,
topographical maps and seismic tests, studies, reports or
analyses relating to the Property and the list of reports,
correspondence, test results and recommendations relating to
the Property are attached hereto as Addendum F(i)(iii).
The reports, surveys, evaluations, investigations and
assessments in Addendum F(i)(iii) are referred to in this
Agreement as the "ENVIRONMENTAL REPORTS." For purposes of
Section 6(a)(x), the term "Environmental Reports" also includes
the LAFD Application for Certificate of Disclosure of Hazardous
Substances (file 036081-001-0) December 1986.
Other correspondence and recommendations relating to the Property:
Letter dated September 29, 1995 from Paul A. Styer, Senior
Vice President, General Counsel, Copart, Inc. to J. Tim
Hersch, PIC Environmental Services.
Letter dated September 19, 1995 from J. Tim Hersch, PIC
Environmental Services to Paul Styer, Copart, Inc.
(iv) (a) There are no pending causes, claims, proceedings or legal
actions instituted against Seller with respect to the Property
and (b) to Seller's actual knowledge, there are no causes,
claims, proceeding or legal action threatened against Seller
with respect to the Property.
(iv) The list of all tangible personal property owned or leased by
Seller as of the date hereof which is included in the sale is
attached to this Agreement as Exhibit B.
(vii) The certificate of insurance evidencing the insurance policies
currently maintained by Seller with respect to the Property is
attached hereto as Addendum F(vii). There are no claims and
settlements of $50,000.00 or more made within the last three
(3) years.
(viii) The list of all building plans and specifications for the
Improvements in Seller's possession or reasonably available to
Seller is attached hereto as Addendum F(viii).
<PAGE>
EXHIBIT G
ESCROW PROVISIONS
1. (a) Following collection, Escrow Agent shall invest the
Downpayment in an interest bearing money market account (insured by the
Federal Deposit Insurance Corporation) at Bank of America (the "BANK") (any
such investment being an "APPROPRIATE INVESTMENT"), at such a yield as shall
be available. Escrow Agent shall use reasonable efforts to keep the
Downpayment invested for a period to end prior to, but as nearly
contemporaneous as is reasonable with, the Contingency Date and thereafter,
if this Agreement is not terminated, the Closing Date, having due regard to
the fact that the Downpayment may have to be available on the Contingency
Date and, if this Agreement is not terminated, must be available on the
Closing Date. If the Closing Date is changed from May 31, 1996, the
scheduled Closing Date set forth in Section 4 of the Agreement to which this
Exhibit G is attached, or from any rescheduled Closing Date, Seller and
Purchaser shall give prompt written notice thereof to Escrow Agent, which
notice shall specify the new closing date (the "NEW CLOSING DATE"). If the
Appropriate Investment held by Escrow Agent at the time Escrow Agent receives
such notice matures prior to the New Closing Date set forth in any such
notice, Escrow Agent may, but will have no obligation to, reinvest the
Downpayment in an Appropriate Investment which matures on a date on or prior
to the New Closing Date set forth in such notice. Escrow Agent shall bear no
liability for any loss occasioned by reasonable investment of the Downpayment
as herein provided, by any reasonable delays in investing or reinvesting the
Downpayment or by any failure to achieve the maximum possible yield from the
Downpayment. If the Appropriate Investment held by Escrow Agent does not
mature before the Closing Date, Escrow Agent, at the election of the party
entitled to the Downpayment, shall either deliver the certificate or other
evidence of the Appropriate Investment to such party or shall sell them prior
to maturity. For purposes of these Escrow Provisions, transfer of the
certificate or other documentation evidencing the Appropriate Investment to a
designated party shall be deemed to constitute delivery thereof.
(b) The Downpayment, plus any interest earned from the
investment thereof in accordance with the terms of subparagraph 1(a) above,
less any and all transaction or account fees, costs, expenses or charges,
including, without limitation, brokerage and custodial fees, attributable to
such investment (such sum hereinafter called the "INVESTED DOWNPAYMENT"),
shall be delivered by Escrow Agent to Seller, to Purchaser or, if pursuant to
Paragraph 4 hereof, to substitute impartial party or a court having
appropriate jurisdiction, in accordance with the terms of these Provisions.
