<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996 COMMISSION FILE NUMBER 0-26230
WESTERN POWER & EQUIPMENT CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1688446
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4601 NE 77TH AVE, SUITE 200, VANCOUVER, WA 98662
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360)253-2346
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of Class)
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 Regulations 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 the Form 10-K. [ X ]
As of October 21, 1996: (a) 3,533,462 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 1,533,462
shares of Common Stock were held by non-affiliates ; and (c) the aggregate
market value of the Common Stock held by non-affiliates was $5,750,483 based on
the closing sale price of $4.75 per share on October 21, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Western Power & Equipment Corp., a Delaware corporation (the "Company"), is
engaged in the sale, rental and servicing of light, medium-sized and heavy
construction equipment, parts and related products which are manufactured
principally by Case Corporation ("Case"). The Company believes, based upon the
number of locations owned and operated, that it is the largest independent
dealer of Case construction equipment in the United States. Products sold,
rented and serviced by the Company include backhoes, excavators, crawler dozers,
skid steer loaders, forklifts, compactors, log loaders, trenchers, street
sweepers, sewer vacuums and highway signs.
The Company operates out of eighteen retail distribution facilities located
in the States of Washington, Oregon, Nevada and in Northern California. The
equipment distributed by the Company is furnished to contractors, governmental
agencies and other customers, primarily for use in the construction of
residential and commercial buildings, roads, levees, dams, underground power
projects, forestry projects, municipal construction and other projects.
The Company's strategy is to accelerate the growth of its distribution
business in the future. In such connection, it may seek to operate additional
Case or other equipment retail distributorships, and sell, lease and service
additional lines of construction equipment and related products not manufactured
by Case. See "Growth Strategy."
HISTORY AND ACQUISITIONS
The Company was initially organized in August 1992, solely for the purpose
of acquiring certain retail distribution facilities from Case. The Company
became a wholly-owned subsidiary of American United Global, Inc. ("AUGI"),
simultaneous with such acquisition.
Effective November 1, 1992, the Company completed the purchase from Case of
certain assets used in connection with seven separate Case retail construction
equipment distribution operations located in the cities of Portland, Salem and
Springfield, Oregon; and in the cities of Spokane, Everett, Pasco, and Auburn,
Washington. The purchase included approximately $32,669,000 of assets,
including inventories of new and used Case construction equipment and spare
parts, as well as ownership of the Case real estate used in the Auburn,
Washington retail operation. The purchase price was paid $1,940,000 in cash,
$10,749,000 in installment notes payable to Case and $19,980,000 through
inventory floor planning dealer financing agreements with Case and its
affiliates for the purchase of new equipment held for sale at the acquired
retail operations.
In September 1994, the Company purchased from Case certain assets used in
connection with two additional Case retail construction equipment distribution
outlets located in Sparks, Nevada and Fremont, California (the "1994
Acquisition"). The Company relocated its retail outlet in Fremont to Hayward,
California in December 1994. The 1994 Acquisition included approximately
$9,729,000 of various assets, including inventories of new and used Case
construction equipment and service parts, as well as the real estate and
buildings located in Sparks, Nevada. The purchase price was paid as follows:
(i) approximately $557,000 in cash; (ii) approximately $1,978,000 financed
through installment notes bearing interest at a bank prime rate plus 2% and
payable to Case over various periods through September 1996 for parts, used
equipment, new allied equipment (non-Case manufactured items), shop tools and
other assets; (iii) $2,175,000 in the form of the Sparks Real Estate Note due
October 10, 1995; and (iv) approximately $5,019,000 for new Case manufactured
equipment through secured inventory floor planning dealer
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financing with Case and its affiliates. The Sparks Real Estate Note was retired
October 10, 1995 using proceeds from the initial public offering. The Company
has financed the property with an institutional lender in the amount of
$1,330,000, secured by the Sparks, Nevada real estate.
Effective February 29, 1996, the Company acquired the assets and operations
of two additional factory-owned stores of Case in the state of California. The
acquisition was consummated for approximately $630,000 in cash, $1,590,000 in
installment notes payable to Case and the assumption of $3,965,000 in inventory
floor plan debt with Case and its affiliates. The accounts of these two stores
have been included in the Company's accounts from the effective date of the
acquisition.
In addition, effective June 11, 1996, the Company acquired the assets and
operations of GCS, Inc. ("GCS"), a California-based closely-held distributor of
heavy equipment primarily marketed to municipal and state government agencies
responsible for highway maintenance. The acquisition was consummated for
approximately $1,655,000 in cash.
GROWTH STRATEGY
The Company's growth strategy focuses on acquiring additional existing
distributorships, opening new locations and increasing sales at its existing
locations.
As opportunities arise, the Company intends to make strategic acquisitions
of other authorized Case construction equipment retail dealers located outside
of the Pacific Northwest, Northern California and Nevada, as well as of dealers
or distributors of industrial or construction equipment, and related parts,
manufactured by companies other than Case.
In addition to acquisitions, the Company plans to grow by opening new
dealerships. The strategy in opening additional dealerships has been to test
market areas by placing sales, parts and service personnel in the target
market. If the results are favorable, a retail outlet is opened with its own
inventory of equipment. This approach reduces both the business risk and the
cost of market development.
The Company's third strategy for growth is to expand sales at its
existing locations in three ways. First, the Company will continue to
broaden its product line by adding equipment and parts produced by
manufacturers other than Case. The Company has already added to its
inventories products produced by quality manufacturers such as Hamm, Waldon,
TCM, Champion and Takeuchi, Tymco and Vactor. Second, the Company will seek
to increase sales of parts and service--both of which have considerably
higher margins than equipment sales. This growth will be accomplished through
the continued diversification of our parts product lines and the servicing of
equipment produced by manufacturers other than Case. Third, the Company
plans to further develop its fleet of rental equipment. As the cost of
purchasing equipment escalates, short and long-term rental will become
increasingly attractive to the Company's customers. Management anticipates
that rental of equipment will make up an increasing share of its revenues.
PRODUCTS
NEW CASE CONSTRUCTION EQUIPMENT.
The construction equipment (the "Equipment") sold, rented and serviced by
the Company generally consists of: backhoes (used to dig large, wide and deep
trenches); excavators (used to dig deeply for the construction of foundations,
basements, and other projects); log loaders (used to cut, process and load
logs); crawler dozers (bulldozers used for earth moving, leveling and shallower
digging than excavators); wheel loaders (used for loading trucks and other
carriers with excavated dirt, gravel and rock); roller compactors (used to
compact roads and other surfaces); trenchers (a smaller machine that digs
trenches for sewer lines, electrical power and other utility pipes and wires);
forklifts (used to load and unload pallets of materials); and skid steer loaders
(smaller version of a wheel loader, used to load and transport small
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quantities of material--e.g., dirt and rocks-- around a job site). Selling
prices for these units range from $15,000 to $350,000 per piece of Equipment.
Under the terms of standard Case dealer agreements, the Company is an
authorized Case dealer for sales of Equipment and related parts and services at
locations in the states of Oregon, Washington and Nevada and in Northern
California (the "Territory"). The dealer agreements have no defined term or
duration, but are reviewed on an annual basis by both parties, and can be
terminated without cause at any time either by the Company on 30 days' notice or
by Case on 90 days' notice. Although the dealer agreements do not prevent Case
from arbitrarily exercising its right of termination, based upon Case's
established history of dealer relationships and industry practice, the Company
does not believe that Case would terminate its dealer agreements without good
cause.
The dealer agreements do not contain requirements for specific minimum
purchases from Case. In consideration for the Company's agreement to act as
dealer, Case supplies to the Company items of Equipment for sale and lease,
parts, cooperative advertising benefits, marketing brochures related to Case
products, access to Case product specialists for field support, the ability to
use the Case name and logo in connection with the Company's sales of Case
products, and access to Case floor plan financing for Equipment purchases. Such
floor planning arrangement currently provides the Company with interest free
credit terms on new equipment purchases ranging from four to twelve months,
after which interest commences to accrue monthly at a rate per annum equal to 2%
over the prime rate of interest. The invoice price of each item of Equipment is
payable at the earlier of the time of its sale by the Company or 12 months after
the date of shipment to the Company by Case.
OTHER PRODUCTS.
Although the principal products sold, leased and serviced by the Company
are manufactured by Case, the Company also sells, rents and services equipment
and sells related parts (e.g., tires, trailers and compaction equipment)
manufactured by others. Approximately 25% of the Company's net sales for fiscal
year 1996 resulted from sales, rental and servicing of products manufactured by
companies other than Case.
The Company's distribution business is generally divided into four
categories of activity: (i) New Equipment sales and rentals, (ii) Used Equipment
sales and rentals, (iii) Equipment servicing, and (iv) Parts sales.
NEW EQUIPMENT SALES AND RENTAL.
At each of its distribution outlets, the Company maintains a fleet of
various Equipment for sale or rental for periods ranging from one week to up to
six months (customarily with purchase options at the end of the rental period).
The Equipment purchased for each outlet is selected by the Company's marketing
staff based upon the types of customers in the geographical areas surrounding
each outlet, historical purchases as well as anticipated trends. Each
distribution outlet has access to the Company's full inventory of Equipment.
The Company's new Equipment rental business has historically been an
adjunct to its new Equipment sales. To assist customers, any new Equipment can
be rented generally for periods of up to six months and a portion of customer
rental payments may be applied to the purchase price down payment.
The Company provides only the standard manufacturer's limited warranty for
new Equipment, generally a one-year parts and service repair warranty.
Customers can purchase extended warranty contracts.
The Company maintains a separate fleet of new Equipment that it generally
holds solely for rental. Such Equipment is generally held in the rental fleet
for 12 months and then sold as used Equipment with
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appropriate discounts reflecting prior rental usage. As rental Equipment is
taken out of the rental fleet, the Company adds new Equipment to its rental
fleet as needed. The rental charges vary, with different rates for different
types of Equipment rented.
USED EQUIPMENT SALES AND RENTALS.
The Company sells and rents used Equipment that has been reconditioned in
its own service shops. It generally obtains such used Equipment as "trade-ins"
from customers who purchase new items of Equipment and from Equipment previously
rented and not purchased. Unlike new Equipment, the Company's used Equipment is
generally sold "as is" and without a warranty. Used Equipment is customarily
rented only after available new Equipment has been rented. The rental charge
for such used Equipment is equal to that of rented new Equipment. Used rental
Equipment is first reconditioned by the Company prior to being offered for rent.
EQUIPMENT SERVICING.
The Company operates a service center and yard at each retail outlet for
the repair and storage of Equipment. Both warranty and non-warranty service
work is performed, with the cost of warranty work being reimbursed by the
manufacturer following the receipt of invoices from the Company. The Company
employs approximately 100 manufacturer-trained service technicians who perform
Equipment repair, preparation for sale and other servicing activities.
Equipment servicing is one of the higher profit margin businesses operated by
the Company. The Company has expanded this business by hiring additional
personnel and developing extended warranty contracts for Equipment service
terms, and independently marketing such contracts to its customers. The Company
services items and types of Equipment which include those that are neither sold
by the Company nor manufactured by Case.
PARTS SALES.
The Company purchases a large inventory of parts, principally from Case,
for use in its Equipment service business, as well as for sale to other
customers who are independent servicers of Case Equipment. Generally, parts
purchases are made on standard net 30 day terms.
The Company employs one or more persons who take orders from customers for
parts purchases at each retail distribution outlet. The majority of such orders
are placed in person by walk-in customers. The Company provides only the
standard manufacturer's warranty on the parts that it sells, which is generally
a 90 day replacement guaranty.
SALES AND MARKETING
The Company's customers are typically residential and commercial building
general contractors, road and bridge contractors, sewer and septic contractors,
underground utility contractors, persons engaged in the forestry industry,
equipment rental companies and state and municipal authorities. The Company
estimates that it has approximately 16,000 customers, with most being small
business owners, none of which accounted for more than 5% of its total sales in
the fiscal year ended July 31, 1996.
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For the fiscal year ended July 31, 1996, the revenue breakdown by source
for the business operated by the Company was approximately as follows:
New Equipment Sales 58%
Used Equipment Sales 12%
Rental Revenue 9%
Parts Sales 17%
Service Revenue 4%
----
100%
----
----
The Company advertises its products in trade publications and appears at
trade shows throughout its Territory. It also encourages its salespersons to
visit customer sites and offer Equipment demonstrations when requested.
The Company's sales and marketing activities do not result in any
significant backlog of orders. Although the Company has commenced acceptance of
orders from customers for future delivery following manufacture by Case, during
fiscal 1996 substantially all of its sales revenues resulted from products sold
directly out of inventory, or the providing of services upon customer request.
All of the Company's sales personnel are employees of the Company, and all
are under the general supervision of C. Dean McLain, the President of the
Company. Each Equipment salesperson is assigned a separate exclusive territory,
the size of which varies based upon the number of potential customers and
anticipated volume of sales, as well as the geographical characteristics of each
area. The Company employed 67 Equipment salespersons on July 31, 1996.
On July 31, 1996, the Company employed 5 product support salespersons who
sell the Company's parts and repair services to customers in assigned
territories. The Company has no independent distributors or non-employee sales
representatives.
SUPPLIERS
The Company purchases the majority of its inventory of equipment and parts
from Case. No other supplier accounted for more than 5% of such inventory
purchases during fiscal 1996. While maintaining its commitment to Case to
primarily purchase Case Equipment and parts as an authorized Case dealer, the
Company plans to expand the number of products and increase the aggregate dollar
value of those products which the Company purchases from manufacturers other
than Case in the future.
COMPETITION
The Company competes with distributors of construction equipment and parts
manufactured by companies other than Case on the basis of price, the product
support (including technical service) that it provides to its customers, brand
name recognition for its products, the accessibility and number of its
distribution outlets, and the overall quality of the products that it sells.
The Company's management believes that it is able to effectively compete with
distributors of products produced and distributed by such other manufacturers
primarily on the basis of overall Case product quality, and the superior product
support and other customer services provided by the Company.
Case's two major competitors in the manufacture of full lines of
construction equipment of comparable sizes and quality are Caterpillar
Corporation and Deere & Company. In addition, other manufacturers produce
specific types of equipment which compete with Case Equipment and other
Equipment distributed by the Company. These competitors and their product
specialties include JCB Corporation--backhoes, Kobelco Corporation --
excavators, Dresser Industries -- light and medium duty bulldozers, Komatsu
Corporation -- wheel loaders and crawler dozers, and Bobcat, Inc. -- skid steer
loaders.
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The Company is currently the only Case dealer for construction equipment in
the states of Washington and Nevada and in the Northern California area (other
than Case-owned distribution outlets), and is one of two Case dealers in the
State of Oregon. However, Case has the right to establish other dealerships in
the future in the same territories in which the Company operates. In order to
maintain and improve its competitive position, revenues and profit margins, the
Company plans to increase its sales of products produced by companies other than
Case.
ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATION
The Company's operations are subject to numerous rules and regulations at
the federal, state and local levels which are designed to protect the
environment and to regulate the discharge of materials into the environment.
Based upon current laws and regulations, the Company believes that its policies,
practices and procedures are properly designed to prevent unreasonable risk of
environmental damage and the resultant financial liability to the Company. No
assurance can be given that future changes in such laws, regulations, or
interpretations thereof, changes in the nature of the Company's operations, or
the effects of former occupants' past activities at the various sites at which
the Company operates, will not have an adverse impact on the Company's
operations.
The Company is subject to federal environmental standards because in
connection with its operations it handles and disposes of hazardous materials,
and discharges sewer water in its equipment servicing operations. The Company's
internal staff is trained to keep appropriate records with respect to its
handling of hazardous waste, to establish appropriate on-site storage locations
for hazardous waste, and to select regulated carriers to transport and dispose
of hazardous waste. Local rules and regulations also exist to govern the
discharge of waste water into sewer systems.
EMPLOYEES
At July 31, 1996, the Company employed 298 full-time employees. Of that
number, 24 are in corporate administration for the Company, 17 are involved in
administration at the branch locations, 77 are employed in Equipment sales and
rental, 63 are employed in parts sales, and 117 are employed in servicing
construction equipment. The Company believes that its relations with its
employees are satisfactory.
INSURANCE
The Company currently has product liability insurance policies covering the
Company with $500,000 limits for each occurrence and $1,000,000 in the aggregate
under the general liability and products liability policies. The Company also
has an umbrella liability insurance policy with an annual aggregate coverage
limit of $10,000,000. The Company believes that its product liability insurance
coverage is reasonable in amount and consists of such terms and conditions as
are generally consistent with reasonable business practice, although there is no
assurance that such coverage will prove to be adequate in the future. An
uninsured or partially insured claim, or a claim for which indemnification is
not available, could have a material adverse effect upon the Company.
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ITEM 2. PROPERTIES
The following table sets forth information as to each of the properties
which the Company owns or leases:
<TABLE>
<CAPTION>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
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<S> <C> <C> <C> <C> <C>
1745 N.E. Columbia Blvd. Carlton O. Fisher, 12/31/2000 $54,000(1) plus Approx. 4 Acres; No
Portland, Oregon 97211 Nancy A. Harrison CPI adjustments Building 17,622
(Retail sales, service, storage & Jane G. sq. ft.
and repair facilities) Whitbread
1665 Silverton Road, N.E. LaNoel Elston 7/10/98 $27,480(1) Approx. 1 Acre; No
Salem, Oregon 97303 Myers Living Trust Buildings 14,860
(Retail sales, service, storage sq. ft.
and repair facilities)
1702 North 28th Street McKay Investment 6/14/2001 $69,000(1) Approx. 5 Acres; No
Springfield, Oregon 97477 Company Building 17,024
(Retail sales, service, storage sq. ft.
and repair facilities)
West 7916 Sunset Hwy. Case Corporation 9/30/98 $58,404(1) Approx. 5 Acres; No
Spokane, Washington 99204 Building 19,200
(Retail sales, service, storage sq. ft.
and repair facilities)
3217 Hewitt Avenue Dick Calkins 3/31/97 $40,320(1) Approx. 2.5 No
Everett, Washington 98201 Acres; Building
(Retail sales, service, storage 12,483 sq. ft.
and repair facilities)
1901 Frontier Loop The Landon Group Month to $29,625(1) Approx. 7 Acres; No
Pasco, Washington 99301 Month Building 14,200
(Retail sales, service, storage sq. ft.
and repair facilities)
13184 Wheeler Road, N.E. Maiers Industrial Month to $38,400(1) Approx. 10 No
Building 4 Park Month Acres; Building
Moses Lake, Washington 98837 13,680 sq. ft.