Delivery of the Invested Downpayment in accordance with the terms of these
Provisions shall be made by uncertified, unendorsed check of Escrow Agent or
by cashier's check, at Escrow Agent's option. Escrow Agent agrees, upon
request, to provide the parties with its (or the Bank's) computation of the
Invested Downpayment. It shall be conclusively presumed that: (i) any and
all investments made by Escrow Agent in an Appropriate Investment are
authorized and permitted under the terms of these Provisions; (ii) the
parties hereto have agreed to and concurred in all such Appropriate
Investments; (iii) by so investing the Downpayment, Escrow Agent has complied
with its investment obligations pursuant to these Provisions; and (iv)
<PAGE>
G-2
Escrow Agent's (or the Bank's) computation of the Invested Downpayment is
correct in the absence of manifest error.
2. If all of the conditions to Closing, as set forth in Section
5 of the Agreement to which this Exhibit G is attached, shall be met and the
Closing shall be consummated on the Closing Date, then on the Closing Date
Escrow Agent shall deliver to Seller the Invested Downpayment against a
signed receipt therefor. Escrow Agent shall also deliver the Invested
Downpayment in accordance with written instructions signed by both Purchaser
and Seller, specifying the party to whom the same is to be delivered (the
"DESIGNATED PARTY") and the time and place where the same is to be delivered,
such delivery to be made against a signed receipt therefor from the
Designated Party. If Escrow Agent shall receive written instructions signed
by either Purchaser or Seller specifying itself as the Designated Party and a
time and place where the Invested Downpayment is to be delivered to such
party, Escrow Agent shall deliver the same to such party against a signed
receipt therefor from such party; PROVIDED, HOWEVER, that: (a) such
Designated Party shall have delivered to Escrow Agent a written certification
to the effect that such party has delivered or contemporaneously is
delivering a copy of said written instructions to the other party (together
with a certificate of mailing from the United States postal service therefor
in the case of a copy sent to the other party by mail and a shipping receipt
in the case of a copy sent by express courier) and (b) Escrow Agent shall not
have received within ten (10) days after the sending of said copy contrary
instructions from the said other party; PROVIDED, FURTHER, HOWEVER, that
compliance with the preceding clause (b) shall not be required for any notice
of termination given by Purchaser prior to the Contingency Date. In the
event that Escrow Agent shall receive such contrary instructions, Escrow
Agent shall not so deliver the Invested Downpayment but shall hold or deposit
the same in accordance with the terms of Paragraph 4 hereof. Upon the
delivery of the Invested Downpayment in accordance with this Paragraph 2,
Escrow Agent shall thereupon be relieved of and discharged and released from
any and all liability hereunder and with respect to the Invested Downpayment.
3. If at any time Escrow Agent shall receive a certificate of
either Seller or Purchaser (the "CERTIFYING PARTY") to the effect that: (i)
the other party (the "OTHER PARTY") has defaulted under this Agreement or
that this Agreement has otherwise been terminated or cancelled; (ii) a copy
of the certificate and a statement in reasonable detail of the basis for the
claimed default, termination or cancellation was mailed as provided herein to
the Other Party prior to or contemporaneous with the giving of such
certificate to Escrow Agent; and (iii) in the case of a claimed default, to
the knowledge of the Certifying Party, the claimed default has not been
cured, then, unless Escrow Agent shall have received contrary instructions
from the Other Party within ten (10) days of Escrow Agent's receipt of said
certificate, Escrow Agent shall, within ten (10) days of the expiration of
such ten (10) day period, deliver the Invested Downpayment to the Certifying
Party and thereupon be relieved of and discharged and released from any and
all liability hereunder and with respect to the Invested Downpayment. If
Escrow Agent shall receive contrary instructions from the Other Party within
ten (10) days of Escrow
<PAGE>
G-3
Agent's receipt of said certificate, Escrow Agent shall not so deliver the
Invested Downpayment but shall hold or deposit the same in accordance with
the terms of Paragraph 4 hereof.
4. In the event that: (i) Escrow Agent shall not have received
instructions pursuant to this Agreement on or prior to the latest of the
originally scheduled Closing Date and all New Closing Dates, if any (the
"LATEST CLOSING DATE"); (ii) the closing under this Agreement shall not have
occurred on or prior to the Latest Closing Date; (iii) Escrow Agent shall
receive contrary instructions from the parties hereto; (iv) any dispute shall
arise as to any matter arising under these Provisions; (v) any alleged
default by Seller or Purchaser under this Agreement shall occur; or (vi)
there shall be any uncertainty as to the meaning or applicability of any of
these Provisions, Escrow Agent's duties, rights or responsibilities hereunder
or any written instructions received by Escrow Agent pursuant hereto, Escrow
Agent may, at its option at any time thereafter, deposit the funds and/or
instruments then being held by it in escrow into any court having appropriate
jurisdiction, or take such affirmative steps as it may elect in order to
substitute an impartial party to hold any and all escrowed funds and/or
instruments, and upon making such deposit, shall thereupon be relieved of and
discharged and released from any and all liability hereunder and with respect
to the Invested Downpayment or any portion thereof so deposited.
5. Escrow Agent shall be entitled to rely upon the authenticity
of any signature and the genuineness and/or validity of any writing received
by Escrow Agent pursuant to or otherwise relating to these Provisions.
6. If any term, condition or provision of these Provisions, or
the application thereof to any circumstance or party hereto, shall ever be
held to be invalid or unenforceable, then in each such event the remainder of
these Provisions or the application of such term, condition or provision to
any other circumstance or party hereto (other than those as to which it shall
be invalid or unenforceable) shall not be thereby affected, and each term,
condition and provision hereof shall remain valid and enforceable to the
fullest extent permitted by law.
<PAGE>
EXHIBIT H
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that THE STROH COMPANIES, INC., a
Delaware corporation having an office at 100 River Place, Detroit, MI
48207-4291 ("SELLER"), for Ten Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
paid by COPART, INC., a California corporation having an office at 5500 E.
Second Street, Second Floor, Benicia, CA 94510 ("PURCHASER"), has granted,
conveyed, bargained and sold and by these presents does grant, convey,
bargain and sell unto Purchaser, its successors and assigns, all of Seller's
right, title and interest in and to fixtures, equipment and personal property
listed on Schedule 1 attached hereto and hereby made a part hereof and to all
of Seller's right, title and interest in and to all of the other fixtures,
equipment and personal property, if any, owned by Seller and attached or
appurtenant to, located on and used in connection with the ownership, use,
operation or maintenance of that certain property and having a street address
at 7521 Woodman Avenue, Los Angeles, CA, and more particularly described in
Schedule 2 hereto and the buildings, structures, facilities or improvements
presently located or hereinafter located thereon (all of the foregoing being
hereinafter collectively referred to as the "Personal Property").
TO HAVE AND TO HOLD the Personal Property unto Purchaser, its
successors and assigns, forever.
SELLER hereby sells, transfers, delivers, grants and conveys the
Personal Property in its "AS IS" condition, without any representation,
warranty or recourse, and any representation or warranty of merchantability
or fitness and any right to recourse against Seller is hereby expressly
excluded, except that Seller represents and warrants that the personal
property described on Schedule 1 is free and clear of all liens or
encumbrances.
IN WITNESS WHEREOF, Seller has duly executed this Bill of Sale,
as of this [______________].
SELLER:
THE STROH COMPANIES, INC.
By:
-------------------------------
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
SCHEDULE 1 TO EXHIBIT H
DESCRIPTION OF THE PERSONAL PROPERTY
1 steel desk
2 office chairs (wood structure, cloth padded)
1 wood bookcase
1 steel safe
1 4-drawer, filing cabinet
1 supply steel cabinet
1 wood steel framed table
1 water cooler
3 small plastic trash containers
3 100 ft. hoses
2 weeder grass cutters
1 submersible sump pump (3 horsepower) located Southeast of bottling plant
1 sump pump located in powerhouse basement
<PAGE>
SCHEDULE 2 TO EXHIBIT H
LEGAL DESCRIPTION OF LAND
ALL THAT CERTAIN piece, parcel and tract of land, situated in the
State of California, County of Los Angeles and City of Los Angeles, described
as follows:
Assessor's Parcel Number:
<PAGE>
EXHIBIT I
ASSIGNMENT AND ASSUMPTION OF
LEASES, SECURITY DEPOSITS AND PREPAID RENTS
THIS ASSIGNMENT AND ASSUMPTION, made as of [______________], by
and between THE STROH COMPANIES, INC., a Delaware corporation having an
office at 100 River Place, Detroit, MI 48207-4291 ("SELLER"), and COPART,
INC., a California corporation having an office at 5500 E. Second Street,
Second Floor, Benicia, CA 94510 ("PURCHASER").