(Retail sales, service, storage
and repair facilities)
63291 Nels Anderson Road B&K Management 10/31/98 $27,600(1) Approx. 3,600 No
Bend, Oregon 97701 Corp. sq. ft.
(Retail sales, service, storage
and repair facilities)
4601 N.E. 77th Avenue Parkway Limited 2/15/99 $93,456 6,100 sq. ft. No
Suite 200 Partnership
Vancouver, Washington 98662
(Executive Offices)
</TABLE>
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(1) Net lease with payment of insurance, property taxes and maintenance
costs by Company.
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<TABLE>
<CAPTION>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ---------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
2702 W. Valley Hwy No. Avalon Island LLC 11/30/2015 $204,000(1) Approx. 8 Acres; No
Auburn, Washington 98001 Building 33,000
(Retail sales, service, storage sq. ft.
and repair facilities)
13 West Washington Avenue Bob and Pat 1/14/97 $12,000(1) Approx. 15,600 No
Yakima, Washington 98903 Schneider sq. ft.;
(Retail sales, service, storage Building 4,320
and repair facilities) sq. ft.
2112 Wildwood Way James Ghia 5/31/98 $18,720 Approx. 1 Acre; No
Elko, Nevada 89431 Building 3,000
(Retail sales, service, storage sq. ft.
and repair facilities)
1455 Glendale Ave. Owned N/A N/A Approx. 5 acres; N/A
Sparks, Nevada 89431 Building 22,475
(Retail sales, service, storage sq. ft.
and repair facilities)
25886 Clawiter Road Fred Kewel II, 11/30/99 $96,000(1) Approx. 2.8 No
Hayward, California 94545 Agency acres; Building
(Retail sales, service, storage 21,580 sq. ft.
and repair facility)
3540 D Regional Parkway Soiland 2/28/98 $35,400(1) plus 5,140 sq. ft. No
Santa Rosa, California 95403 CPI adjustments
(Retail sales, service, storage
and repair facility)
1751 Bell Avenue McLain-Rubin 3/1/2016 $168,000(2) Approx. 8 Acres; No
Sacramento, California 95838 Realty Group Buildings 35,941
(Retail sales, service, storage sq. ft.
and repair facility
1041 S. Pershing Avenue Raymond Investment 3/14/2001 $36,000(1) Approx. 2 Acres; No
Stockton, California 95206 Corp. Buildings 5,000
(Retail sales, service, storage sq. ft.
and repair facility)
1126 E. Truslow Avenue D. June Brecht, 6/30/97 $22,524(1) Building 4,800 No
Fullerton, California 92631 Glen Brecht and sq. ft.
(Retail sales, service, storage Marshal Brecht
and repair facility)
</TABLE>
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(1) Net lease with payment of insurance, property taxes and maintenance
costs by Company.
(2) Net lease with payment of insurance, property taxes, and maintenance
costs, including structural repairs, by Company.
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<TABLE>
<CAPTION>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ---------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
672 Brunken Avenue R. Jay De Serpa, 7/31/98 $28,800(1) 4,000 sq. ft. No
Salinas, CA 93301 Ltd.
(Retail sales, service, storage
and repair facility)
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- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's operating facilities are separated into six "hub" outlets and
twelve "sub-stores". The hub stores are the main distribution centers located
in Auburn and Spokane, Washington, Portland, Oregon, Sparks, Nevada, Hayward,
California, and Sacramento, California, and the sub-stores are the smaller
retail facilities located in Everett, Pasco, Moses Lake and Yakima, Washington;
Salem, Springfield and Bend, Oregon; Santa Rosa, Stockton, Fullerton and
Salinas, California; and Elko, Nevada.
All of the leased and owned facilities used by the Company are believed to
be adequate in all material respects for the needs of the Company's current and
anticipated business operations.
ITEM 3. LEGAL PROCEEDINGS
Except for other ordinary, routine proceedings incidental to its business, there
are no pending legal proceedings to which the Company or any of its property is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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(1) Net lease with payment of insurance, property taxes and maintenance costs
by Company
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On June 14, 1995, the Company completed an initial public offering of
1,300,000 shares of common stock at $6.50 per share. In addition, on July 28,
1995, the underwriter exercised its overallotment option for an additional
195,000 shares. The net proceeds of the offering were $7,801,000 including
$1,102,000 from the exercise of the overallotment option which was received in
cash subsequent to July 31, 1995. The Company's stock is traded on the NASDAQ
National Market System.
The high and low closing prices for the Company's common stock by fiscal
quarter for the period June 14, 1995 through July 31, 1996 were as follows:
High Low
------ -----
June 14, 1995 through July 31, 1995 $7.375 $5.75
1ST QUARTER - August 1, 1995 through October 31, 1995 $6.625 $4.00
2ND QUARTER - November 1, 1995 through January 31, 1996 $5.00 $3.875
3RD QUARTER - February 1, 1996 through April 30, 1996 $5.675 $4.00
4TH QUARTER - May 1, 1996 through July 31, 1996 $6.25 $4.375
The number of shareholders of record of the Company's Common Stock on
October 21, 1996 was 33, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be over 1,300 holders.
The Company has never paid cash dividends on its Common Stock and it does
not anticipate that it will pay cash dividends or alter its dividend policy in
the foreseeable future. The payment of dividends by the Company on its Common
Stock will depend on its earnings and financial condition, and such other
factors as the Board of Directors of the Company may consider relevant. The
Company currently intends to retain its earnings to assist in financing the
development of its business.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the financial
statements of the Company, which have been audited by Price Waterhouse LLP,
independent accountants. Effective November 1, 1992, the Company completed the
acquisition from Case of certain assets used in connection with seven separate
Case retail construction equipment distributorships located in the states of
Washington and Oregon. The selected financial data of the Company for the ten
months ended October 31, 1992 consist solely of the operations of the seven
retail distribution facilities formerly owned by Case, and have been derived
from the books and records of Case.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
THE COMPANY COMPANY
---------------------------------------------------------------------
TEN
MONTHS
FISCAL YEARS ENDED ENDED
JULY 31, OCTOBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993** 1992*
---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
Net sales $106,555 $86,172 $67,370 $30,386 $39,069
Gross profit $ 12,649 $10,028 $ 8,231 $ 4,053 $ 8,304
(% of sales) 11.9 11.6 12.2 13.3 21.3
Selling, general and administrative $ 7,827 $ 6,078 $ 5,295 $ 3,132 $ 5,793
(% of sales) 7.3 7.1 7.9 10.3 14.8
Income before income taxes $ 3,363 $ 2,602 $ 2,084 $ 700 $ 1,699
(% of sales) 3.2 3.0 3.1 2.3 4.3
Tax rate (%) 38 38 27 24 37
Net income $ 2,079 $ 1,613 $ 1,520 $ 531 $ 1,068
Net income per common share $ .58 $ .74 $ .75 $ .26 -
Shares used in net income per share
calculations 3,585 2,192 2,038 2,038 -
- ----------------------------------------------------------------------------------------------------------------
Working capital $ 15,326 $10,883 $ 3,957 $ 4,643 $ 1,275
Long-term debt $ 2,924 $ 47 $ 99 $ 2,714 $ -
Stockholders' equity $ 21,794 $19,715 $10,051 $ 8,531 $ 3,877
Total assets $ 85,290 $67,192 $46,040 $42,383 $32,634
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Ten months ended October 31, 1992.
** Nine months ended July 31, 1993.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this annual report.
GENERAL
Effective November 1, 1992, the Company completed the acquisition of seven
stores located in Washington and Oregon which sell and service equipment used in
the construction industry. The Company's strategic plan was, and continues to
be, that of expanding the operations and improving profitability at each of its
existing retail outlets. In furtherance of such strategic plan, subsequent to
1992 the Company opened three additional outlets in Washington and Oregon.
Effective September 10, 1994, the Company also purchased from Case two
additional retail construction equipment distribution outlets located in Sparks,
Nevada and Fremont, California. The Fremont operation was relocated to
neighboring Hayward, California in December 1994. In March and August 1995 the
Company opened distribution outlets in Santa Rosa and Salinas, California,
respectively. In February 1996, the Company announced the opening of a
distribution outlet in Elko, Nevada. Also in February 1996, the Company
completed the acquisition of the Sacramento, California outlet from Case as
further described in Note 2 to the Consolidated Financial Statements. The
opening of a Stockton, California outlet was completed in March 1996. In June
1996 the Company completed the acquisition of GCS, Inc. bringing the total
number of distribution outlets owned and operated by the Company to 18. The
Company plans to open and acquire additional distribution outlets for Case
products, as well as for products which may be manufactured by other companies.
RESULTS OF OPERATIONS
FISCAL YEAR 1996, AS COMPARED WITH FISCAL YEAR 1995
The Company reported net sales for fiscal 1996 of $106,555,000 which is an
increase of 24 percent over net sales of $86,172,000 for fiscal 1995. Same
store revenues increased 13.8 percent over the prior year results reflecting a
continuation of generally good economic conditions, increased market acceptance
of our products, increased housing starts, as well as revenues realized from the
addition of numerous new parts and equipment lines to our product offerings.
Cost of goods sold as a percentage of sales was 88.1 percent during fiscal
1996 which is consistent with the prior year results. Management has placed a
high priority on improving overall gross margins by working to increase higher
margin service and parts revenues and by obtaining higher prices for new
equipment.
Selling, general and administrative expenses were $7,827,000 or 7.3 percent
of sales for fiscal 1996 compared to $6,078,000 or 7.1 percent of sales for
fiscal 1995. The increase in selling, general and administrative expenses as a
percent of sales resulted mainly from administrative costs associated with the
acquisition and integration of the Sacramento Case operations and the GCS
operations.
The $747,000 increase in interest expense for fiscal 1996 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock the new outlets, an increase in inventory
dedicated to rental from approximately $5,000,000 in fiscal 1995 to more than
$12,000,000 in fiscal 1996, as well as changes in floor plan terms by Case.
Effective January 1, 1996, Case changed factory to dealer terms in a program
they have named "Focus 2000". While interest free floor plan terms for Case's
most expensive units--wheel loaders and excavators--remains at six to eight
months, the terms on Case's smaller units were shortened from six months to four
months interest free. For the first time, Case is also granting a 4% cash
discount if the dealer pays for the machine outright rather than utilizing the
interest-free floor planning. The Company was able to take advantage of the
cash discounts for some of its purchases in fiscal 1996, which had an immediate
effect on interest expense. The
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<PAGE>
interest free floor planning period was not utilized, however. Nevertheless,
Management believes that the positive impact of the discounted cost as these
units are sold will more than offset the increased interest expense.
FISCAL YEAR 1995, AS COMPARED WITH FISCAL YEAR 1994
The Company reported net sales for fiscal 1995 of $86,172,000 which is an
increase of 28 percent over net sales of $67,370,000 for fiscal 1994. Included
in the fiscal 1995 amount are revenues of approximately $15,000,000 related to
the acquisition of the Sparks, Nevada and Hayward, California stores and the
opening of the Santa Rosa, California store. Same store revenues increased 5.6
percent over the prior year results reflecting a continuation of generally good
economic conditions, increased housing starts, as well as revenues realized from
the addition of numerous new parts and equipment lines to our product offerings.
Cost of goods sold as a percentage of sales was 88.4 percent during fiscal
1995 which is consistent with the prior year results. Management has placed a
high priority on improving overall gross margins by increasing higher margin
service and parts revenues and by obtaining higher prices for new equipment.
Selling, general and administrative expenses were $6,078,000 or 7.1 percent
of sales for fiscal 1995 compared to $5,295,000 or 7.9 percent of sales for
fiscal 1994. The decrease in selling, general and administrative expenses as a
percent of sales reflects the spreading of fixed overhead costs over an
increased revenue base which was partially offset by $108,000 in certain one-
time administrative costs associated with the integration of the Sparks, Nevada
and Hayward, California outlets.
The $296,000 increase in interest expense for fiscal 1995 is attributable
to an increasing balance of inventory purchased under the Company's various
floor plan lines of credit to stock our new outlets, and to increasing interest
rates in general.
FISCAL YEAR 1994, AS COMPARED WITH FISCAL YEAR 1993
The Company reported sales of $67,370,000 for fiscal 1994 which was an
increase of approximately $36,984,000, or 122 percent over net sales of
$30,386,000 for the nine month period ended July 31, 1993. This substantial
increase in revenues resulted from a generally good economy, low interest rates,
an increase in housing starts and three more months of operations than were
included in fiscal 1993 revenues. In addition, the Company made a deliberate
effort to increase its market share, opened three new retail locations, sold
multiple units of Case equipment to local equipment rental companies, filled all
new Case equipment inventory needs throughout the year, and added several new
equipment product lines produced by manufacturers other than Case.
Cost of goods sold was approximately 87.8 percent of net sales during the
1994 fiscal year, which is consistent with the prior fiscal year. Management's
efforts to use its purchasing power to negotiate better prices and terms for
parts, reduce or eliminate customer discounts, and other management initiatives
were offset by lower margins on new equipment sales; resulting from the
Company's stated goal of achieving increased market share.
Selling, general and administrative expenses decreased from 10.3 percent of
net sales in fiscal 1993 to 7.9 percent of net sales in fiscal 1994 as variable
administrative expenses increased at a slower rate than revenues.
Interest expense for fiscal 1994 was $795,000 compared to $295,000 on an
annualized basis for fiscal year 1993. This increase in interest expense
reflects the expiration in fiscal 1994 of the interest-free terms granted by
Case in connection with the acquisition of the seven stores, as well as the
higher inventory levels and floor plan debt required to support the increase in
net sales.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
the Company's primary sources of external liquidity were contributions to the
Company by its parent, American United Global, Inc. ("AUGI"), and equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells and Seattle-First National Bank
("Seafirst Bank"). In addition, in fiscal 1995, the Company completed an
initial public offering of 1,495,000 shares of common stock at $6.50 per share,
generating net proceeds of $7,801,000. The net proceeds of the offering have
been utilized to repay amounts due to AUGI and to Case, the acquisition and
opening of additional outlets, as well as to reduce floor plan debt.
Under inventory floor planning arrangements the manufacturers of products sold
by the Company provide interest free credit terms on new equipment purchases for
periods ranging from four to twelve months after which interest commences to
accrue monthly at rates ranging from two percent to three percent over the prime
rate of interest. Principal payments are typically made under these agreements
at scheduled intervals and/or as the equipment is rented with the balance due at
the earlier of a specified date or sale of the equipment. At July 31, 1996, the
Company was indebted under manufacturer provided floor planning arrangements in
the aggregate amount of $40,012,000.
In order to take advantage of the 4 percent cash discount offered by Case under
its new Focus 2000 program, to provide financing beyond the term of applicable
manufacturer provided floor plan financing or as alternatives to manufacturer
provided floor plan financing arrangements, the Company has entered into a
separate secured floor planning line of credit with Seafirst Bank. The Seafirst
line of credit was entered into in June 1994 and provides a $17,500,000 line of
credit which can be used to finance new and used equipment or equipment to be
held for rental purposes. On July 31, 1996, approximately $14,352,000 was
outstanding under such line of credit, the principal of which bears interest at
.25 percent over the bank's prime rate and is subject to annual review and
renewal on June 1, 1997.
Amounts owing under these floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from
their sale or rental, including accounts receivable thereto.
On October 19, 1995, the Company entered into a purchase and sale agreement with
an unrelated party for the Auburn, Washington facility subject to the execution
of a lease. Under the terms of this agreement, which closed on December 1,
1995, the Company sold the property and is leasing it back from the purchaser.
In accordance with Statement of Financial Accounting Standards No 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease. See Note 9 to the accompanying Consolidated Financial Statements for
more information.
Effective February 17, 1996, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation"). The acquisition was consummated for
approximately $630,000 in cash, $3,090,000 in installment notes payable to Case
and the assumption of $3,965,000 in inventory floor plan debt with Case and its
affiliates. The acquisition has been accounted for as a purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company, the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company, and Robert M. Rubin, the Chairman and a
director of the Company. Simultaneous with its acquisition of the Sacramento
Operation real property and improvements, MRR leased such real property and
improvements to the Company under the terms of a 20 year Commercial Lease
Agreement dated as of March 1, 1996. In accordance with SFAS 13, the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease. See Notes 3
and 9 to the accompanying Consolidated Financial Statements for more
information.
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<PAGE>
On October 10, 1995, using proceeds from the Company's initial public offering,
the Company retired the $2,175,000 real estate note given to Case for the
purchase of the Sparks, Nevada real estate in September 1994. In March 1996,
the Company consummated an agreement with an institutional lender for a
conventional mortgage on the property in the amount of $1,330,000, secured by
the Sparks, Nevada real estate. The agreement calls for principal and interest
payments over a seven year term using a fifteen year amortization period. The
note cannot be prepaid during the first two years of its term.
On June 11, 1996, the Company acquired the operating assets of GCS, Inc.
("GCS"), a California-based, closely-held distributor of heavy equipment
primarily marketed to municipal and state government agencies responsible for
street and highway maintenance. The Company will operate the GCS business from
an existing location in Fullerton, California and from the Company's existing
facility in Sacramento, California. The purchase price for the GCS assets was
$1,655,000. This transaction is being accounted for as a purchase.
During the year ended July 31, 1996, cash and cash equivalents decreased by
$1,344,000 primarily due to the purchase of GCS for cash in June 1996. The
Company had positive cash flow from operating activities during the year of
$3,074,000 reflecting net income for the year after adding back depreciation and
amortization. The proceeds from the Auburn facility sale leaseback transaction
were sufficient to retire the related note payable to Case. Purchases of fixed
assets during the period were related mainly to the opening of new distribution
outlets.
The Company's cash and cash equivalents of $2,721,000 as of July 31, 1996 and
available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months. In addition,
the Company is currently in negotiations with several financing institutions to
expand the credit available to the Company.