W I T N E S S E T H :
WHEREAS, by Contract of Sale, dated as of __________ ___, 1996
(the "CONTRACT OF SALE"), between Seller and Purchaser, Purchaser agreed to
purchase from Seller and Seller agreed to sell to Purchaser certain real
property described on Schedule 1 annexed hereto and made a part hereof and
the buildings and other improvements thereon, as more fully described in the
Contract of Sale (the "PROPERTY"); and
WHEREAS, the Contract of Sale provides, INTER ALIA, that Seller
shall assign to Purchaser all of Seller's interest in and to the leases and
licenses and other agreements granting rights of occupancy to tenants and
affecting the Property and that Purchaser shall accept such assignment and
assume the obligations of landlord under the said leases, licenses and other
agreements all as more fully provided in the Contract of Sale.
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, Seller and Purchaser hereby agree as follows:
1. ASSIGNMENT AND ASSUMPTION OF THE LEASES. Seller hereby
assigns, sets over and transfers to Purchaser, to have and to hold from and
after the date hereof, all of Seller's right, title and interest, as
landlord, in, to and under those certain leases and other agreements listed
on Schedule 2 annexed hereto and made a part hereof (the "LEASES"),
including, without being limited to, all of Seller's right, title and
interest in, to and under any prepaid rent, security deposits or other sums
held by Seller as landlord under any of the Leases. Purchaser hereby accepts
the within assignment and assumes and agrees with Seller to perform and
comply with and to be bound by all of the terms, covenants, agreements,
provisions and conditions of the Leases on the part of the landlord
thereunder to be performed on and after the date hereof, in the same manner
and with the same force and effect as if Purchaser had originally executed
the Leases as landlord. Seller shall remain liable for all leasing
commissions, fees or expenses, if any, due with respect to the current term
of Leases entered into on or prior to the date of the Contract of Sale
regardless of when such commissions are due or accrue (excluding, however,
<PAGE>
I-2
with respect to all renewals, or extensions or expansions thereof) and hereby
unconditionally, absolutely and irrevocably agrees to indemnify, defend and
hold harmless Purchaser of, from and against any and all costs, claims,
obligations, damages, penalties, causes of action, losses, injuries,
liabilities and expenses (including, without being limited to, reasonable
attorney's fees and disbursements), of whatever kind or nature, arising out
of, in connection with or with respect to (i) any claim for any such leasing
commissions or (ii) any breach by Seller under the Leases with respect to
the period prior to the date hereof.
2. INDEMNIFICATION. Purchaser hereby unconditionally,
absolutely and irrevocably agrees to indemnify and to hold harmless Seller
of, from and against any and all costs, claims, obligations, damages,
penalties, causes of action, losses, injuries, liabilities and expenses
(including, without being limited to, reasonable attorney's fees and
disbursements), of whatever kind or nature, arising out of, in connection
with or accruing under the Leases from and after the date hereof, including,
without being limited to, any such liabilities or expenses arising in
connection with any prepaid rent, security deposit or other sums held by
Purchaser as the landlord under any of the Leases or arising in connection
with brokerage commissions for any renewal, extension or expansion options
exercised from and after the date of the Contract of Sale (including, without
limitation, in respect of any Lease entered into on or prior to the date of
the Contract of Sale), regardless of when such commissions are due or accrue.
3. MISCELLANEOUS. This Assignment and the obligations of Seller
and Purchaser hereunder shall survive the closing of the transactions
referred to in the Contract of Sale, shall be binding upon and inure to the
benefit of Seller and Purchaser and their respective successors and assigns,
shall be governed by and construed in accordance with the laws of the State
of California and may not be modified or amended in any manner other than by
a written agreement signed by the party to be charged therewith.
IN WITNESS WHEREOF, Seller and Purchaser have duly executed this
Assignment as of the day and year first above written.
SELLER:
THE STROH COMPANIES, INC.
By:
-------------------------------
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
I-3
PURCHASER:
COPART, INC.
By:
------------------------
Name:
Title:
<PAGE>
I-4
STATE OF ______________)
) ss.:
COUNTY OF _____________)
On this day of , in the year of 1996, before me
[HERE INSERT NAME AND QUALITY OF THE OFFICER], personally appeared
Christopher T. Sortwell, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person who executed the within instrument
as president (or secretary) or on behalf of the corporation therein named and
acknowledged to me that the corporation executed it.
______________________________
[Notary Public]
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ____________ )
On this ____ day of ____________, in the year 1996, before me
[HERE INSERT THE NAME AND QUALITY OF THE OFFICER], personally appeared
__________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who executed the within instrument as
president (or secretary) or on behalf of the corporation therein named and
acknowledged to me that the corporation executed it.
______________________________
[Notary Public]
<PAGE>
SCHEDULE 1 TO EXHIBIT I
DESCRIPTION OF LAND
ALL THAT CERTAIN piece, parcel and tract of land, situated in the
State of California, County of Los Angeles and City of Los Angeles, described
as follows:
Assessor's Parcel Number:
<PAGE>
SCHEDULE 2 TO EXHIBIT I
LEASES AND OTHER OCCUPANCY AGREEMENTS
I. LEASES
Lease by and between The Stroh Companies, Inc., as Landlord, and Los Angeles
SMSA Limited Partnership, as Tenant, dated as of January 31, 1995.
Lease by and between The Stroh Companies, Inc., as Lessor, and California
Moving and Storage Company, as Lessee, dated December 1, 1994.
<PAGE>
EXHIBIT J
GENERAL ASSIGNMENT AND ASSUMPTION
THIS ASSIGNMENT AND ASSUMPTION, made as of [______________], by
and between THE STROH COMPANIES, INC., a Delaware corporation having an
office at 100 River Place, Detroit, MI 48207-4291 ("SELLER"), and COPART,
INC., a California corporation having an office at 5500 E. Second Street,
Second Floor, Benicia, CA 94510 ("PURCHASER").
W I T N E S S E T H :
WHEREAS, by Contract of Sale, dated as of _____ __, 1996 (the
"CONTRACT OF SALE"), between Seller and Purchaser, Purchaser agreed to
purchase from Seller and Seller agreed to sell to Purchaser certain real
property described on Schedule I annexed hereto and made a part hereof and
the buildings and other improvements thereon and other property all as more
fully defined in the Contract of Sale as the "PROPERTY"; and
WHEREAS, the Contract of Sale provides, INTER ALIA, that Seller
shall assign to Purchaser the certificates, licenses and permits listed on
Schedule II annexed hereto (collectively, the "PERMITS"), the service,
maintenance, supply and management contracts and agreements listed on
Schedule II annexed hereto (collectively, the "SERVICE CONTRACTS") and all of
Seller's right, title and interest in the sewer facility charges relating to
the Property (the "SEWER FACILITY CREDITS"), and that Purchaser shall accept
such assignment and assume the obligations of Seller under the Service
Contracts, all as more fully provided in the Contract of Sale.
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Seller hereby agrees as follows:
1. Seller hereby assigns, sets over and transfers to Purchaser,
to have and to hold from and after the date hereof, all of Seller's right,
title and interest in, to and under the Permits, the Service Contracts and
the Sewer Facility Credits, and Purchaser hereby accepts the within
assignment and assumes and agrees with Seller to perform and comply with and
to be bound by all the terms, covenants, agreements, provisions and
conditions of the Service Contracts on the part of the owner of the Property
thereunder to be performed on and after the date hereof, in the same manner
and with the same force and effect as if Purchaser had originally executed
the Service Contracts as the owner of the Property.
<PAGE>
J-2
2. Purchaser hereby unconditionally, absolutely and irrevocably
agrees to indemnify and hold Seller harmless of, from and against any and all
costs, claims, obligations, damages, penalties, causes of action, losses,
injuries, liabilities and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, arising out of, in connection with or
accruing under the Service Contracts on and after the date hereof.
3. Seller hereby unconditionally, absolutely and irrevocably
agrees to indemnify and hold Purchaser harmless of, from and against any and
all costs, claims, obligations, damages, penalties, causes of action, losses,
injuries, liabilities and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, arising out of, in connection with or
accruing under the Service Contracts before the date hereof.
4. (a) This Agreement shall not be construed as a
representation or warranty by Seller as to the transferability of the
Permits, the Service Contracts or the Sewer Facility Credits, and Seller
shall have no liability to Purchaser in the event that any or all of the
Permits, the Service Contracts or the Sewer Facility Credits (i) are not
transferable to Purchaser or (ii) are cancelled or terminated by reason of
this assignment or any acts of Purchaser. The within assignment of the Sewer
Facility Credits is made without any representation or warranty of, or
recourse to, Seller.