EFFECTS OF INFLATION AND INTEREST RATES
All of the products and services provided by the Company are either capital
equipment or included in capital equipment, which are used in the construction
industry. Accordingly, the Company's sales are affected by inflation or
increased interest rates which tend to hold down new construction, and
consequently adversely affects demand for the construction equipment sold and
rented by the Company.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and it does
not anticipate that it will pay cash dividends or alter its dividend policy in
the foreseeable future. The payment of dividends by the Company on its Common
Stock will depend on its earnings and financial condition, and such other
factors as the Board of Directors of the Company may consider relevant. The
Company currently intends to retain its earnings to assist in financing the
growth of its business.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and financial schedule are attached to
this Report on Form 10-K following Part IV, Item 14:
Consolidated Statements of Operations for
the years ended July 31, 1996, 1995, and 1994..........................F-1
Consolidated Balance Sheets as of
July 31, 1996 and 1995.................................................F-2
Consolidated Statements of Stockholders'
Equity for the years ended July 31, 1996, 1995
and 1994..............................................................F-3
Consolidated Statements of Cash Flows for
the years ended July 31, 1996, 1995 and 1994...........................F-4
Notes to Consolidated Financial Statements..............................F-5
Report of Independent Accountants......................................F-15
Financial Statement Schedule:
Report of Independent Accountants - Financial Statement Schedule.......F-16
Schedule II - Valuation and Qualifying Accounts........................F-17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information with respect to directors,
nominees for directors, executive officers and significant employees of the
Company as of October 21, 1995. There are no pending legal proceedings to which
any director or executive officer of the Company is a party adverse to the
Company.
NAME AGE POSITION
---- --- --------
Robert M. Rubin 56 Chairman of the Board of
Directors; Nominee for Director
C. Dean McLain 43 President, Chief Executive
Officer and Director; Nominee
for Director
Thomas D. Berkompas 35 Vice President - Finance, Chief
Financial Officer and Secretary
Harold Chapman, Jr. 35 Director; Nominee for Director
James H. Penland 67 Director; Nominee for Director
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
ROBERT M. RUBIN. Mr. Rubin has served as the Chairman of the Board of
Directors of the Company since November 20, 1992. Between November 20, 1992 and
March 7, 1993, Mr. Rubin served as Chief Executive Officer of the Company. In
addition, between October 1990 and January 1, 1994, Mr. Rubin served as Chairman
and Chief Executive Officer of American United Global, Inc. ("AUGI"). From
January 19, 1996 through the present, Mr. Rubin has again served as Chief
Executive Officer of AUGI. Mr. Rubin was the founder, President, Chief Executive
Officer and a Director of Superior Care, Inc. ("SCI") from its inception in
1976 until May 1986. Mr. Rubin continued as a director of SCI (now known as
Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York
Stock Exchange listed company, is engaged in providing home care and
institutional staffing services and health care management services. Mr. Rubin
is Chairman of the Board, Chief Executive Officer and a stockholder of ERD Waste
Technology, Inc., a diversified waste management public company specializing in
the management and disposal of municipal solid waste, industrial and commercial
non-hazardous waste and hazardous waste. Mr. Rubin is a former director and
Vice Chairman, and currently a minority stockholder, of American Complex Care,
Incorporated, a public company formerly engaged in providing on-site health care
services, including intra-dermal infusion therapies. In April 1995, American
Complex Care, Incorporated's operating subsidiaries made assignments of their
assets for the benefit of creditors without resort to bankruptcy proceedings.
Mr. Rubin is also Chairman of the Board and a minority stockholder of Universal
Self Care, Inc., a public company engaged in the sale of products used by
diabetics. Mr. Rubin is also a director and a minority stockholder of Response
USA, Inc., a public company engaged in the sale and distribution of personal
emergency response systems; Diplomat Corporation, a public company engaged in
the manufacture and distribution of baby products; Help at Home, Inc., a public
company which provides home health care personnel; Arzan International (1991)
Ltd.; and Kay Kotts Associates, Inc., a public company engaged in providing tax
preparation and assistance service.
C. DEAN MCLAIN. Mr. McLain has served as President, Chief Executive
Officer and a director of the Company since March 7, 1993. From March 1, 1993
through June 13, 1995, Mr. McLain served as Executive Vice President of AUGI.
Mr. McLain has served on the Board of Directors of AUGI since March 7, 1994.
From 1989 to 1993, Mr. McLain served as Manager of privatization of Case
Corporation. From 1985
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<PAGE>
to 1989, Mr. McLain served as General Manager of Lake State Equipment, a
distributor of John Deere construction equipment. Mr. McLain was awarded a B.S.
degree in Business and Economics and a Master of Business Administration degree
by West Texas State University.
THOMAS D. BERKOMPAS. Mr. Berkompas joined the Company in June 1993 as Vice
President, Finance and Chief Financial Officer. From July 1983 to June 1993, he
was employed at Price Waterhouse, LLP, where he worked with established and
emerging growth companies and attained the level of Senior Audit Manager. Mr.
Berkompas is a certified public accountant and received his B.A. degree in
Business Economics from Calvin College.
JAMES H. PENLAND. Until his retirement in 1993, Mr. Penland had spent
forty-four years in the construction and agricultural equipment business. He
was associated with International Harvester Corporation for approximately 36
years, and for the eight years prior to his retirement was associated in various
managerial capacities with Case Corporation. He joined the Company's Board of
Directors in March 1995.
HAROLD CHAPMAN, JR. Mr. Chapman joined the Company's Board of Directors in
July 1995. Mr. Chapman is a partner in and general manager of Crown Power and
Equipment Co., a multi-line equipment distributor based in Columbia, Missouri.
Prior to joining Crown Power and Equipment in 1992, Mr. Chapman was in retail
management with Case Corporation for 10 years.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during the fiscal years ended July 31, 1996, 1995
and 1994 for the Company's Chief Executive Officer and to each of the Company's
most highly compensated executive officers whose total salary and bonus
compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------
Other All Other
Annual Restricted Compen-
Name and Principal Compen- Stock Options/ LTIP sation
Position Year Salary Bonus sation Awards SARs(#) Payouts
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. Rubin 1996 $150,000 $50,000 $ 0 $ 0 150,000 $ 0 $ 0
Chairman and Director(1) 1995 $ 75,000 $25,000 $ 0 $ 0 0 $ 0 $ 0
1994 $ 62,500 $34,800 $ 0 $ 0 0 $ 0 $ 0
C. Dean McLain 1996 $250,000 $84,868 $ 0 $ 0 300,000* $ 0 $ 0
Executive Vice 1995 $170,709 $75,000 $ 0 $ 0 150,000 $ 0 $ 0
President and Director; 1994 $144,835 $30,000 $ 0 $ 0 0 $ 0 $ 0
President and CEO of
Western(2)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
___________________
* Reflects the repricing of options to acquire 150,000 shares and the
original issuance of options to acquire 150,000 shares.
(1) The foregoing annual compensation amounts represent 50% of the $125,000 in
annual cash salary paid to Mr. Rubin by AUGI and its subsidiaries,
including the Company, in fiscal 1994 and 50% of the $150,000 in annual
cash salary paid to Mr. Rubin by AUGI and its subsidiaries, including the
Company, in fiscal 1995, and 50% of the $50,000 and $69,600 annual bonuses
payable to Mr. Rubin under the terms of his employment agreement with AUGI
during fiscal 1995 and 1994, respectively. The Company entered into a
separate employment agreement with Mr. Rubin, effective June 14, 1995 and
expiring July 31, 1998, pursuant to which Mr. Rubin is paid a base salary
of $150,000 plus an annual bonus. See "Compensation Committee Interlocks
and Insider Participation" and "Employment and Incentive Compensation
Agreements" below.
(2) Mr. McLain joined the Company in March 1993, when he became its Chief
Executive Officer. On March 1, 1993, July 31, 1994 and July 31, 1995, Mr.
McLain was permitted to and did purchase from AUGI 8,000, 6,000 and 6,000
shares of AUGI's common stock, respectively, at a price of $.01 per share.
On March 1, 1993, on August 1, 1994 and on August 1, 1995, the closing
prices for a share of AUGI's common stock as reported by NASDAQ was $5.75,
$4.0625 and $4.875, respectively. In addition, $38,095 was paid by AUGI to
Mr. McLain during fiscal 1993 pursuant to the terms of his employment
agreement dated February 12, 1993, as reimbursement for certain expenses
that he incurred in connection with his move to Washington State, and the
sale of his former residence, in order to permit his assuming his
employment duties. Effective as of August 1, 1995, Mr. McLain's employment
agreement with the Company was terminated and he entered into an amended
employment agreement expiring July 31, 2005. The base salary under this
employment agreement commences at $250,000 for fiscal 1996, and rises to
$300,000 for fiscal 2000. His employment agreement also calls for Incentive
Bonuses under certain circumstances. See "Compensation Committee
Interlocks and Insider Participation" and "Employment and Incentive
Compensation Agreements" below.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") was established in March 1995 and currently consists of Harold
Chapman and James Penland. Mr. Penland has been a member of the Compensation
Committee since its inception; Mr. Chapman was made a member of the Compensation
Committee in September 1995. Mr. Rubin, an earlier member of the Compensation
Committee, resigned during fiscal 1996. During the last fiscal year, other than
Messrs. Rubin and McLain, who are officers and directors of the Company, no
officers or employees of the Company participated in compensation decisions
relating to executive officers of the Company. All compensation decisions for
the Company were made by the full Board of Directors. Mr. Rubin's annual
compensation identified in the Summary Compensation Table was provided for under
his employment agreement with AUGI and his subsequent separate employment
agreement with the Company which was entered into effective June 14, 1995 and
which was approved by a vote of the Company's Board of Directors. Mr. McLain's
annual compensation is provided for under his employment contract with the
Company which was entered into as of August 1, 1995, and his amended and
restated employment agreement that was effective August 1, 1995. Both
agreements were approved by the Company's Board of Directors. See "Employment
and Incentive Compensation Agreements" below.
Other than participation in the Company's "Non-Management Directors Stock
Option Plan" (see, "Non-Management Directors Stock Option Plan," below) no
director of the Company receives any directors fees for attendance at Board
meetings, other than Messrs. Penland and Chapman who each receive a fee of $500
per meeting. All directors are entitled to receive reimbursement for actual
expenses of such attendance.
The Company's Audit Committee of the Board of Directors consists of C. Dean
McLain, Harold Chapman and James Penland. No executive officers or directors of
any other publicly held companies serve on the Company's Compensation Committee,
other than Robert M. Rubin, who is a director and member of the compensation
committee of AUGI, and Dean McLain, who is a director of AUGI.
COMPENSATION POLICY AND OTHER COMPENSATION
During the fiscal year ended July 31, 1996, the Company's Board of
Directors decided all compensation matters relating to the Company's executive
officers.
The Board of Directors of the Company has decided that the best way to
attract and retain highly capable employees on a basis that will encourage them
to perform at increasing levels of effectiveness, and to use their best efforts
to promote the growth and profitability of the Company and its subsidiaries, is
to enter into employment agreements with its senior executive officers. Messrs.
Rubin and McLain are each under contract with the Company. This has enabled the
Board to concentrate on the negotiation of particular employment contracts
rather than on the formulation of more general compensation policies for all
management and other personnel. The Company believes that its compensation
levels as to all of its employees are comparable to, if not generally lower
than, industry standards. See "Employment and Incentive Compensation
Agreements".
In setting levels of compensation under such employment contracts, and in
approving management's compensation of all other Company employees, the Board of
Directors has evaluated the Company's overall performance, the contribution of
particular individuals to Company performance and industry compensation
standards.
The Company has adopted a policy of compensating non-employee Directors at
the rate of $500 per meeting (plus reasonable out-of-pocket expenses in a manner
consistent with past practice) for attendance at meetings of the Company's Board
of Directors, as well as with participation in the Company's Non-management
Directors Stock Option Plan. At this time, Harold Chapman, Jr. and James
Penland are the only directors eligible to be compensated pursuant to this
policy.
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<PAGE>
EMPLOYMENT AND INCENTIVE COMPENSATION AGREEMENTS
Upon completion of the Company's 1995 initial public offering (the
"Offering"), the Company entered into a separate employment agreement with Mr.
Rubin, effective as of June 13, 1995 and expiring July 31, 1998. Pursuant to
such agreement, Mr. Rubin will serve as Chairman of the Board of the Company and
shall receive an annual base salary of $150,000, payable at the rate of $12,500
per month from the effective date of such agreement. In addition to his base
annual salary, Mr. Rubin shall be entitled to receive an annual bonus equal to
$50,000 per annum, payable only in the event that the "consolidated pre-tax
income" of the Company (as defined) shall be in excess of $3,000,000 for the
fiscal year ending July 31, 1996, $3,500,000 for the fiscal year ending July 31,
1997, and $4,000,000 for the fiscal year ending July 31, 1998, respectively.
Under the terms of his employment agreement with the Company, Mr. Rubin is only
obligated to devote a portion of his business and professional time to the
Company (estimated at approximately 20%). The term "consolidated pre-tax
income" is defined as consolidated net income of the Company and any
subsidiaries of the Company subsequently created or acquired, before income
taxes and gains or losses from disposition or purchases of assets or other
extraordinary items. Mr. Rubin received a $50,000 bonus for the Company's 1996
fiscal year under the terms of his employment agreement. In March 1996, Mr.
Rubin received options to acquire 150,000 shares of Common Stock, exercisable at
$4.50 per share and vesting 50% on each of the first and second anniversaries of
the date of grant.
Effective as of August 1, 1995, Mr. McLain's employment agreement with AUGI
was terminated and he entered into an amended employment agreement with the
Company, expiring July 31, 2005. Pursuant to such agreement, Mr. McLain serves
as President and Chief Executive Officer of the Company and will receive an
annual base salary, payable monthly, of $250,000 through the end of fiscal 1996,
$265,000 per annum in fiscal 1997, $280,000 per annum in fiscal 1998, $290,000
per annum in fiscal 1999, and $300,000 per annum in fiscal 2000. For each of
the fiscal years ending 2001, 2002, 2003, 2004 and 2005, inclusive, Mr. McLain's
base salary shall be determined by the Compensation Committee and ratified by
the full Board of Directors. Such base salary in each of the five fiscal years
from 2001 through 2005 shall not be less than the annual base salary in effect
in the immediately preceding fiscal year, plus a cost of living adjustment. In
addition, Mr. McLain will be entitled to receive bonus payments in each of the
five fiscal years ending 1996 through 2000, inclusive, equal to 5% of the
consolidated pre-tax income in excess of $1,750,000 in each such fiscal year
(the "Incentive Bonus"); provided, that the maximum amount of the Incentive
Bonus payable by the Company to Mr. McLain shall not exceed $150,000 in any such
fiscal year, without regard to the amount by which the Company's consolidated
pre-tax income shall exceed $1,750,000 in any of such fiscal years. Mr. McLain
received a $84,868 bonus for the Company's 1996 fiscal year under the terms of
his employment agreement. For each of the fiscal years ending 2001 through
2005, Mr. McLain's Incentive Bonus shall be determined by the Compensation
Committee and ratified by the full Board of Directors. The maximum annual
Incentive Bonus which Mr. McLain shall be entitled to receive during each of the
fiscal years ending 2001 through 2005 shall not be less than $150,000. As used
in Mr. McLain's employment agreement, the term "consolidated pre-tax income" is
defined as consolidated net income of the Company and any subsidiaries of the
Company subsequently created or acquired, before the Incentive Bonus, income
taxes and gains or losses from disposition or purchases of assets or other
extraordinary items.
Under the terms of his amended employment agreement, Mr. McLain received
options to acquire 150,000 shares of Company common stock, exercisable at $6.50
per share, awarded to him under the Company's 1995 Stock Option Plan. Such
exercise price was the closing sale price of the Company's common stock on
August 1, 1995 as reported by NASDAQ. On December 28, 1995, all 300,000 options
previously granted to Mr. McLain under the Plan were repriced, such that all of
his existing options were terminated and he was granted 300,000 new options
under the Plan exercisable at $4.50 per share. All of such options vested in
full in July 1996. See, "Repricing of Stock Options."
Under the terms of his employment agreement, Mr. McLain is also entitled to
receive options to purchase 75,000 additional shares of Company Common Stock
under the Plan with respect to the Company's fiscal year ending July 31, 1998,
at the market price per share of Common Stock on July 31,
-III-5-
<PAGE>
1998, in the event that the accumulated consolidated pre-tax income of the
Company for the three consecutive fiscal years ending 1996, 1997 and 1998
shall equal or exceed $9,000,000. Mr. McLain shall also be entitled to
receive options to purchase 50,000 additional shares of Company Common Stock
under the Plan with respect to the Company's fiscal year ending July 31, 2000
in the event that the accumulated consolidated pre-tax income of the Company
for the two consecutive fiscal years ending 1999 and 2000 shall equal or
exceed $7,000,000.
In the event that the Company does not meet the accumulated consolidated
pre-tax income levels described above, Mr. McLain shall still be entitled to
receive options to purchase 125,000 shares under the Plan (minus any options
granted with respect to the fiscal years ending in 1998 and 2000),
exercisable at the market price per share on July 31, 2000, should the
accumulated consolidated pre-tax income of the Company for the five fiscal
years ending 1996 through 2000 equal or exceed $16,000,000. In the event
such additional incentive stock options become available to him, Mr. McLain
may exercise such options beginning August 1, 1996 and ending July 31, 2005.
Mr. McLain's employment agreement also provides for fringe benefits as are
customary for senior executive officers in the industry in which the Company
operates, including medical coverage, excess life insurance benefits, and use
of an automobile supplied by the Company in addition to a $500 per month auto
allowance, the aggregate value of which is estimated at approximately $20,000
per year.
STOCK OPTIONS
OPTION GRANTS IN FISCAL YEAR 1996
The following table identifies individual grants of stock options made during
the last completed fiscal year to the executive officers named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
REALIZABLE VALUE AT
ANNUAL ASSUMED
STOCK RATES OF
APPRECIATION INDIVIDUAL GRANTS PRICE
OPTION TERM FOR
- --------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options/
SARs Exercise
Options Granted of
/SARs to Base
Grante Employees Price
d in FISCAL Expiration
Name (#) YEAR (S/Sh) Date 5% ($) 10%($)
---- ------- ---- ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
C. Dean McLain 300,000 60% $4.50 12/05 $849,008 $2,151,552
Robert M. Rubin 150,000 30% $4.50 3/06 $424,504 $1,075,776
</TABLE>
-III-6-
<PAGE>
The following table provides information concerning the exercise of stock
options during the last completed fiscal year by each executive officer named in
the Summary Compensation Table, and the fiscal year-end value of unexercised
options held by each such person.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISED
IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Shares Number of Value of
Acquired Unexercised Unexercised In-the-
on Value Options/SARs at Money Options/SARs
Exercise Realized Fiscal Year-End at Fiscal Year-End
Name (#) ($) (#) ($)
---- -------- ------ --------------- ------------------
<S> <C> <C> <C> <C>
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
C. Dean McLain (0) (0) 300,000/0 $862,500/0
Robert M. Rubin (0) (0) 0/150,000 0/$431,250
_________________________________________
</TABLE>
NON-MANAGEMENT DIRECTORS STOCK OPTION PLAN
On December 28, 1995, the Company adopted a Non-Management Directors Stock
Option Plan for the purpose of compensating all of the Company's outside
directors for their annual service on the Company's Board of Directors (the
"Formula Plan"). Under the terms of the Formula Plan, the Company automatically
grants to each non-management director five-year options to acquire 2,500 shares
of the Company's Common Stock on February 1, 1996 and on each succeeding August
1 upon which the non-management director is a member of the Company's Board of
Directors. Options granted under the Formula Plan are exercisable at the market
price of a share of Company Common Stock on the date of option grant. The
Formula Plan terminates on December 31, 2000, and a maximum of 50,000 shares of
Company Common Stock are available for the granting of options under the plan.
The Formula Plan was adopted by the Board and is subject to stockholder
approval, without which the Formula Plan itself and the options granted
thereunder are not effective. The Company intends to present the Formula Plan
for stockholder approval at the Company's 1996 Annual Stockholders Meeting.
-III-7-
<PAGE>
REPRICIING OF STOCK OPTIONS
<TABLE>
<CAPTION>
TEN-YEAR OPTION
REPRICINGS
__________________________________________
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDER-LYING STOCK AT PRICE AT TIME REMAINING AT
OPTIONS/SARs TIME OF OF REPRICING NEW DATE OF
REPRICED OR REPRICING OF OR EXERCISE REPRICING OF
AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
NAME DATE (#) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C>
C. Dean 12/28/95 150,000 $4.50 $6.50 $4.50 9.5 years
McLain common
shares
C. Dean 12/28/95 150,000 $4.50 $6.50 $4.50 4.5 years
McLain common
shares
</TABLE>
On December 28, 1995, all outstanding options to acquire 350,000 shares of
Company Common Stock granted under the Company's 1995 Stock Option Plan were
priced. Options to acquire 200,000 shares of Common Stock (150,000 options to
Mr. McLain) were originally granted under the Plan in March 1995 at an exercise
price of $8.00 per share, prior to consummation of the Offering. In May 1995,
all of such options were repriced to provide for an exercise price of $6.50 per
share, the anticipated public offering price of the shares to be sold in the
Offering. In December 1995, the full Board of Directors acted to reprice all
outstanding options granted under the Plan, which were exercisable at $6.50 per
share to acquire an aggregate of 350,000 shares of Common Stock. All such
repriced options were granted at an exercise price of $4.50 per share, the fair
market value of a share of the Common Stock on the date of repricing.
The Board of Directors effected the repricing in May 1995 in order to
permit option holders to receive options at the anticipated public offering
price for the shares, which Offering was consummated at $6.50 per share
subsequent to the original granting at $8.00 per share. The Board of Directors
effected the subsequent December 1995 repricing, which lowered the exercise
price of the outstanding options from $6.50 per share to $4.50 per share (the
then current market price for the Common Stock), in order to provide option
holders a true incentive for continuing performance on behalf of the Company.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company has included in its Certificate of Incorporation and/or By-laws
provisions to (i) eliminate the personal liability of its directors and officers
for monetary damages resulting from breaches of their fiduciary duty (provided
that such provisions do not eliminate liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware Law, or for any transaction from which the director and/or officer
derived an improper personal benefit), and (ii) indemnify its directors and
officers to the fullest extent permitted by the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. The Company
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers.
-III-8-
<PAGE>
The Company intends to enter into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director and executive officer
of the Company (the "Indemnitees"). The Indemnity Agreements will provide that
the Company will indemnify each Indemnitee against any amounts that he becomes
legally obligated to pay in connection with any claim against him based upon any
act, omission, neglect or breach of duty that he may commit, omit or suffer
while acting in his capacity as a director and/or officer of the Company;
provided, that such claim: (i) is not based upon the Indemnitee's gaining any
personal profit or advantage to which he is not legally entitled; (ii) is not
for an accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company within the meaning of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or similar provisions of any state law; and
(iii) is not based upon the Indemnitee's knowingly fraudulent, deliberately
dishonest or willful misconduct. The Indemnity Agreements also provide that all
costs and expenses incurred by the Indemnitee in defending or investigating such
claim shall be paid by the Company in advance of the final disposition thereof,
unless the Company, independent legal counsel, the stockholders of the Company
or a court of competent jurisdiction determines that: (x) the Indemnitee did not
act in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Company; (y) in the case of any criminal
action or proceeding, the Indemnitee had reasonable cause to believe his conduct
was unlawful; or (z) the Indemnitee intentionally breached his duty to the
Company or its stockholders. Each Indemnitee has undertaken to repay the
Company for any costs or expenses so advanced if it shall ultimately be
determined by a court of competent jurisdiction in a final, nonappealable
adjudication that he is not entitled to indemnification under an Indemnity
Agreement.
ITEM 12. PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 21, 1996
with respect to the beneficial ownership of the Common Stock of the Company by
each beneficial owner of more than 5% of the outstanding shares of the Common
Stock of the Company, each director and nominee for director and all officers
and directors of the Company as a group. Unless otherwise indicated, the owners
have sole voting and investment power with respect to their respective shares.
PERCENTAGE
OF
NUMBER OF SHARES OF COMMON OUTSTANDING
NAME AND ADDRESS OF STOCK OF THE COMPANY COMMON
BENEFICIAL OWNER BENEFICALLY OWNED STOCK OWNED
---------------- ----------------- -----------
American United
Global, Inc.
11634 Patton Road
Downey, CA 90241 2,000,000 56.6%
Robert M. Rubin
6060 Kings Gate Circle
Del Ray Beach, FL 33484 430,000(1)(3) 12.2%
C. Dean McLain
4601 N.E. 77th Avenue
Suite 200
Vancouver, WA 98662 513,806(2)(3) 12.2%
James Penland
50 Hillcrest Drive
Weaverville, NC 28787 5,000(4) *
-III-9-
<PAGE>
Harold Chapman
4614 Highway 763 North
Columbia, Missouri 65202 5,000(4) *
All directors and
executive officers
as a group (5 persons) 1,003,806(1)(2)(3)(4)(5) 25.8%
_____________________
* Less than 1%
(1) Represents Mr. Rubin's indirect ownership in the Company through his
beneficial ownership of an aggregate of 1,775,798 voting shares of American
United Global, Inc., the Company's principal stockholder ("AUGI"),
including options to purchase an additional 80,000 shares of AUGI common
stock. Mr. Rubin's beneficial ownership of AUGI voting stock represents
21.5% of AUGI voting stock as at October 20, 1996.
(2) Represents Mr. McLain's indirect ownership in the Company through his
beneficial ownership of an aggregate of 20,000 shares of AUGI voting stock
and options to purchase an additional 357,750 shares of AUGI common stock,
as well as direct beneficial ownership of Company Common Stock through his
ownership of exercisable options to acquire 300,000 shares of Company
Common Stock. Mr. McLain's beneficial ownership of AUGI common stock
represents 4.4% of AUGI voting stock as at October 20, 1995.
(3) Does not include options to purchase 150,000 shares of the Company's Common
Stock granted to Mr. McLain in August 1996 which may be exercised at $4.375
per share, 50% commencing on August 1, 1997 and 50% commencing on August 1,
1998, so long as Mr. McLain shall be employed on a full-time basis with the
Company on each occasion such options are exercised. Also does not include
certain incentive stock options which are issuable to Mr. McLain in the
maximum amount of 125,000 shares, based upon the Company achieving certain
pre-tax income levels after the fiscal years ending 1998 (75,000 shares)
and 2000 (50,000 shares). See "MANAGEMENT - Employment and Incentive
Compensation Agreements."
Does not include options to purchase 150,000 shares of the Company's Common
Stock granted to Mr. Rubin on March 5, 1996 which may be exercised at $4.50
per share, 33.3% commencing on March 5, 1997, and 33.3% on each succeeding
March 5 until all are vested. Also does not include options to purchase
50,000 shares granted to Mr. Rubin on August 1, 1996 which may be exercised
at $4.375 per share, 50% commencing on August 1, 1997 and 50% commencing on
August 1, 1998.
(4) Includes options to purchase 5,000 shares of the Company's Common Stock
issued to each of Messrs. Chapman and Penland under the terms of the
Formula Plan for outside directors.
(5) Includes options to purchase 50,000 shares granted to Thomas Berkompas in
December 1995 which may be exercised at $4.50 per share. Does not include
options to purchase 30,000 shares granted to Mr. Berkompas, exercisable at
$4.375 per share, 50% commencing on August 1, 1997 and 50% commencing on
August 1, 1998, so long as Mr. Berkompas shall continue to be employed by
the Company on a full-time basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11, Executive Compensation - Compensation Committee Interlocks
and Insider Participation."
To assist AUGI, the Company's principal stockholder, in capitalizing the
Company and to provide it with ongoing working capital, in November 1992 Robert
M. Rubin advanced to AUGI the sum of $1,375,000 as a subordinated loan, which
was funded together with related subordinated loans aggregating $525,000 made to
AUGI by Lawrence E. Kaplan (until August, 1995 a director of the Company and who
became a director of AUGI in March 1993) and his business associates. The
proceeds of such loans, aggregating $1,900,000, were used by AUGI to provide
part of the initial equity capital for the Company at the time of its 1992
acquisition of 7 Case Corporation ("Case") retail stores. Such loans were
evidenced by AUGI notes payable on August 15, 1994 and bearing interest, payable
monthly, at the Citibank, N.A. prime rate, plus 1%. All such loans were fully
subject and subordinated to all bank and other related secured indebtedness of
AUGI and its subsidiaries, including the Company.
On November 19, 1992, in consideration of his personal guaranty of a
portion of a loan to AUGI by its commercial lender and his $1,375,000 loan to
AUGI, the proceeds of both of which financings were used
-III-10-
<PAGE>
to capitalize the Company, Mr. Rubin received, for $1,250, an aggregate of
125,000 shares of AUGI Common Stock. Mr. Rubin agreed that, except in
connection with a merger or sale of AUGI as a whole, he will not sell or
otherwise transfer any of the 125,000 shares for a minimum of four years from
their date of issuance. The closing price of AUGI's Common Stock on the NASDAQ
National Market System was $4.94 per share on November 19, 1992.
On consummation of an AUGI public offering of its securities in February
1994, Mr. Rubin exchanged 1,200,000 shares of AUGI Preferred Stock (which he
purchased for $1,200,000) and his $1,375,000 AUGI note due August 15, 1994, for
the AUGI Stockholder Note, evidenced by a 9.56% $2,575,000 AUGI unsecured note,
payable monthly as to interest and due as to principal on November 30, 1995.
Such AUGI Stockholder Note is fully subject and subordinated to all indebtedness
for money borrowed by AUGI and its direct and indirect subsidiaries, including
Company indebtedness to all institutional lenders and to Case. $1,375,000 of
the underlying obligation evidenced by the AUGI Stockholder Note was assumed by
the Company effective as at July 31, 1993. The Company applied $1,375,000 of
the net proceeds of its 1995 initial public offering (the "Offering") to prepay
a like amount of the AUGI Stockholder Note to Mr. Rubin.
Upon completion of AUGI's February 1994 public offering, the $525,000 of
AUGI indebtedness owed to Lawrence E. Kaplan (a member of the AUGI Board of
Directors at that time and a former member of the Company's Board of Directors)
and his business associates was retired. Mr. Kaplan had lent $131,250 of such
$525,000 amount.
Effective February 17, 1996, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing and
distributing Case construction equipment at a facility located in Sacramento,
California (the "Sacramento Operation"). The real property and improvements
used in connection with the Sacramento Operation, and upon which the Sacramento
Operation is located, were sold by Case for $1,500 to the McLain-Rubin Realty
Company, LLC ("MRR"), a Delaware limited liability company, the owners of which
are Messrs. C. Dean McLain, the President and a director of the Company, and
Robert M. Rubin, the Chairman and a director of the Company. Simultaneous with
its acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to the Company under the terms of a
20 year commercial lease agreement dated March 1, 1996 with the Company paying
an initial annual rate of $168. Under the lease, such annual rate increases to
$192 after five years and is subject to fair market adjustments at the end of
ten years. In addition to base rent, the Company is responsible for the payment
of all related taxes and other assessments, utilities, insurance and repairs
(both structural and regular maintenance) with respect to the leased real
property during the term of the lease.
Upon completion of the Offering, the Company entered into a management
agreement with AUGI expiring July 31, 1996, renewable on a year-to-year basis
thereafter by mutual agreement, pursuant to which AUGI provides the Company
with certain general and administrative services, including tax planning,
administering of the annual audit of the Company's financial statements,
assistance in the preparation of annual reports, and periodic reports
required to be filed by the Company with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, including proxy
statements, Form 10-K Annual Reports, Form 10-Q Interim Financial Reports,
and Form 8-K Reports, maintenance of the Company's continued listing on
NASDAQ or other national exchange, financial public relations and other
miscellaneous administrative services. Under the terms of such management
agreement, the Company pays to AUGI the sum of $10,000 per month, subject to
increase or decrease (as the case may be) on a fiscal quarterly basis,
commencing October 31, 1995, to reflect actual expenses accrued or
anticipated to be paid by AUGI in the next succeeding fiscal quarter. The
agreement was terminated effective January 1, 1996 after the principal
operations of AUGI were sold and the general and administrative services
supplied by AUGI to the Company were discontinued.
-III-11-
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
To the knowledge of the Company, no officers, directors, beneficial
owners of more than 10 percent of any class of equity securities of the
Company registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any other person subject to Section
16 of the Exchange Act with respect to the Company, failed to file on a
timely basis reports required by Section 16(a) of the Exchange Act during the
most recent fiscal year, which ended July 31, 1996.
-III-12-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS.
Consolidated Statements of Operations for
the years ended July 31, 1996, 1995, and 1994.....................F-1
Consolidated Balance Sheets as of
July 31, 1996 and 1995............................................F-2
Consolidated Statements of Stockholders'
Equity for the years ended July 31, 1996, 1995
and 1994.........................................................F-3
Consolidated Statements of Cash Flows for
the years ended July 31, 1996, 1995 and 1994......................F-4
Notes to Consolidated Financial Statements.........................F-5
Report of Independent Accountants.................................F-15
2. FINANCIAL STATEMENT SCHEDULE.
Report of Independent Accountants - Financial Statement Schedule..F-16
Schedule II - Valuation and Qualifying Accounts...................F-17
(B) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K on May 6, 1996, with respect
to the acquisition of the Sacramento operation from Case.
(C) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of Registrant. (5)
3.2 By-laws of Registrant. (5)
4.1 Specimen Certificate of Common Stock. (5)
4.2 Stock Option Plan. (6)
4.3 Board of Directors' Formula Stock Plan
10.1 Agreement of Purchase and Sale, dated December 4, 1992, by and
between Case and the Registrant. (1)
10.2 Price Calculation--Exhibit A to Asset Purchase Agreement. (1)
10.3 Real Estate Purchase Agreement. (1)
10.4 Sublease Agreement--Portland, Oregon. (1)
10.5 Lease Agreement of Salem, Oregon Property, dated July 1, 1993, by
and between Western Power and LaNoel Elston Myers Living Trust et
al. (2)
-IV-1-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.6 Sublease Agreement--Springfield, Oregon. (1)
10.7 Sublease Agreement--Spokane, Washington. (1)
10.8 Sublease Agreement--Pasco, Washington. (1)
10.9 Sublease Agreement--Everett, Washington. (1)
10.10 Amended Congress Loan Agreement; Western Security Agreement with
Congress; AUG Guaranty to Congress; Western Guaranty to Congress;
Robert M. Rubin Guaranty to Congress; Cash Collateral Agreement
with Congress. (1)
10.11 Case New Dealer Agreement Package. (2)
10.12 Lease Agreement of Moses Lake, Washington property, dated June 9,
1993, by and between Western Power and Maiers Industrial Park.
(2)
10.13 Lease Agreement of Bend, Oregon property, dated July 15, 1993, by
and between Western Power and Robert Wilson. (2)
10.14 Employment Agreement, by and between Registrant and C. Dean
McLain. (8)
10.15 Form of Employment Agreement, by and between Registrant and
Robert M. Rubin. (6)
10.16 Letter Agreement Amendment to Credit Agreement with Congress,
dated as of October 1, 1993. (2)
10.17 Financing Agreement with Associates Commercial Corporation. (3)
10.18 Asset Purchase Agreement, dated as of September 22, 1994, by and
between Case and Western (schedules omitted). (4)
10.19 Case Parts Note; Other Assets and Equipment Note; Used Equipment
Note; Accounts Receivable Note; Furniture and Fixtures Note; Shop
Tools Note; Real Estate Note. (4)
10.20 Deed of Trust with Assignment of Rents, dated September 22, 1994,
by and between Western and Case. (4)
10.21 Lease Agreement--Hayward, California. (5)
10.22 Assignment and Assumption Agreement, dated as of September 22,
1994, by and between Case and Western. (4)
10.23 General Security Agreement, dated as of September 22, 1994, by
and between Case and Western. (4)
10.24 Guaranty Agreement of the Company, dated as of September 22,
1994. (4)
-IV-2-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.25 Intercreditor Agreement, dated September 22, 1994, by and between
Case, Case Credit Corporation, Congress Financial Corporation and
Western. (4)
10.26 Management Agreement between Registrant and American United
Global, Inc. (6)
10.27 Auburn Facility Real Estate Purchase and Sale Agreement, dated
October 19, 1995, by and between Western and Ford Kiene.
10.28 Lease Agreement--Auburn, Washington.
10.29 Lease Agreement--Sacramento, California. (7)
10.30 Sacramento Acquisition Agreement.
a. Asset Purchase Agreement (7)
b. Used Equipment Note (7)
c. Parts Note (7)
d. Accounts Receivable Note (7)
e. Goodwill Note (7)
f. Real Estate Note from MRR to Case (7)
g. Deed to Secure Debt of MRR to Case (7)
h. Security Agreement (7)
i. C. Dean McLain's Personal Guaranty (7)
10.31 GCS Acquisition Agreement
21. Subsidiaries of the Company.
_____________________
(1) Filed as an Exhibit to the Current Report on Form 8-K of American United
Global, Inc. ("AUGI"), as filed on December 19, 1992 and incorporated
herein by reference thereto.
(2) Filed as an Exhibit to the AUGI Annual Report on Form 10-K, as filed on
October 29, 1993 and incorporated herein by reference thereto.
(3) Filed as an Exhibit to Amendment No.1 to AUGI's Registration Statement on
Form S-1, filed on February 1, 1994 and incorporated herein by reference
thereto. (Registration No. 33-72556)
(4) Filed as an Exhibit to the Current Report on Form 8-K of AUGI, as filed on
September 23, 1994 and incorporated herein by reference thereto.