(b) This Assignment and the obligations of Seller and Purchaser
hereunder shall survive the closing of the transactions referred to in the
Contract of Sale, shall be binding upon and inure to the benefit of Seller
and Purchaser, and their respective successors and assigns, shall be governed
by and construed in accordance with the laws of the State of California and
may not be modified or amended in any manner other than by a written
agreement signed by the party to be charged therewith.
IN WITNESS WHEREOF, Seller and Purchaser have duly executed this
Assignment as of the day and year first above written.
SELLER:
THE STROH COMPANIES, INC.
By: ________________________________
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
J-3
PURCHASER:
COPART, INC.
By: _____________________________
Name:
Title:
<PAGE>
J-4
STATE OF_________ )
) ss.:
COUNTY OF _______ )
On this ____ day of ___________ , in the year 1996, before me
[HERE INSERT NAME AND QUALITY OF THE OFFICER], personally appeared
Christopher T. Sortwell, personally known to me (or proved to me on the basis
of satisfactory evidence) to be the person who executed the within instrument
as president (or secretary) or on behalf of the corporation therein named and
acknowledged to me that the corporation executed it.
______________________________
[Notary Public]
STATE OF CALIFORNIA )
) ss.:
COUNTY OF _____________ )
On this ____ day of ___________ , in the year 1996, before me
[HERE INSERT THE NAME AND QUALITY OF THE OFFICER], personally appeared
_________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who executed the within instrument as
president (or secretary) or on behalf of the corporation therein named and
acknowledged to me that the corporation executed it.
______________________________
[Notary Public]
<PAGE>
SCHEDULE I TO EXHIBIT J
DESCRIPTION OF LAND
ALL THAT CERTAIN piece, parcel and tract of land, situated in the
State of California, County of Los Angeles and City of Los Angeles, described
as follows:
Assessor's Parcel Number:
<PAGE>
SCHEDULE II TO EXHIBIT J
PERMITS
SERVICE CONTRACTS
<PAGE>
EXHIBIT K
[Intentionally Omitted]
<PAGE>
EXHIBIT L
TENANT LETTER FORM
[LETTERHEAD OF SELLER]
_______________________ , 19__
[Name and Address of Tenant]
7521 WOODMAN AVENUE
Gentlemen:
This is to inform you that The Stroh Companies, Inc., has this
day sold the captioned property to Copart, Inc. ("PURCHASER") and has
transferred to Purchaser all leases, security deposits, if any, and other
matters relating to your tenancy.
Purchaser has appointed [Name new Managing Agent] to manage the
captioned property. After the date hereof, you should make all payments of
rent and direct all notices and requests regarding your tenancy to
[Name and address of recipient of rent and notices].
Very truly yours,
SELLER:
THE STROH COMPANIES, INC.
By: ________________________________
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
L-2
PURCHASER:
COPART, INC.
By: __________________________________
Name:
Title:
<PAGE>
EXHIBIT M
FIRPTA AFFIDAVIT
Section 1445 of the Internal Revenue Code provides that a
transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person. To inform Copart, Inc. that withholding of
tax is not required upon the disposition of a U.S. real property interest by
The Stroh Companies, Inc., the undersigned hereby certifies the following on
behalf of The Stroh Companies, Inc.:
1. The Stroh Companies, Inc. is not a foreign corporation,
foreign partnership, foreign trust, or foreign estate (as those terms
are defined in the Internal Revenue Code and Income Tax Regulations);
2. The Stroh Companies, Inc.'s U.S. employer identification
number is [______________]; and
3. The Stroh Companies, Inc.'s office address is 100 River
Place, Detroit, MI 48207-4291.
The Stroh Companies, Inc. understands that this certification may be
disclosed to the Internal Revenue Service by transferee and that any false
statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and behalf it is true, correct
and complete, and I further declare that I have authority to sign this
document on behalf of The Stroh Companies, Inc.
Date: [______________]
SELLER:
THE STROH COMPANIES, INC.