(5) Filed as an Exhibit to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1, filed on May 16, 1995 and incorporated herein by
reference thereto. (Registration No. 33-89762).
(6) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
filed on February 24, 1995 (Registration No. 33-89762).
(7) Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
Equipment ("WPEC"), as filed on March 6, 1996 and incorporated herein by
reference thereto.
(8) Filed as an Exhibit to the Western Power & Equipment Annual Report on Form
10-K, as filed on October 29, 1995 and incorporated herein by reference
thereto.
-IV-3-
<PAGE>
(D) ADDITIONAL FINANCIAL STATEMENT SCHEDULES
None.
-IV-4-
<PAGE>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales $106,555 $86,172 $67,370
Cost of goods sold 93,906 76,144 59,139
-------- ------- -------
Gross profit 12,649 10,028 8,231
Selling, general and administrative expenses 7,827 6,078 5,295
-------- ------- -------
4,822 3,950 2,936
Other (income) expense:
Interest expense 1,838 1,091 795
Bridge loan deferred financing costs - 290 -
Other (income) expense (379) (33) 57
-------- ------- -------
Income before income taxes 3,363 2,602 2,084
Provision for income taxes (1,284) (989) (564)
-------- ------- -------
Net income $ 2,079 $ 1,613 $ 1,520
-------- ------- -------
-------- ------- -------
Net income per common share $ 0.58 $ 0.74 $ 0.75
-------- ------- -------
-------- ------- -------
Shares used in net income per share calculations 3,585 2,192 2,038
-------- ------- -------
-------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
July 31,
------------------------
1996 1995
-------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 2,721 $ 4,065
Accounts receivable, less allowance for
doubtful accounts of $519 and $370 6,506 6,008
Receivable from underwriter - 1,102
Inventories 65,689 46,413
Prepaid expenses 43 9
Deferred income taxes 556 417
------- -------
Total current assets 75,515 58,014
Property, plant and equipment, net 7,031 7,062
Intangibles and other assets 2,744 2,116
------- -------
Total assets $85,290 $67,192
------- -------
------- -------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under floor plan financing $54,364 $37,989
Short-term borrowings 963 5,105
Accounts payable 2,414 2,150
Accrued payroll and vacation 793 651
Other accrued liabilities 1,384 822
Income taxes payable 37 122
Capital lease obligation 46 51
Payable to parent 188 241
------- -------
Total current liabilities 60,189 47,131
Deferred income taxes 383 299
Capital lease obligation 1,656 47
Long-term borrowings 1,268 -
------- -------
Total liabilities 63,496 47,477
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock-10,000,000 shares authorized;
none issued and outstanding - -
Common stock-$.001 par value; 20,000,000
shares authorized; 3,533,462 issued
and outstanding 4 4
Additional paid-in capital 16,047 16,047
Retained earnings 5,743 3,664
------- -------
Total stockholders' equity 21,794 19,715
------- -------
Total liabilities and stockholders'
equity $85,290 $67,192
------- -------
------- -------
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Total
Number Paid-in Retained Stockholders'
of Shares Amount Capital Earnings Equity
--------- ------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
July 31, 1993 2,000,000 $ 2 $ 7,998 $ 531 $ 8,531
Net income - - - 1,520 1,520
--------- ---- -------- -------- --------
Balance at
July 31, 1994 2,000,000 2 7,998 2,051 10,051
Issuance of shares
for bridge loan 38,462 - 250 - 250
Issuance of shares
net of issuance
costs 1,495,000 2 7,799 - 7,801
Net income - - - 1,613 1,613
--------- ---- -------- -------- --------
Balance at
July 31, 1995 3,533,462 4 16,047 3,664 19,715
Net income - - - 2,079 2,079
--------- ---- -------- -------- --------
Balance at
July 31, 1996 3,533,462 $ 4 $ 16,047 $ 5,743 $ 21,794
--------- ---- -------- -------- --------
--------- ---- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,079 $1,613 $1,520
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 820 672 418
Loss on disposal of fixed assets - 4 35
Amortization 71 396 215
Changes in assets and liabilities
(excluding effects of acquisitions):
Accounts receivable (199) (2,420) (94)
Inventories (12,840) (5,181) (5,736)
Inventory floor plan financing 12,411 4,187 1,467
Prepaid expenses (8) 7 162
Deferred income taxes (55) (67) (67)
Accounts payable 264 261 749
Accrued payroll and vacation 142 273 251
Other accrued liabilities 582 223 135
Income taxes payable (85) 122 -
Other assets (108) (101) (46)
-------- -------- --------
Net cash provided by (used in) operating activities 3,074 (11) (991)
-------- -------- --------
Cash flow from investing activities:
Purchase of fixed assets (695) (332) (309)
Proceeds on sale of fixed assets 2,075 6 26
Purchase of distribution outlets (2,325) (449) -
-------- -------- --------
Net cash provided by (used in) investing activities (945) (775) (283)
- - -------- -------- --------
Cash flows from financing activities:
Principal payments on capital lease (62) (52) (20)
Short-term borrowings (5,732) (1,623) 500
Subordinated notes payable to related party - (1,375) (525)
Payable to/receivable from parent (53) 674 2,583
Proceeds from initial public offering - 7,801 -
Receivable from underwriter 1,102 (1,102) -
Long-term borrowings 1,268 - (814)
-------- -------- --------
Net cash provided by (used in) financing activities (3,477) 4,323 1,724
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,344) 3,537 450
Cash and cash equivalents at beginning of year 4,065 528 78
-------- -------- --------
Cash and cash equivalents at end of year $2,721 $4,065 $ 528
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Western Power & Equipment Corp.
Notes to Consolidated Financial Statements (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
On August 13, 1992, Western Power & Equipment Corp. (the "Company") was
formed and incorporated in the state of Oregon for the purpose of acquiring
the assets and operations of seven factory owned stores of Case Corporation
("Case") in the states of Washington and Oregon (the "Predecessor
Company"). The acquisition was completed effective November 1, 1992.
Simultaneously, American United Global, Inc. ("AUGI") acquired all of the
outstanding shares of the Company. In March 1995, in connection with a
contemplated initial public offering, AUGI formed a new Delaware
Corporation. Upon formation, AUGI contributed to the Delaware Corporation
all outstanding common stock of the Company. The consolidated financial
statements include the accounts of the Delaware Corporation and its Oregon
subsidiary after elimination of all intercompany accounts and transactions.
The Company is engaged in the sale, rental and servicing of light, medium
and heavy construction equipment and related parts in the Pacific
Northwest, northern California and Nevada. Case serves as the manufacturer
of the majority of the Company's products.
CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method for parts inventories and the
specific identification method for equipment inventories.
INTANGIBLE ASSETS
The Company's acquisition strategy has been focused on existing businesses
with established market share in a contiguous geographic area. Items with
an indeterminate useful life, such as name recognition, geographical
location and presence represent value to the Company. The Company uses
estimates of the useful life of these intangible assets ranging from twenty
to forty years. This life is based on the factors influencing the
acquisition decision and on industry practice. The Company reviews for
asset impairment on a periodic basis and when events or changes in
circumstances indicate that the carrying amount of the intangible asset may
not be recoverable. Based on this review, no writedown for impairment loss
on intangible assets has been recorded during the three year period ended
July 31, 1996.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets, ranging
from 5 to 30 years. Expenditures for replacements and major improvements
are capitalized. Expenditures for repairs, maintenance and routine
replacements are charged to operating expense as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts; any resulting gain or loss
is included in the results of operations.
F-5
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue on equipment and parts sales is recognized upon shipment of
products and passage of title. Rental and service revenue is generally
recognized at the time such services are provided.
ADVERTISING EXPENSE
The Company expenses all advertising costs as incurred. Total advertising
expense for the years ended July 31, 1996, 1995 and 1994 was $263, $274,
and $134 respectively.
INCOME TAXES
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. The
adoption of SFAS No. 109 changed the Company's method of accounting for
income taxes from the deferral method to an asset and liability approach
which requires the recognition of deferred tax liabilities and assets for
the expected future consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax bases of the
assets and liabilities. The adoption of SFAS No. 109 did not have a
material effect on the results of operations of the Company.
The Company had an informal tax sharing agreement and filed a consolidated
federal income tax return with AUGI for the year ended July 31, 1994 and
the eleven month period ended June 30, 1995. Income taxes as presented in
the accompanying financial statements are provided on a separate company
basis.
FINANCIAL INSTRUMENTS
Effective August 1, 1995 the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 107, Disclosures about Fair Value of
Financial Instruments. The adoption of SFAS No. 107 had no material effect
on the financial position or results of operations of the Company. The
recorded amounts of cash and cash equivalents, accounts receivable, short-
term borrowings, accounts receivable and accrued liabilities as presented
in the financial statements approximate fair value because of the short-term
nature of these instruments. The recorded amount of long-term debt
approximates fair value as the actual interest rates approximate current
competitive rates.
NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of common and dilutive common equivalent shares outstanding during the
period. In accordance with the regulations of the Securities and Exchange
Commission, common stock and common stock equivalents issued within twelve
months of an initial public offering are considered outstanding for all
periods presented prior to the offering using the treasury stock method and
initial public offering price.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
In September 1994 the Company acquired the assets and operations of two
stores in California and Nevada for approximately $557 in cash (including
$108 of indirect expenses), $4,153 in installment notes payable and the
assumption of $5,019 in inventory floor plan debt.
A capital lease obligation of $170 was incurred during the year ended July
31, 1994 when the Company entered into a lease for computer equipment and
software.
A capital lease obligation of $926 was incurred in December 1995 when the
Company consummated a sale leaseback transaction of the Auburn facility.
F-6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1996 the Company acquired the assets and operations of two
stores in California for approximately $630 in cash, $1,590 in installment
notes payable and the assumption of $3,965 in inventory floor plan debt.
In addition, a capital lease obligation of $740 was incurred related to the
lease of the Sacramento facility.
Effective June 11, 1996 the Company acquired the assets and operations of
GCS, Inc. a California-based distributor of heavy equipment primarily
marketed to municipal and state government agencies responsible for highway
maintenance for approximately $1,655 in cash.
Professional fees associated with the Sacramento Case and GCS acquisitions
totalled approximately $40.
Year ended July 31,
1996 1995 1994
------ ------ ------
Cash paid during the year for:
Interest $1,838 $1,091 $ 795
Income taxes 1,284 989 564
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the fiscal periods presented. Actual results could differ from
those estimates.
2. ACQUISITIONS
Effective November 1, 1992, the Company acquired the assets of the
Predecessor Company for $1,940 in cash, approximately $10,749 in
installment notes payable to Case and the assumption of $19,980 in
inventory floor plan debt with Case and its affiliates. The acquisition
was accounted for as a purchase and resulted in the recording of
approximately $1,830 in goodwill which is included in other long-term
assets on the Company's books and is being amortized on the straight-line
basis over 40 years.
In connection with the capitalization of the Company, AUGI issued 160,000
shares of its common stock in consideration for subordinated loans
aggregating $1,900 as well as in consideration for the personal guaranty of
certain acquisition related indebtedness by AUGI's principal shareholder.
The value of the shares, $400, was recorded on the Company's books as
deferred financing costs in other long-term assets with a corresponding
amount in payable to parent. These costs have been amortized on the
straight-line basis over the term of the related loan. In June 1995,
subsequent to the successful completion of the Company's initial public
offering, the remaining balance of the subordinated loans was paid off and
the remaining unamortized balance of deferred financing costs was expensed.
Effective September 10, 1994, the Company acquired the assets and
operations of two additional factory-owned stores of Case in the states of
California and Nevada. The acquisition was consummated for approximately
$557 in cash (including $108 of indirect expenses), $4,153 in installment
notes payable to Case and the assumption of $5,019 in inventory floor plan
debt with Case and its affiliates. The accounts of these two stores have
been included in the Company's accounts from the effective date of the
acquisition. The acquisition was accounted for as a purchase and resulted
in the recording of approximately $300 in goodwill which is included in
other long-term assets on the Company's books and is being amortized on the
straight-line basis over 20 years.
F-7
<PAGE>
2. ACQUISITIONS (CONTINUED)
Unaudited pro forma combined results of operations for the year ended July
31, 1994 as if the acquisition of the California and Nevada stores had
occurred as of the beginning of the fiscal year are summarized as follows:
Net sales $ 81,833
Net income $ 1,349
Net income per common share $ 0.66
Effective February 29, 1996, the Company acquired the assets and operations
of two additional factory-owned stores of Case in the state of California.
The acquisition was consummated for approximately $630 in cash, $1,590 in
installment notes payable to Case and the assumption of $3,965 in inventory
floor plan debt with Case and its affiliates. The accounts of these two
stores have been included in the Company's accounts from the effective date
of the acquisition. The acquisition was accounted for as a purchase and
resulted in the recording of approximately $150 in goodwill which is
included in other long-term assets on the Company's books and is being
amortized on the straight-line basis over 20 years.
Unaudited pro forma combined results of operations for the two-year period
ended July 31, 1996 as if the acquisition of the California stores had
occurred as of the beginning of the period are summarized as follows:
1996 1995
-------- --------
Net sales $115,097 $100,226
Net income $ 2,062 $ 1,400
Net income per common share $ 0.58 $ 0.58
In addition, effective June 11, 1996, the Company acquired the assets and
operations of GCS, Inc. ("GCS"), a California-based closely-held
distributor of heavy equipment primarily marketed to municipal and state
government agencies responsible for highway maintenance. The acquisition
was consummated for approximately $1,655 in cash. The acquisition was
accounted for as a purchase and resulted in goodwill of approximately $400
which is included in other long-term assets on the Company's books and is
being amortized on the straight-line basis over 20 years. Pro forma
financial information relating to this acquisition has not been provided
because its effect is immaterial. The accounts of the GCS stores have been
included in the Company's accounts from the effective date of acquisition.
3. RELATED PARTY TRANSACTIONS
Since the acquisition of the Predecessor Company, the Company has depended
on AUGI for substantial support as well as for various services such as
legal, financial and human resources. American United Global allocated the
cost for these services pro rata among its businesses based on operating
revenues. The allocated cost for these services is included in selling,
general and administrative expense and totaled $50, $724, and $600 for the
years ended July 31, 1996, 1995 and 1994 respectively. Management believes
that the method used to allocate these expenses reasonably reflects the
actual costs of services provided and that such expenses on a stand alone
basis would not produce materially different results. As of January 1,
1996, AUGI no longer provided the above mentioned services and therefore
the allocation of these expenses ceased.
F-8
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
The real property and improvements used in connection with the Sacramento
Operations, and upon which the Sacramento Operation is located, were sold
by Case for $1,500 to the McLain-Rubin Realty Company, LLC ("MRR"), a
Delaware limited liability company the owners of which are Messrs. C. Dean
McLain, the President and a director of the Company, and Robert M. Rubin,
the Chairman and a director of the Company. Simultaneous with its
acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to the Company under the terms
of a 20 year commercial lease agreement dated March 1, 1996 with the
Company paying an initial annual rate of $168. Under the lease, such
annual rate increases to $192 after five years and is subject to fair
market adjustments at the end of ten years. In addition to base rent, the
Company is responsible for the payment of all related taxes and other
assessments, utilities, insurance and repairs (both structural and regular
maintenance) with respect to the leased real property during the term of
the lease. In accordance with SFAS 13, the building portion of the lease
is being accounted for as a capital lease (see Note 9) while the land
portion of the lease qualifies for treatment as an operating lease.
4. INVENTORIES
Inventories consist of the following:
July 31, July 31,
1996 1995
--------- --------
Equipment:
New equipment $ 53,279 $ 36,461
Used equipment 6,090 4,662
Parts 6,320 5,290
--------- --------
$ 65,689 $ 46,413
--------- --------
--------- --------
At July 31, 1996 and 1995 approximately $12,079 and $4,756, respectively,
of equipment was being held for rent and, in accordance with standard
industry practice, is included in new equipment inventory. Such equipment
is generally being charged to cost of goods sold at an amount equal to 80
percent of the rental payments received.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
JULY 31, JULY 31,
1996 1995
-------- -------
Land $ 840 $ 1,903
Buildings 3,001 2,347
Machinery and equipment 2,092 1,574
Office furniture and fixtures 1,742 1,478
Computer hardware and software 496 414
Vehicles 892 596
Leasehold improvements 41 -
-------- --------
9,104 8,312
Less: accumulated depreciation (2,073) 1,250)
-------- --------
$ 7,031 $ 7,062
-------- --------
-------- --------
F-9
<PAGE>
6. BORROWINGS
In connection with the acquisition of the Fremont and Sparks stores in
fiscal 1995 and the Sacramento store in fiscal 1996, the Company entered
into various term notes with Case for the purchase of used equipment,
parts, shop tools, furniture and fixtures and accounts receivable. The
terms of these notes range from six to twenty-four months, provide for
interest charges at various rates up to prime plus 2% and are
collateralized by the related equipment, parts and fixed assets. At July
31, 1996 and 1995 a total of $963 and $856, respectively, remained
outstanding on these notes.
On October 10, 1995, using proceeds from the Company's initial public
offering, the Company retired the $2,175 real estate note given to Case for
the purchase of the Sparks, Nevada real estate in September 1994. In March
1996, the Company consummated an agreement with an institutional lender for
a conventional mortgage on the property in the amount of $1,330, secured by
the Sparks, Nevada real estate. The agreement calls for principal and
interest payments over a seven year term using a fifteen year amortization
period. The note cannot be prepaid during the first two years of its term.
In connection with the acquisition of the original seven stores, the
Company entered into a purchase agreement for the Auburn, Washington
facility subject to the completion by Case of certain environmental
remediation. In December 1995, after completion of the remediation, the
Company entered into a sale-leaseback transaction with an unrelated party
regarding the Auburn facility which resulted in no gain or loss to the
Company. The term of the lease is 20 years at an initial annual rate of
$204. In addition to base rent, the Company is responsible for the payment
of all related taxes and other assessments, utilities, insurance and
repairs with respect to the leased real property during the term of the
lease. In accordance with SFAS 13, the building portion of the lease is
being accounted for as a capital lease (see Note 9) while the land portion
of the lease qualifies for treatment as an operating lease.
The Company has inventory floor plan financing arrangements with Case
Credit Corporation, an affiliate of Case, for Case inventory and with other
finance companies affiliated with other equipment manufacturers. The terms
of these agreements generally include a four-month to eight-month interest
free term followed by a term during which interest is charged. Principal
payments are generally due at the earlier of sale of the equipment or
twelve to forty-eight months from the invoice date. The Company also has
an inventory credit facility with Seafirst Bank to provide up to $17,000
for the purchase of new and used equipment held for sale as well as
equipment held for rental. Principal payments under this line are
generally due in periodic installments over terms ranging from twelve to
twenty-four months from the borrowing date. This credit facility is
subject to annual review and expires June 1, 1997. All floor plan debt is
classified as current since the inventory to which it relates is generally
sold within twelve months of the invoice date. The following table
summarizes the inventory floor plan financing arrangements:
July 31,
Interest Maturity ---------------------
Rate Date 1996 1995
---- ---- ---- ----
Case Credit Corporation Prime + 2% 8 - 48 $38,501 $32,215
(10.25%) months
Seafirst Bank Prime + .25% 12 - 24 14,352 3,885
(8.50%) months
Other finance companies Prime + 2% 12 - 48 1,511 1,889
(10.25%) months ------- --------
$54,364 $37,989
------- -------
------- -------
F-10
<PAGE>
7. INCOME TAXES
The provision for income taxes is comprised of the following:
` Year Ended
----------------------------------
July 31, July 31, July 31,
1996 1995 1994
-------- -------- --------
Current:
Federal $ 1,242 $ 1,000 $ 592
State 96 56 39
-------- ------- ------
1,338 1,056 631
-------- ------- ------
Deferred:
Federal (50) (64) (65)
State (5) (3) (2)
-------- ------- ------
(55) (67) (67)
-------- ------- ------
Total provision for income taxes $ 1,283 $ 989 $ 564
-------- ------- ------
-------- ------- ------
The principal reasons for the variation from the customary relationship
between income taxes at the statutory federal rate and that shown in the
statement of operations were as follows:
Year Ended
------------------------------
July 31, July 31, July 31,
1996 1995 1994
---- ---- ----
Statutory federal income tax rate $ 1,143 $ 884 $ 709
State income taxes, net of
federal income tax benefit 91 54 31
Purchase accounting adjustments - 5 (180)
Other 49 46 4
------ ----- -----
$ 1,283 $ 989 $ 564
------ ----- -----
------ ----- -----
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities were as follows:
July 31, July 31,
1996 1995
--------- ----------
Deferred liabilities:
Depreciation and amortization $ (348) $ (281)
Goodwill and intangibles (35) (18)
-------- ---------
(383) (299)
-------- ---------
Deferred assets:
Inventory reserve 223 207
Bad debt reserve 189 133
Accrued vacation and bonuses 91 77
Other accruals 53 -
-------- ---------
556 417
-------- ---------
$ 173 $ 118
-------- ---------
-------- ---------
F-11
<PAGE>
8. STOCKHOLDERS' EQUITY
The Company plans to adopt Statement of Financial Accounting Standard No 123
(SFAS 123), Accounting for Stock-Based Compensation in Fiscal 1997. SFAS 123
was issued by the Financial Accounting Standards Board in October 1995 and
allows companies to choose whether to account for stock-based compensation on
a fair market value method or to continue to account for stock-based
compensation under the current intrinsic value method as prescribed by APB
Opinion No 25, Accounting for Stock Issued to Employees. The Company plans
to continue to follow the provisions of APB Opinion No 25 and therefore
management believes that the impact of adoption will not have a significant
effect on the Company's position or results of operations.
INITIAL PUBLIC OFFERING
On June 14, 1995, the Company completed an initial public offering of
1,300,000 shares of common stock at $6.50 per share. In addition, on July
28, 1995, the underwriter exercised its overallotment option for an
additional 195,000 shares. The net proceeds of the offering were $7,801
including $1,102 from the exercise of the overallotment option which was
received in cash subsequent to July 31, 1995. Such balance is included in
current assets at July 31, 1995.
BRIDGE LOAN
In February, 1995 the Company issued promissory notes to certain investors in
exchange for $250 (the "Bridge Notes"). These notes bore interest at 10
percent per annum and were due and payable on the earlier of the closing of a
public offering or July 31, 1995. In connection with the issuance of the
Bridge Notes, the Company issued 38,462 shares of common stock resulting in
deferred debt issuance costs of $290, which included $40 of related costs.
These bridge notes were paid off subsequent to the successful completion of
the Company's initial public offering in June 1995. The deferred debt
issuance costs were amortized over the term of the notes.
STOCK OPTION PLAN
In March 1995, AUGI, as the sole stockholder of the Company, approved the
Company's 1995 Stock Option Plan, as previously adopted by the Board of
Directors (the "Plan"), under which key employees, officers, directors and
consultants of the Company can receive incentive stock options and non-
qualified stock options to purchase up to an aggregate of 300,000 shares of
the Company's common stock. In December 1995, the stockholders amended the
1995 stock option plan to increase the number of shares underlying the plan
from 300,000 to 850,000 shares. The Plan provides that the exercise price of
incentive stock options be at least equal to 100 percent of the fair market
value of the common stock on the date of grant. With respect to non-qualified
stock options, the Plan requires that the exercise price be at least 85
percent of fair value on the date such option is granted. Upon approval of
the Plan, the Company's Board of Directors awarded non-qualified stock options
for an aggregate of 200,000 shares, all of which provide for an exercise price
of $6.50 per share. On December 28, 1995, the exercise price of the options
previously granted was lowered to $4.50 per share, the market price as of that
date. All outstanding options are exercisable commencing August 1, 1996 and
expire on July 31, 2005.
Subsequent to July 31, 1996, the Board of Directors approved the grant of an
additional 347,000 options to employees, directors and consultants of the
Company at an exercise price of $4.375 per share, the market price as of the
date of grant. These options vest ratably over a two-year period commencing
August 1, 1996.
F-12
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and certain computer equipment and
software under noncancelable lease agreements. As more fully described in
Notes 3 and 6, the building portion of two of the Company's facility leases
qualify under SFAS 13 as "capital leases" (i.e., an acquisition of an asset
and the incurrence of a liability). The remaining facility lease
agreements have terms ranging from one to five years. Certain of the
facility lease agreements provide for options to renew and generally
require the Company to pay property taxes, insurance, and maintenance and
repair costs. Total rent expense under all operating leases aggregated
$924, $733, and $435 for the years ended July 31, 1996, 1995 and 1994,
respectively. The computer equipment lease expires February 1997 and meets
certain specific criteria to be accounted for as a capital lease.
Assets recorded under capital leases are as follows:
JULY 31, JULY 31, JULY 31,
1996 1995 1994
------ -------- --------
Capitalized asset value 1,836 $ 170 $ 170
Less accumulated amortization (134) (54) (20)
------ ------- -------
1,702 $ 116 $ 150
------ ------- -------
------ ------- -------
Future minimum lease payments under all non-cancelable leases as of July
31, 1996, are as follows:
CAPITAL OPERATING
YEAR ENDING JULY 31, LEASES LEASES
-------------------- ------- ---------
1997 $ 217 $ 982
1998 179 914
1999 179 687
2000 179 484
2001 205 310
Thereafter 4,000 2,793
------- -------
Total annual lease payments $ 4,959 $ 6,170
-------
-------
Less amount representing interest 3,257
-------
Present value of minimum lease payments 1,702
Less current portion 46
-------
Long-term portion $ 1,656
-------
-------
10. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
QUARTER
-------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH YEAR
----- ------ ----- ------ -----
FISCAL 1996:
Net sales $23,153 $25,772 $26,136 $31,494 $106,555
Gross Profit 2,704 2,728 3,282 3,935 12,649
Net income 523 318 525 713 2,079
Net income per share .15 .09 .15 .20 .58
F-13
<PAGE>
10. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA (CONTINUED)
Fiscal 1995:
Net sales $18,810 $20,315 $20,772 $26,275 $86,172
Gross Profit 2,391 2,129 2,537 2,971 10,028
Net income 475 281 336 521 1,613
Net income per share .23 .14 .16 .19 .74
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Western Power & Equipment Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Western
Power & Equipment Corp. and its subsidiary at July 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Portland, Oregon
September 6, 1996
F-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Western Power & Equipment Corp.
Our audits of the consolidated financial statements referred to in our report
dated September 6, 1996 appearing on page F-13 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in
Item 8 of this Form 10-K. In our opinion, this Financial Statement Schedule
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Portland, Oregon
September 6, 1996
F-16
<PAGE>
SCHEDULE II
WESTERN POWER & EQUIPMENT CORP.
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended July 31, 1996, 1995 and 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- --------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE RESERVE:
Fiscal year ended July 31, 1996 $370 $353 $ --- $(204) $519
Fiscal year ended July 31, 1995 233 215 --- (78) 370
Fiscal year ended July 31, 1994 74 165 --- (6) 233
INVENTORY RESERVE:
Fiscal year ended July 31, 1996 449 470 --- (5) 914
Fiscal year ended July 31, 1995 439 50 --- (40) 449
Fiscal year ended July 31, 1994 500 --- --- (61) 439
</TABLE>
F-17
<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.
WESTERN POWER & EQUIPMENT CORP.
BY: /S/ C. DEAN MCLAIN
---------------------------------------
C. DEAN MCLAIN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ------
/S/ ROBERT M. RUBIN CHAIRMAN AND OCTOBER 28, 1996
- -------------------- DIRECTOR
ROBERT M. RUBIN
/S/ C. DEAN MCLAIN PRESIDENT, CHIEF OCTOBER 28, 1996
- ------------------- EXECUTIVE OFFICER
C. DEAN MCLAIN AND DIRECTOR
/S/ THOMAS D. BERKOMPAS TREASURER, CHIEF OCTOBER 28, 1996
- ----------------------- FINANCIAL AND
THOMAS D. BERKOMPAS ACCOUNTING OFFICER,
AND SECRETARY
/S/JAMES H. PENLAND DIRECTOR OCTOBER 28, 1996
- -----------------------
JAMES H. PENLAND
/S/HAROLD CHAPMAN, JR. DIRECTOR OCTOBER 28, 1996
- -----------------------
HAROLD CHAPMAN, JR.
<PAGE>
EXHIBIT 4.3
WESTERN POWER & EQUIPMENT CORP.
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSES.
The 1995 Stock Option Plan for Non-Employee Directors (the "Plan") is
established to attract, retain and compensate highly qualified individuals who
are not employees of Western Power & Equipment Corp.(the "Company") for service
as members of the Board of Directors ("Non-Employee Directors") and to provide
them with an ownership Interest in the Company's common stock (the "Common
Stock"). The Plan will be beneficial to the Company and its stockholders by
allowing these Non-Employee Directors to have a personal financial stake in the
Company through an ownership interest in the Company's common stock, in addition
to underscoring their common interest with stockholders in increasing the value
of the Company's stock over the long term.
2. EFFECTIVE DATE.
The Plan shall be effective as of the date it is adopted by the Board of
Directors of the Company, subject to the approval of the Plan by the holders of
at least a majority of the outstanding shares of Company common stock present,
or represented, and entitled to vote at the 1996 Annual Meeting of Stockholders.
Grants of options may be made under the Plan on and after its effective date,
subject to stockholder approval of the Plan as provided above. In the event
such approval is not obtained, any options granted under the Plan shall be null
and void.
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee appointed by the Board of
Directors and consisting of Directors who are not eligible to participate in the
Plan (the "Committee"), or by the full Board of Directors in the event that a
Committee has not been appointed (in the event that a Committee has not been
appointed, any action hereunder to be taken by the Committee shall be taken by
the Board of Directors). Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; PROVIDED, HOWEVER,
that the Committee shall have no discretion with respect to the eligibility or
Election of Non-Employee Directors to receive options under the Plan, the number
of shares of stock subject to any such options or the Plan, or the purchase
price thereunder; and PROVIDED FURTHER, that the Committee shall not have the
authority to take any action or make any determination that would materially
increase the benefits accruing to participants under the Plan. The Committee's
interpretation of the Plan, and all actions taken and determinations made by the
Committee pursuant to the powers vested in it hereunder, shall be conclusive and
binding upon all parties concerned including the Company, its stockholders and
persons granted options under the Plan. The Chairman of the Board and Chief
Executive Officer of the Company, or any other officer of the Company as
designated by the Committee, shall
<PAGE>
be authorized to implement the Plan in accordance with its terms and to take or
cause to be taken such actions of a ministerial nature as shall be necessary to
effectuate the intent and purposes thereof.
4. PARTICIPATION IN THE PLAN.
All active members of the Company's Board of Directors who are not as of
the date of any option grant employees of the Company or any of its subsidiaries
or affiliates shall be eligible to participate in the Plan. Directors emeritus
shall not be eligible to participate.
5. NON-QUALIFIED STOCK OPTIONS.
Only non-qualified stock options ("Options") may be granted under this
Plan.
6. TERMS, CONDITIONS AND FORM OF OPTIONS.
(A) OPTION GRANT DATES. Options to purchase Two Thousand Five Hundred
(2,500) shares of Common Stock (as adjusted pursuant to Section 8) shall be
automatically granted to each eligible Non-Employee Director on February 1, 1996
and on an annual basis to each eligible Non-Employee Director on each August 1
thereafter (or the first succeeding business day thereafter of which the Common
Stock is traded on the principal securities exchange on which it is listed).
(B) EXERCISE PRICE. The exercise price per share of Common Stock for
which each option is exercisable shall be 100% of the fair market value per
share of Common Stock on the date the Option is granted, which shall be the
average of the closing bid and asked prices of the stock (or the closing sale
price of the stock if traded on a national securities exchange) as generally
reported for the principal securities exchange on which the Company's Common
Stock is listed.
(C) EXERCISABILITY AND TERM OF OPTIONS. Each Option granted under the
Plan shall become fully exercisable on the date of grant. Each Option granted
under the Plan shall expire five years from the date of grant, and shall he
subject to earlier termination as hereinafter provided.
(D) TERMINATION OF SERVICE. In the event of the termination of service on
the Board by the holder of any Option, other than by reason of mandatory
retirement, permanent disability or death as set forth in paragraph (e) hereof,
the then outstanding Options of such holder shall be exercisable only to the
extent that they were exercisable on the date of such termination and shall
expire three months after such termination, or on their stated expiration date,
whichever occurs first.
-2-
<PAGE>
(E) RETIREMENT, DISABILITY OR DEATH. In the event of termination of
service by reason of mandatory retirement pursuant to Board policy or permanent
disability of the holder of any Option, each of the then outstanding Options of
such holder will continue to become exercisable in accordance with Section 6(c)
above, but the holder shall be entitled to exercise such Options, including any
portions thereof that become exercisable after such termination, within three
years of such termination, but in no event, after the expiration date of the
Option. In the event of the death of the holder of any Option, each of the then
outstanding Options of such holder shall become immediately exercisable in full,
and shall be exercisable by the holder's legal representative at any time within
a period of three years after death, but in no event after the expiration date
of the Option. However, if the holder dies within two years following
termination of service on the Board by reason of mandatory retirement or
permanent disability, such option shall be exercisable only until (x) the later
of (i) one year after the holder's death or (ii) two years after such
termination, or (y) the expiration date of the Option, if earlier.
(F) PAYMENT. The option price shall be paid in cash (whether or not such
cash is loaned by the Company to the participant for such purpose) or by the
surrender of shares of Common Stock of the Company, valued at their fair market
value on the date of exercise, or by any combination of cash and such shares.
7. SHARES OF STOCK SUBJECT TO THE PLAN.
The shares that may be purchased pursuant to Options under the Plan shall
not exceed an aggregate of 50,000 shares of Company Common Stock (as adjusted
pursuant to Section 8). Any shares subject to an Option grant which for any
reason expires or is terminated unexercised as to such shares shall again be
available for issuance under the Plan.
8. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of Company Common
Stock by reason of any stock split, stock dividend, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, such equitable adjustment shall be made in the Plan and the grants
thereunder, including the exercise price of outstanding Options, as the
Committee determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 7 of the
Plan. Such adjustment shall be conclusive and binding for all purposes of the
Plan.
9. MISCELLANEOUS PROVISIONS.
(A) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no
rights as a holder of Company Common Stock with respect to Option grants
hereunder, unless and until certificates for shares of such Common Stock are
issued to the participant.
-3-
<PAGE>
(B) ASSIGNMENT OR TRANSFER. No Options granted under the Plan or any
rights or interests therein shall be assignable or transferable by a participant
except by will or the laws of descent and distribution. During the lifetime of
a participant, Options granted hereunder are exercisable only by, and payable
only to, the participant.
(C) AGREEMENTS. All Options granted under the Plan shall be evidenced by
agreements or certificates in such form and containing such terms and conditions
(not inconsistent with the Plan) as the Committee shall adopt.
(D) COMPLIANCE WITH LEGAL REGULATIONS. During the term of the Plan and
the term of any Options granted under the Plan, the Company shall at all times
reserve and keep available such number of shares as may be issuable under the
Plan, and shall seek to obtain from any regulatory body having jurisdiction,
including the Office of the Secretary of State of the State of Georgia, any
requisite authority required in the opinion of counsel for the Company in order
to grant Options to purchase Shares of Company Common Stock or to issue such
stock pursuant thereto. If in the opinion of counsel for the Company the
transfer, issue or sale of any shares of its stock under the Plan shall not be
lawful for any reason, including the inability of the Company to obtain from any
regulatory body having jurisdiction authority deemed by such counsel to be
necessary to such transfer, issuance or sale, the Company shall not be obligated
to transfer, issue or sell any such shares. In any event, the Company shall not
be obligated to transfer, issue or sell any shares to any participant unless a
registration statement which complies with the provisions of the Securities Act
of 1933, as amended (the "Securities Act"), is in effect at the time with
respect to such shares or other appropriate action has been taken under and
pursuant to the terms and provisions of the Securities Act, or the Company
receives evidence satisfactory to the Committee that the transfer, issuance or
sale of such shares, in the absence of an effective registration statement or
other appropriate action, would not constitute a violation of the terms and
provisions of the Securities Act. The Company's obligation to issue shares upon
the exercise of any Option granted under the Plan shall in any case be subject
to the Company being satisfied that the shares purchased are being purchased for
investment and not with a view to the distribution thereof, if at the time of
such exercise a result of such issuance of shares would otherwise violate the
Securities Act in the absence of an effective registration statement relating to
such shares.
(C) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Option or to any
Non-Employee Director receiving an Option.
-4-
<PAGE>
10. AMENDMENT AND TERMINATION OF THE PLAN.
(A) AMENDMENT. The Committee may from time to time amend the Plan in
whole or in part; PROVIDED, that no such action shall adversely affect any
rights or obligations with respect to any Options theretofore granted under the
Plan, AND PROVIDED FURTHER, that the provisions of Sections 4 and 6 hereof may
not he amended more than once every six months, other than to comport with a
change in the Internal Revenue Code or regulations thereunder.