By: ________________________________
Name: Christopher T. Sortwell
Title: Treasurer
<PAGE>
EXHIBIT N
FORM OF TENANT ESTOPPEL CERTIFICATE
_______________________ , 1996
To:
______________________________
______________________________
______________________________
______________________________
Re: Lease Dated: _____________________________________
Landlord: ____________________________________________
_______________________________ ("Landlord")
Tenant: ____________________________________________
_________________________________ ("Tenant")
Premises: Approximately _______ square feet located at
_______________________________ ("Premises")
Ladies and Gentlemen:
The undersigned hereby certifies to Landlord and _____________________
______________, a ______________________, or its assigns ("Buyer") as of the
date hereof as follows:
1. The undersigned is the "Tenant" under the above-referenced
lease ("Lease") covering the above-referenced Premises ("Premises").
2. The Lease, attached hereto as EXHIBIT "A", constitutes the
entire agreement between Landlord and Tenant with respect to the Premises and
the Lease has not been modified, changed, altered or amended in any respect
as follows (if none, so state): _____________________________________________
_____________________________________________________________________________.
3. The term of the Lease commenced on _____________, 19__,
and, including any presently exercised option or renewal term, will expire on
_____________, 19__. Tenant has accepted complete possession of the Premises
and is the actual occupant in possession and, except for ____________, has
not sublet, assigned or hypothecated or otherwise transferred all or any
portion of Tenant's leasehold interest. All improvements to be constructed
on the Premises by Landlord have been completed to the satisfaction of Tenant
and accepted by Tenant and any tenant construction allowances have been paid
in full. All duties of an inducement nature required of the Landlord in the
Lease have been fulfilled. All of the Landlord's obligations which have
accrued prior to the date hereof have been performed.
<PAGE>
N-2
4. To Tenant's knowledge, there exists no breach or default,
nor state of facts nor condition which, with notice, the passage of time, or
both, would result in a breach or default on the part of either Tenant or
Landlord. To the best of Tenant's knowledge, no claim, controversy, dispute,
quarrel or disagreement exists between Tenant and Landlord.
5. Tenant is currently obligated to pay base annual rental in
monthly installments of $___________ per month and monthly installments of
annual rental have been paid through _______________, 19__. No other rent
has been paid in advance and Tenant has no claim or defense against Landlord
under the Lease and is asserting no offsets or credits against either the
rent or Landlord. Tenant has no security, rental, cleaning or other
deposits, except for a security deposit in the amount of $________________
which was paid pursuant to the Lease.
6. The Lease is in full force and effect in accordance with
its terms and is a binding obligation of the undersigned.
7. The undersigned has received no notice of prior sale,
transfer, assignment, hypothecation or pledge of the Lease or of the rents
secured therein, except to Buyer.
8. Tenant has no option or preferential right to purchase all
or any part of the Premises (or the real property of which the Premises are a
part) nor any right or interest with respect to the Premises or the real
property of which the Premises are a part other than as set forth in the
Lease. Tenant has no right to renew or extend the terms of the Lease or
expand the Premises except as set forth in the Lease.
9. Tenant has made no agreement with Landlord or any agent,
representative or employee of Landlord concerning free rent, partial rent,
rebate of rental payments or any other type of rental or other economic
inducement or concession except as expressly set forth in the Lease.
10. There has not been filed by or against Tenant a petition in
bankruptcy, voluntary or otherwise, any assignment for the benefit of
creditors, any petition seeking reorganization or arrangement under the
bankruptcy laws of the United States, or any state thereof, or any other
action brought under said bankruptcy laws with respect to Tenant.
11. All insurance required of Tenant by the Lease has been
provided by Tenant and all premiums paid.
12. The undersigned (i) is not presently engaged in nor does it
presently permit, (ii) has not at any time in the past engaged in nor
permitted, any operations or activities upon, or any use or occupancy of the
Premises, or any portion thereof, for the purpose of or in any way involving
the handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, discharge or disposal (whether legal or illegal,
accidental or intentional) of any
<PAGE>
N-3
radioactive, toxic or hazardous substances, materials or wastes, or any
wastes regulated under any local, state or federal law, except as follows:
___________________________________________________________________________
_________________________________________________ (if none, so state).
13. The undersigned acknowledges that:
(a) Buyer or Buyer's assignee is purchasing Landlord's interest
in the property which includes the Premises and, in connection with that
purchase, will be receiving an assignment of Landlord's interest under the
Lease;
(b) Landlord, Buyer and Buyer's successors, agents and assigns
(including, but not limited to subsequent purchasers, lenders and title
insurers) will be relying upon each of the statements contained herein in
connection with Buyer's purchase of the property of which the Premises are a
part and but for the assurances and agreements contained herein Buyer would
not purchase the property of which the Premises are a part; and
(c) The undersigned will attorn to and recognize Buyer as the
Landlord under the Lease and will pay all rents and other amounts due
thereunder to Buyer upon notice to the undersigned that Buyer has become the
owner of Landlord's interest in the Premises under the Lease.