Unless the holders of at least a majority of the outstanding shares of
Company Common Stock present, or represented, and entitled to vote at a meeting
of stockholders shall have first approved thereof, no amendment of the Plan
shall be effective which would (i) increase the maximum number of shares
referred to in Section 7 of the Plan or the number of shares subject to Options
that may be granted pursuant to section 6(a) of the Plan to any one Non-Employee
Director or (ii) extend the maximum period during which Options may be granted
under the Plan.
With the consent of the Non-Employee Director affected, the Committee may
amend outstanding agreements or certificates evidencing Options under the Plan
in a manner not inconsistent with the terms of the Plan.
(B) TERMINATION. The Committee may terminate the Plan (but not any
Options theretofore granted under the Plan) at any time. The Plan (but not any
Options theretofore granted under the Plan) shall in any event terminate on, and
no Options shall be granted after, September 1, 2005.
11. COMPLIANCE WITH SEC REGULATIONS.
It is the Company's intent that the Plan comply in all respects with Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any related regulations. If any provision of this Plan is later
found not to be in compliance with such Rule and regulations, the provision
shall be deemed null and void. All grants and exercises of Options under this
Plan shall be executed in accordance with the requirements of Section 16 of the
Exchange Act and regulations promulgated thereunder.
12. GOVERNING LAW.
The validity and construction of the Plan and any agreements entered into
thereunder shall he governed by the laws of the State of Delaware.
-5-
<PAGE>
[LETTERHEAD]
REAL ESTATE PURCHASE AND SALE AGREEMENT
(WITH EARNEST MONEY PROVISION)
THIS CONTRACT CONTROLS THE TERMS OF THE SALE OF THE PROPERTY. READ CAREFULLY
BEFORE SIGNING.
Bellevue, Washington, September 22, 1995
Ford Kiene and/or Assings (herein called "Purchaser" hereby agrees to
purchase, and the undersigned Seller hereby agrees to sell the following real
estate located in the City of Auburn, County of King, State of Washington,
commonly known as 2702 West Valley Hwy. North, and legally described as: See
attached Exhibit A.
Purchaser and Seller hereby authorize Agent to insert over their signatures
the correct legal description or to correct legal description entered if it is
erroneous or incomplete, if Agent is instructed by both parties to insert
or correct the legal description.
TERMS OF SALE:
1. The total purchase price is Two Million two hundred and twenty-five
thousand dollars ($2,225,000) payable as follows: $50,000 as an
Earnest Money Deposit, (therein called "Deposit"), which sum is evidenced
by a check to be deposited within five (5) business days following mutual
execution of this agreement and which Deposit, together with this
Agreement, shall be held by First American Escrow-Seattle (herein
called "Escrow") and disposed of by Escrow as provided herein. The balance
of the purchase price shall be payable all cash at closing.
Purchaser shall have forty-five (45) days from the full execution of this
agreement to determine if, in the sole discretion of the purchaser, the
property is suitable for the purchaser's planned investment. If the
purchaser notifies the seller of his intent to close in writing, the
earnest money shall become non-refundable but applicable to purchase
price and closing shall occur December 1, 1995.
If purchaser determines that the property, in its sole discretion, is not
feasible for his investment, he shall notify seller in writing immediately
and neither party shall have any further obligation to the other.
2. Seller shall pay for and furnish an American Land Title Association
Extended form Owner's Policy of Title Insurance from First American Title
Insurance-Seattle, such policy to be effective on date of Closing.
Purchaser shall pay the incremental cost between said extended policy and
a standard policy. As soon as reasonably possible following the opening of
escrow, Purchaser shall be furnished with a preliminary commitment (herein
called "Commitment") on the subject property, together with full copies of
any exceptions set forth therein. Agent is expressly authorized to act in
behalf of Seller in ordering preliminary title insurance policy, and
Seller shall be responsible for any costs associated with same. Purchaser
shall have ten (10) days after receipt of the Commitment within which to
notify Seller and Escrow (as hereinafter defined) in writing of Purchaser's
disapproval of any exceptions shown in the Commitment, provided, however,
that rights reserved in Federal patents or State deeds, building or use
restrictions general to the district, existing easements not inconsistent
with Purchaser's intended use, and building or zoning regulations shall not
be deemed exceptions which Purchaser may disapprove. In the event of
disapproval of any exceptions as set forth in the Commitment, Seller shall
have until closing to attempt to eliminate any disapproved Exception(s)
from the Policy of Title Insurance to be issued in favor of
FWK TDB
----------------------- ---------------------
Initials - Purchaser Initials - Seller
<PAGE>
Purchaser and, if not eliminated by that date, the escrow and this
Agreement shall be terminated unless Purchaser then elects to waive
its prior disapproval. Failure of Purchaser to disapprove any exception(s)
within the aforementioned time limit shall be deemed an approval of the
Commitment.
3. Title shall be conveyed by Statutory Warranty Deed free of encumbrance or
defects except those noted in Paragraph 2.
4. Taxes for the current year, rents, insurance, mortgage reserves, water
and other utilities constituting liens shall be prorated as of date of
Closing. Local Improvement District assessments, if any, shall be paid
by Seller. Washington Real Estate Excise Tax shall be paid for by Seller.
5. This sale is subject to the execution of a lease by and between Purchaser
and Seller on or before date of Closing pursuant to which Seller leases
the Property from Purchaser under terms and conditions mutually agreed
upon by the parties as evidenced by the Letter of Intent attached hereto
as Exhibit B. Seller shall be entitled to possession on date of Closing
per terms and conditions of such lease. Purchaser agrees that Case
Corporation be allowed on the Property to undertake any continuing
remedial obligations.
6. Purchaser offers to purchase the property in its present condition as of
the date of this offer on the terms noted. Except as provided by Addendum
to this Agreement, Purchaser has investigated the Property, its value,
its condition - including, but not limited to the presence of asbestos,
hazardous materials and underground storage tanks - and its suitability
for Purchaser's intended use thereof. Seller hereby warrants that to the
best of its knowledge the premises described herein and the improvements
thereon do not violate the applicable building or zoning regulations and
that it is unaware of any material defect in the premises or improvements
thereon with the exception of the following, to wit: (If none - so
indicate).
See addendum for specific terms and conditions.
7. Seller's edit to Purchaser's offer is made subject to the acceptance of
Purchaser on or before twelve o'clock midnight on October 26, 1995. In
consideration of Agent submitting this offer, Purchaser agrees to keep
this offer in force until the above date, or until earlier rejection thereof
by Seller. Purchaser agrees that written notice of acceptance given to
Agent by Seller shall be notice to Purchaser. If Seller does not accept
this Agreement within the time specified, the Deposit shall be returned to
Purchaser on demand.
8. The sale shall be closed in the office of First American Escrow - Seattle
(herein called "Escrow") on December 1, 1995 or, in any event, not later
than December 31, 1995, which shall be the termination date. Purchaser and
Seller shall place with closing agent all instruments, documents and
monies necessary to complete the sale in accordance with this Agreement.
Escrow fee shall be paid one-half each by Seller and Purchaser.
9. For purposes of this Agreement, "date of Closing" shall be construed as
the date upon which all appropriate documents are recorded and proceeds of
this sale are available for disbursement to Seller. Funds held in reserve
accounts pursuant to escrow instructions shall be deemed, for purposes of
this definition, as available for disbursement to Seller.
10. If prior to date of Closing improvements on the premises shall be
destroyed or materially damaged by fire or other casualty, this Agreement,
at the option of Purchaser, shall become null and void.
11. This Agreement supersedes any and all agreements between the parties
hereto regarding the subject property which are prior in time to this
Agreement. Neither Purchaser, Seller nor Agent shall be bound by any
understanding, agreement, promise, representation or stipulation, express
or implied, not specified herein.
FWK TDB
----------------------- ---------------------
Initials - Purchaser Initials - Seller
<PAGE>
12. Purchaser may assign this Agreement and its rights hereunder to any
entity in which he owns a controlling interest and which agrees to
assume all of Purchaser's obligations and duties under this Agreement.
13. Any addendum attached hereto and either signed or initialed by the
parties shall be deemed a part hereof.
14. In the event any contingency to this Agreement has not been eliminated, or
waived in writing within the time limits and pursuant to the provisions
herein, this Agreement shall be deemed null and void, the Deposit shall
be returned to Purchaser, and the escrow shall be canceled.
15. If Purchaser, Seller or Agent, all and each as party(s) to this agreement,
brings suit to enforce or declare the meaning of any provision of this
Agreement, the prevailing party, in addition to any other relief, shall
be entitled to recover reasonable attorneys' fees and costs, also
including any on appeal.
16. If either party defaults hereunder, the other party may seek specific
performance of this Agreement, damages, or recission. If Seller
defaults, Purchaser shall be entitled to return of the Deposit on demand.
If Purchaser defaults, Seller shall have the right to receive the Deposit
from Escrow and retain it as liquidated damages.
17. Purchaser and Seller warrant to Agent and to each other that they have
dealt with no real estate broker in connection with this sale other than
Regency Group, Inc. and that no other broker is entitled to any commission
on account of this Agreement.
18. AGENCY DISCLOSURE: At the signing of this Agreement the selling procuring
agent represented Seller. Each party signing this document confirms that
prior oral and/or written disclosure of agency was provided to him/her
in this transaction.
19. The Foreign Investment in Real Property Tax Act (FIRPTA) IRC 1445,
requires that every purchaser of U.S. real property must, unless an
exemption applies, deduct and withhold from Seller's proceeds ten percent
(10%) of the gross sales price. The primary exceptions which might be
applicable are: (a) Seller provides Purchaser with an affidavit under
penalty of perjury, that Seller is not a "foreign person", as defined
in FIRPTA, or (b) Seller provides Purchaser with a "qualifying statement",
as defined in FIRPTA, issued by the Internal Revenue Service. Seller
and Purchaser agree to execute and deliver as appropriate, any
instrument, affidavit and statement, and to perform any acts reasonably
necessary to carry out the provisions of FIRPTA and regulations
promulgated thereunder.
20. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
21. Subject to First Addendum to Real Estate Purchase and Sale Agreement for
additional terms and conditions which are hereby incorporated by
reference.
FWK TDB
----------------------- ---------------------
Initials - Purchaser Initials - Seller
<PAGE>
I have read the "CONSULT YOUR ADVISORS" Purchaser: /s/Ford W. Kiene
paragraph on last page. -------------------
By: Ford W. Kiene
--------------------------
FWK TDB
----------- --------------
Initials Initials
By:
--------------------------
By:
--------------------------
REGENCY GROUP, INC. Address: P.O. Box 853 Kent, WA
98035-0853
-------------------------
By:
--------------------------
NOTE TO PURCHASER:
Both Spouses should sign.
On this 22nd day of September, 1995, I/We hereby approve and accept the sale
set forth in the above Agreement and agree to carry out all the terms thereof
on the part of Seller, and the undersigned further agrees to pay a
commission of five percent (5%) to Regency Group, Inc. in cash out of escrow
proceeds, for services rendered, through escrow at date of Closing. In the
event the Deposit is forfeited, it shall be apportioned to Seller and Agent
equally, provided the amount to Agent does not exceed the agreed commission.
I/We further acknowledge receipt of a true copy of this Agreement
with the complete legal description of the premises and signed by both
parties.
NOTE TO SELLER: Date: October 19, 1995
------------------------
Both Spouses should sign. Seller: Thomas D. Berkompas, CFO
------------------------
I have read the "CONSULT YOUR ADVISORS" By: Thomas D. Berkompas
paragraph on last page. ------------------------
FWK TDB
--------- --------- By:
Initials Initials --------------------------
By:
--------------------------
Address:
----------------------
A true and foregoing Agreement, signed by Seller containing the full and
complete legal description of the above designated property, is hereby
received on ____________________, 19__.
Purchaser: /s/ Ford W. Kiene
---------------------
CONSULT YOUR ADVISORS:
THIS IS A STANDARD FORM DOCUMENT THAT HAS BEEN PREPARED FOR APPROVAL BY YOUR
ATTORNEY. NO REPRESENTATION OR RECOMMENDATION IS MADE BY REGENCY GROUP, INC.
AS TO THE LEGAL SUFFICIENCY OR TAX CONSEQUENCES OF THIS DOCUMENT OR THE
TRANSACTION TO WHICH IT RELATES. THESE ARE QUESTIONS FOR YOUR ATTORNEY.
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER
PERSON, WITH EXPERIENCE IN EVALUATING THE CONDITION OF
FWK TDB
-------------------- -------------------
Initials - Purchaser Initials - Seller
<PAGE>
THE PROPERTY, INCLUDING THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS
MATERIALS AND UNDERGROUND STORAGE TANKS.
FWK TDB
-------------------- -----------------
Initials - Purchaser Initials - Seller
<PAGE>
SALE AND/OR LEASE HAZARDOUS MATERIALS
WARNING AND DISCLAIMER
Property: 2702 West Valley Highway North Auburn, WA
------------------------------------------------------------------
Various materials utilized in the construction of any Improvements to the
Property may contain materials that have been or may in the future be
determined to be toxic, hazardous or undesirable and may need to be
specially treated, specially handled and/or removed from the Property. For
example, some electrical transformers and other electrical components can
contain PCBs, and asbestos has been used in a wide variety of building
components such as fire-proofing, air duct insulation, acoustical tiles,
spray-on acoustical materials, linoleum, floor tiles and plaster. Due to
current or prior uses, the Property or Improvements may contain materials
such as metals, minerals, chemicals, hydrocarbons, biological or radioactive
materials and other substances which are considered, or in the future may be
determined to be, toxic wastes, hazardous materials or undesirable
substances. Such substances may be in above and below ground containers on
the Property or may be present on or in soils, water, building components or
other portions of the Property in areas that may or may not be accessible or
noticeable.
Current and future federal, state and local laws and regulations may require
the clean-up of such toxic, hazardous or undesirable materials at the expense
of those persons who in the past, present or future have had any interest in
the Property including, but not limited to, current, past and future owners
and users of the Property. Sellers and Purchasers are advised to consult with
independent legal counsel of their choice to determine their potential
liability with respect to toxic, hazardous, or undesirable materials. Sellers
and Purchasers should also consult with such legal counsel to determine what
provisions regarding toxic, hazardous or undesirable materials they may wish to
include in purchase and sale agreements, leases, options and other legal
documentation related to transactions they contemplate entering into with
respect to the Property.
The real estate salespersons and brokers in this transaction have no
expertise with respect to toxic wastes, hazardous materials or undesirable
substances. Proper inspections of the Property by qualified experts are an
absolute necessity to determine whether or not there are any current or
potential toxic wastes, hazardous materials or undesirable substances in or on
the Property. The real estate salespersons and brokers in this transaction
have not made, nor will make, any representations, either express or implied,
regarding the existence or nonexistence of toxic wastes, hazardous materials,
or undesirable substances on the Property. Problems involving toxic wastes,
hazardous materials or undesirable substances can be extremely costly to
correct. It is the responsibility of Sellers and Purchasers to retain
qualified experts to deal with the detection and correction of such matters.
SELLER PURCHASER
By: Thomas D. Berkompas By: Ford W. Kiene
--------------------------- --------------------------
Title: Chief Financial Officer Title: Owner
------------------------ -----------------------
Date: 10/19/95 Date: 9/22/95
------------------------ -----------------------
FWK TDB
-------------------- -----------------
Initials - Purchaser Initials - Seller
<PAGE>
FIRST ADDENDUM
to
REAL ESTATE PURCHASE AND SALE AGREEMENT
Seller: Western Power and Equipment, Inc.
Purchaser: Forde W. Kiene, or his assigns
This FIRST ADDENDUM TO REAL ESTATE PURCHASE AND SALE AGREEMENT is
executed for the purpose of amending the Real Estate Purchase and Sale
Agreement dated 9/22/95 between the above-named Seller and Purchaser. In the
event of a conflict between the terms and conditions of the Agreement and
this First Addendum, this First Addendum shall control.
Pursuant to Paragraph 21 of the Real Estate Purchase and Sale Agreement,
the following terms and conditions added to the Agreement:
1. SELLER'S REPRESENTATIONS AND WARRANTIES. As inducement to Purchaser
to purchase the Property and intending that the representations and
warranties contained herein shall survive the Closing, whether or not
contained in any closing instrument, Seller warrants and represents to
Purchaser that as of the date of this Agreement and on the date of
Closing, to the best of Seller's knowledge and after reasonable inquiry
by its management and employees:
(a) NO CLAIM OF LIENS.
There are no claims against any portion of the Property or
against Seller arising out of, or on account of, work done, labor
performed, materials or supplies furnished, or services or utilities
supplied to the Property.
(b) PHYSICAL CONDITION OF PROJECT.
Except as disclosed in Paragraph 1(n) herein regarding
hazardous substances, the Property (including without limitation, all
structural features and operating systems) is in good condition and
repair and does not require other than routine maintenance.
(c) VIOLATIONS OF LAWS.
Except as disclosed in Paragraph 1(n) herein regarding
hazardous substances, there are no violations of any laws, statutes,
ordinances, rules or regulations with respect to the Property open,
noticed or existing.
FIRST ADDENDUM TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -1
<PAGE>
(d) AGREEMENTS OF SALE; OPTIONS; LEASES; ENCUMBRANCES.
The Property is not subject to any outstanding agreements of
sale, or any options, liens, or other rights of third parties to
acquire any interest therein except as described in this Agreement.
The Property is not subject to any ground lease or other lease, or
other encumbrances (other than the Permitted Exceptions to Title)
and an existing deed of trust in favor of Case Corporation which
will be satisfied at closing.
(e) UNPAID ASSESSMENTS.
There are no unpaid assessments for public improvements
against the Property. The Property is not subject to assessments for any
street paving or curbing heretofore laid. Sewer, water, gas and electric
lines adequate to service the Property are located on, or adjacent to, the
Property, and there are no unpaid assessments or charges for the
installation of such utilities or for making connection thereto that have
not been fully paid. There are no special assessments or preliminary
assessments of any kind which will affect the Property.
(f) PUBLIC PLANS; MUNICIPAL IMPROVEMENTS.
There are no public plans or proposals for changes in road grade,
access or other municipal improvements which would affect the Property or
result in any assessment. No ordinance authorizing improvements, the cost
of which might be assessed against Purchaser or the Property, is pending.
There is no tax certiorari proceeding pending for the reduction or
increase of the assessed real estate tax valuation to the Property or any
portion thereof.
(g) CONDEMNATION PROCEEDINGS.
No condemnation proceedings, eminent domain proceedings or
similar actions or proceedings are now pending or threatened against the
Property.