______________________________,
a ____________________________
By: __________________________
Its: _____________________
<PAGE>
EXHIBIT O
SERVICE CONTRACTS
1. Wells Fargo Guard Services security
2. Stay Green, Inc. landscaping
3. Waste Management trash
4. Arrowhead bottled water
<PAGE>
EXHIBIT P
ENVIRONMENTAL DISCLOSURE
Copart uses, stores, handles and disposes of Hazardous Materials in
connection with its salvage pool business conducted on the Property.
Asbestos containing materials are present in the roofing materials of the
buildings on the Property.
Former brewery operations involved the storage and use of hazardous materials
as defined by the Los Angeles Fire Department. The brewery was registered
with the Los Angeles Fire Department (File 036081-001-0) for disclosure of
hazardous substances onsite. (See LAFD Application for Certificate of
Disclosure of Hazardous Substances (file 036081-001-0) December 1986.)
Former underground storage tanks were closed and removed from the Property as
follows:
1,000 gallon gasoline removed 1989
30,000 gallon No. 5 fuel oil removed 1990
30,000 gallon No. 5 fuel oil removed 1990
50,000 gallon No. 5 fuel oil removed 1990
50,000 gallon No. 5 fuel oil removed 1990
<PAGE>
EXHIBIT 11.1
------------
COPART, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
Years Ended July 31,
--------------------
1996 1995 1994
---- ---- ----
Common shares issued and
outstanding 12,433,204 9,733,201 6,334,870
Common Stock Equivalents:
Warrants and Stock options 782,432 881,000 969,981
------------ ----------- -----------
13,215,636 10,614,201 7,304,851
------------ ----------- -----------
------------ ----------- -----------
Income before extraordinary item $ 11,185,400 $ 6,894,300 $ 2,222,400
Extraordinary item -- -- (1,632,800)
------------ ----------- -----------
Net income $ 11,185,400 $ 6,894,300 $ 589,600
------------ ----------- -----------
------------ ----------- -----------
Per share:
Income before extraordinary item $ 0.85 $ 0.65 $ 0.30
Extraordinary item -- -- (0.22)
------------ ----------- -----------
Net income $ 0.85 $ 0.65 $ 0.08
------------ ----------- -----------
------------ ----------- -----------
Net income per share is computed by using the weighted average number of
common shares and equivalents assumed to be outstanding during the periods.
Common stock options and warrants to purchase common stock were included in
the calculation of net income per share.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors and Shareholders
Copart, Inc.:
Consent to incorporation by reference in the registration statement (No.
33-81238) on Form S-8 of Copart, Inc. of our report dated September 27, 1996,
relating to the consolidated balance sheets of Copart, Inc. and subsidiaries
as of July 31, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended July 31, 1996, and the related schedule, which report
appears in the July 31, 1996, annual report on Form 10-K of Copart, Inc.
KPMG Peat Marwick LLP
San Francisco, California
October 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 13,026,200
<SECURITIES> 0
<RECEIVABLES> 29,992,000
<ALLOWANCES> 99,000
<INVENTORY> 1,456,400
<CURRENT-ASSETS> 57,299,300
<PP&E> 26,204,200
<DEPRECIATION> 7,228,300
<TOTAL-ASSETS> 158,065,800
<CURRENT-LIABILITIES> 16,713,300
<BONDS> 0
0
0
<COMMON> 12,641,213
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 158,065,800
<SALES> 0
<TOTAL-REVENUES> 118,247,600
<CGS> 0
<TOTAL-COSTS> 100,446,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 450,800
<INCOME-PRETAX> 18,189,900
<INCOME-TAX> 7,004,500
<INCOME-CONTINUING> 17,801,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,185,400
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
</TABLE>