(h) BUILDING CODES: ZONING LAWS.
The Property was planned, developed and built in conformity
with all applicable subdivision, development, building and zoning laws,
rules, codes or regulations, and none of such laws, rules, codes or
regulations are violated by the current condition, use or operation of
the Property and the current condition, use and operation do not
constitute a nonconforming use.
FIRST ADDENDUM TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -2
<PAGE>
(i) ACCURACY OF INFORMATION.
All information heretofore or hereafter submitted to Purchaser
by Seller in connection with Purchaser's purchase of the Property is and
will be complete and correct to the best of Seller's knowledge and after
reasonable inquiry of its management and employees. Seller is not aware
of any omission to supply Purchaser with any material information
concerning to the Property, its history, prospects, use or operations or
any information which should be disclosed to prevent the information
already supplied from being misleading.
(j) TITLE TO PROPERTY.
Seller is the legal and equitable owner of good, marketable and
indefeasible fee simple title to the Property and will convey such fee
simple title to Purchaser on the date of Closing free and clear of all
options, rights, covenants, easements, liens, encumbrances, security
interests and rights in favor of or claimed by any third parties, other
than those disclosed on the Commitment and accepted by Purchaser
pursuant to the terms of this Agreement.
(k) OPERATING PERMITS.
Seller possesses all licenses, certificates, and permits that
are required to own, operate, use and maintain the Property in its
current condition and for its current use. Except as disclosed in
Paragraph 1(n) herein regarding hazardous substances, Seller has not
received any notice, nor is Seller aware of, any violation of an
applicable building, land use, zoning or other ordinance, resolution,
statute or regulation of any governmental agency, including, but not
limited to, environmental control agencies with respect to the operation,
use, maintenance, condition or operation of the Property or any portion
thereof, or requiring any repairs of alterations to the Property or any
portion thereof.
(l) OUTSTANDING LITIGATION.
Seller is not now a party to any litigation: (i) with any
present or former owner or tenant of the Property, (ii) with any person
having any interest in the Property, (iii) with any person or entity
claiming a lien against the Property; or (iv) with any person or entity
affecting or questioning Seller's title to the Property or Seller's
ability to perform its obligations under this Agreement. Seller knows of
no litigation, threatened litigation, administrative proceeding or
investigation affecting or questioning Seller's title to, or use of,
FIRST ADDENDUM TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -3
<PAGE>
or power to convey the Property or any portion thereof to Purchaser.
Seller will give Purchaser prompt notice of the institution of any
such action of which it becomes aware prior to the date of Closing.
(m) CONFLICT WITH EXISTING AGREEMENTS AND LAWS.
Neither the execution of this Agreement nor the closing of the
transaction contemplated hereby will: (i) constitute a default or result
in a material breach of the terms, conditions or provisions of any
agreement or instrument to which Seller is a party; (ii) violate any
restriction to which Seller or the Property is subject; (iii) constitute
a violation of any applicable code, resolution, law, statute, regulation,
ordinance, judgment, rule, decree or order to which Seller or the
Property is subject; or (iv) result in the creation of any lien, charge
or encumbrance upon the Property or any portion thereof.
(n) FREE OF HAZARDOUS MATERIALS; SPECIAL HAZARDS.
The Property is currently undergoing remediation for certain
lead contamination which occurred prior to Seller's purchase of the
property. Purchaser has been provided with certain reports regarding
the condition of the Property and remediation work proposed on the
Property, including those listed on Exhibit 1 attached hereto (the
"Reports"). Pursuant to a purchase and sale agreement between Seller and
Case Corporation ("Case") dated December 9, 1992 and an agreement
dated July 15, 1993 between Seller and Case, Case is obligated to
undertake cleanup of the contamination referenced in the Reports
and bring the Property into compliance with all applicable laws. Seller
makes no representations and warranties regarding the cleanup activities
of Case or the information set forth in the Reports. Except as otherwise
set forth in the Reports the Property (including surface and ground
water) is free of all contamination from: (a) any "hazardous waste"
as defined by the Resource Conservation and Recovery Act of 1976, as
amended from time to time, and regulations promulgated thereunder;
(b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, and regulations promulgated thereunder;
(c) any substance, the presence of which on the Property is restricted
or prohibited by any federal, state or local environmental protection
law similar to those set forth in this paragraph. There are no
underground fuel storage tanks on the Property.
(m) Seller shall not take nor cause to be taken any action which
would cause any of the representations or warranties made by Seller
herein to become false or incomplete as of the date of Closing. Seller
shall promptly notify Purchaser in writing of the ocurrence of any
event or condition which occurs prior to the date of Closing which
could cause a change in the facts related to the truth, accuracy or
completeness of any of the representations or warranties stated herein.
2. Seller shall indemnify against and hold Purchaser harmless from all
claims, damages, liability, costs and expenses arising from any
environmental condition which existed on the Property prior to the date
of Closing and which may arise after the date of Closing as a result
of Seller's occupation of the Property as a tenant. At Closing, Seller
shall execute a Certificate and
FIRST ADDENDUM TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -4
<PAGE>
Indemnity Regarding Hazardous Substances in the form attached hereto as
Exhibit "A" To Addendum which is incorporated herein by reference.
Dated this 22nd day of September, 1995.
Seller: Purchaser:
Thomas D. Berkompas Forde W. Kiene
- ----------------------------- ------------------------------
Chief Financial Officer
- ----------------------------- ------------------------------
- ----------------------------- ------------------------------
- ----------------------------- ------------------------------
FIRST ADDENDUM TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -5
<PAGE>
EXHIBIT 1
to
FIRST ADDENDUM TO REAL ESTATE PURCHASE AND SALE AGREEMENT
ENVIRONMENTAL REPORTS
AUBURN FACILITY
PHASE ONE ENVIRONMENTAL ASSESSMENT, J.I. CASE AUBURN, WASHINGTON; completed
by Conestoga-Rovers & Associates, Inc., for J.I. Case Company, dated June 8,
1992.
UNDERGROUND STORAGE TANKS, HYDROGEOLOGIC ASSESSMENT, FORMER J.I. CASE
DEALERSHIP, AUBURN, WASHINGTON; completed by Conestoga-Rovers & Associates,
Inc., for J.I. Case Company, dated May, 1993.
UST CLOSURE REPORT, USED OIL TANK, FORMER J.I. CASE DEALERSHIP, AUBURN,
WASHINGTON; completed by Conestoga-Rovers & Associates, Inc., for J.I. Case
Company, dated May, 1993.
UST CLOSURE REPORT, GASOLINE AND DIESEL FUEL TANKS, FORMER J.I. CASE
DEALERSHIP, AUBURN, WASHINGTON; completed by Conestoga-Rovers & Associates,
Inc., for J.I. Case Company, dated June 8, 1992.
FINAL ENVIRONMENTAL INVESTIGATION AND REMEDIATION REPORT, FORMER J.I. CASE
DEALERSHIP, AUBURN, WASHINGTON; completed by Conestoga-Rovers & Associates,
Inc., for J.I. Case Company, dated August, 1994.
INDEPENDENT REMEDIAL ACTION REPORT FOR FORMER J.I. CASE DEALERSHIP, AUBURN,
WASHINGTON; completed by EMCON Northwest, Inc., for Case Corporation, dated
September 19, 1994.
REMEDIAL ACTION WORK PLAN, FORMER J.I. CASE DEALERSHIP, AUBURN, WASHINGTON;
completed by EMCON Northwest, Inc., for Case Corporation, dated
October 14, 1994.
AUBURN REMEDIATION SCHEDULE, FORMER CASE AUBURN, WASHINGTON DEALERSHIP, Case
Corporation Internal Memorandum, dated 31 August 1995.
<PAGE>
EXHIBIT A
to
REAL ESTATE PURCHASE AND SALE AGREEMENT
Seller: Western Power and Equipment, Inc.
Purchaser: Forde W. Kiene, or his assigns
DESCRIPTION OF PROPERTY
The "Property" to be sold by Seller and purchased by Purchaser shall
include:
1. The real property located at 2702 West Valley Highway North, Auburn,
King County, Washington and legally described as:
PARCEL A:
LOT 4, CITY OF AUBURN SHORT PLAT NO. SP-31-79, AS RECORDED UNDER KING
COUNTY RECORDING NO. 8302030070, BEING A CORRECTION OF SHORT PLAT
SURVEY RECORDED UNDER KING COUNTY RECORDING NO. 7912260411; EXCEPT THAT
PORTION AS CONVEYED TO THE CITY OF AUBURN UNDER KING COUNTY RECORDING
NO. 8107150753.
PARCEL B:
LOT 3 AND THE SOUTH 143.08 FEET OF LOT 2, CITY OF AUBURN SHORT PLAT NO.
32-79, AS RECORDED UNDER KING COUNTY RECORDING NO. 8005080385, BEING A
CORRECTION OF SHORT PLAT SURVEYS RECORDED UNDER KING COUNTY RECORDING
NOS. 8003130699 AND 7912260412; EXCEPT THAT PORTION CONVEYED TO THE CITY
OF AUBURN UNDER KING COUNTY RECORDING NO. 8407230781.
BOTH SITUATE IN THE COUNTY OF KING, STATE OF WASHINGTON.
together with all rights of way, privileges and appurtenances pertaining
thereto, including any right, title and interest of Seller in and to any
street
EXHIBIT "A" TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -1
<PAGE>
adjoining any portion of the real property.
2. All structures, buildings, compressors, appliances, engines,
electrical, plumbing, heating, ventilating, and air conditioning machinery,
systems and personal property of every kind, character and description
appurtenant thereto.
3. All personal property of whatever kind and description located on,
incorporated into or used in connection with the operation of the real
property, except such personal property as is specifically identified and
described on the "Schedule of Excluded Personal Property" attached hereto as
EXHIBIT ____.
4. All service contracts and personal property leases related to the
personal property acquired by Purchaser to the extent Purchaser shall elect
to assume the same.
EXHIBIT "A" TO
REAL ESTATE PURCHASE
AND SALE AGREEMENT -2
<PAGE>
CERTIFICATE AND INDEMNITY REGARDING HAZARDOUS SUBSTANCES
In connection with and as partial consideration for the purchase of the
Property by Purchaser, Seller hereby certifies and agrees as follows:
A. Seller unconditionally and absolutely agrees to defend, indemnify and
hold harmless Purchaser and its directors, officers, employees, and agents
from and against any and all damages, diminution in value, penalties, fines,
losses, liabilities, causes of actions, suits, claims, demands, costs and
expenses, including all out-of-pocket litigation costs and the reasonable
fees and expenses of counsel and the costs and related expenses of any
clean-up, of any nature, directly or indirectly arising out of or in
connection with: (a) incompleteness of any representation or warranty of
Seller; or (b) any activities on the Property prior to the date of Closing
which directly or indirectly result in the Property or any adjacent property
becoming contaminated with Hazardous Substances as a result of activities on,
or the contamination of, the Property.
B. As used herein, the term "Hazardous Substances" means: any substance
or material defined or designated as hazardous or toxic waste, hazardous or
toxic material, a hazardous, toxic or radioactive substance, or other similar
term, by any federal, state or local environmental statute, regulation, or
ordinance presently in effect or that may be promulgated in the future, as
such statutes, regulations and ordinances may be amended from time to time,
including, but not limited to, the statutes listed below:
1. Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901, et seq.
2. Federal Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq.
3. Federal Clean Air Act, 42 U.S.C. Sections 7401-7626
4. Federal Water Pollution Control Act, Federal Clean Water Act of 1977,
33 U.S.C. Section 1251, et seq.
5. Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide
Act of 1978, 7 U.S.C. Paragraph 136, et seq.
6. Federal Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.
7. Federal Safe Drinking Water Act, 42 U.S.C. Section 300(f), et seq.
8. Washington Water Pollution Control Act, RCW Chapter 90.48, et seq.
9. Washington Clean Air Act, RCW Chapter 70.94, et seq.
10. Washington Solid Waste Management Act, RCW Chapter 70.95
11. Washington Hazardous Waste Management Act, RCW Chapter 70.105, et
seq.
12. Washington Nuclear Energy and Radiation Act, RCW Chapter 70.98, et
seq.
13. Washington Radioactive Waste Storage and Transportation Act, RCW
Chapter 70.99, et seq.
CERTIFICATE AND INDEMNITY
REGARDING HAZARDOUS SUBSTANCES -1
<PAGE>
C. These provisions shall be binding upon the Seller's heirs,
representatives, successors and assigns and shall inure to the benefit of the
Purchaser's heirs, representatives, successors and assigns. Purchaser shall
not be required to proceed against any other entity or individual before
proceeding against Seller. Seller's liability and warranties shall survive
the date of Closing and Seller's occupancy of the premises.
D. In any suit, action, or appeal therefrom, to enforce or interpret
this Certificate, the prevailing party shall be entitled to recover its
reasonable attorney fees and litigation costs incurred therein. Such costs
shall be paid within thirty (30) days of receipt by the non-prevailing party
of an invoice for such costs. If such an invoice is not paid within the
thirty-day period, then interest shall accrue on the amount due at the rate
of 6.0% over the prime rate of interest as established by Seattle-First
National Bank in effect from time to time.
E. The rights and remedies of the parties hereunder are not exclusive
but shall be concurrent and cumulative with all other rights and remedies
given by law. Any failure on the part of the Purchaser to promptly exercise
any right, remedy or option herein given or reserved, shall not prevent the
exercise thereof at any time thereafter.
F. This Certificate may only be amended in writing signed by the
Purchaser and the Seller.
G. The invalidity of any one or more covenants, phrases, clauses,
sentences or paragraphs of this Certificate shall not affect the remaining
portions hereof and this Certificate shall be construed as if such invalid
covenants, phrases, clauses, sentences or paragraphs, if any, have not been
included herein.
IN WITNESS WHEREOF, the Seller named below has executed this Certificate
and Indemnity Regarding Hazardous Substances as of this 19th day of
October, 1995.
WESTERN POWER AND EQUIPMENT, INC.
By: /s/ Thomas D. Berkompas
-----------------------------
Its: Chief Financial Officer
-----------------------------
CERTIFICATE AND INDEMNITY
REGARDING HAZARDOUS SUBSTANCES -2
<PAGE>
EXHIBIT B
August 15, 1995
John Emanuels
Regency Group, Inc.
11711 S.E. 8th Street, Suite 310
Bellevue, WA 98005
RE: Western Power and Equipment, Inc. Building
2702 West Valley Highway North
Auburn, Washington ("Property")
Dear John:
After investigating the Property, I have written a Letter of Intent ("LOI")
to formalize my interest in pursuing a sale leaseback with you on the
Property. This letter will summarize the basic terms of a Purchase and Sale
Agreement (the "Purchase Agreement") and corresponding Lease Agreement
("Lease") by and between Ford W. Kiene and/or assigns ("Purchaser or Lessor")
and Western Power and Equipment, Inc. ("Seller or Lessee").
Purchaser and Seller shall, in good faith, attempt to negotiate a Purchase
Agreement, which shall grant to purchaser, the exclusive right to purchase
marketable title to the Property, free and clear of any deeds of trust,
mortgages, liens or other encumbrances.
The following shall apply to the Purchase Agreement.
1. PURCHASE PRICE. $2,225,000 cash at closing including Earnest Money
Deposit.
2. EARNEST MONEY DEPOSIT. Within five (5) business days following the date
of mutual execution of the Purchase Agreement, Purchaser shall deposit in
Escrow an Earnest Money Deposit in the form of a check in the amount of
$50,000.00.
3. Customary prorations will be applicable to Purchaser and Seller. Seller
will pay excise tax.
4. Purchaser and Purchaser's agents, employees and independent contractors
shall have the right and the privilege to enter upon the Property at a time
that has previously been arranged with Seller to inspect the Property and to
conduct soils and other geological, engineering, environmental, wetlands,
archaeological and related tests, studies and surveying in connection with
determining the condition and suitability of the Property for Purchaser's
intended use. All such tests shall be at Purchaser's expense. Purchaser
covenants and agrees to indemnify and hold harmless Seller from any and all
liability, costs, claims, demands, damages, actions, causes of action and
suits arising out of the exercise by Purchaser of Purchaser's rights under
this paragraph, with the exception of any of the foregoing arising from any
pre-existing hazardous materials or conditions.
<PAGE>
5. Promptly after mutual acceptance of the Purchase Agreement, Seller shall
supply Purchaser with copies of all surveys, plans, drawings, loan documents,
title policies and documents referred to therein, occupancy permits,
conditional use permits, engineering and traffic reports, soil studies,
environmental and wetlands studies, geological studies and all other studies,
tests, and documents related to the Property in the possession of Seller and
its agents and independent contractors. During the term of this Agreement,
Seller shall keep Purchaser apprised of any changes in any of the foregoing
and any additional information received by Seller relating to the Property.
6. The Purchase Agreement shall also include, by way of illustration and
not limitation:
a. Extended title and survey provisions which shall allow Purchaser
to review the same with an opportunity to object, if necessary.
Purchaser shall pay the incremental cost between a `standard' policy
and `extended' policy.
b. Customary Seller representations and warranties.
7. Seller during the term of this LOI agrees not to advertise, list or
offer the Property for sale or discuss the sale of the Property with any
party other than Purchaser. In addition, during the term of this Agreement,
Seller shall not take any action which encumbers or materially affects the
Property.
8. DUE DILIGENCE PERIOD. Purchaser shall have forty-five (45) days from
the date of mutual acceptance of the Purchase Agreement to review all items
related to the Property and provide written notice of acceptance of those
items to Seller. Failure to provide said notice will make the Purchase
Agreement null and void and the Earnest Money Deposit will be immediately
returned to the Seller.
9. CLOSING. I understand the closing date needs to be flexible at this
time with a target date of December 1, 1995. The closing date would need to
be specific within the purchase and sale agreement.
10. COMMISSION. Seller agrees to pay a commission of five percent (5%) of
the Purchase Price to Regency Group, Inc. in cash through escrow upon closing.
11. AGENCY DISCLOSURE. At the signing of this agreement Regency Group, Inc.
represents the Seller. Each party signing this document confirms that prior
oral and/or written disclosure of agency was provided to him/her in this
transaction.
12. HAZARDOUS MATERIALS AND/OR WASTE. Purchaser requires indemnification
regarding Hazardous Materials and/or Waste to the full extent of the law
within the purchase and sale agreement and its related lease.
2
<PAGE>
Along with the Purchase Agreement the Purchaser and Seller shall, in good
faith, attempt to execute the lease.
The following shall apply to the Lease:
A. Premises. The Entire Property.
B. Term. Twenty (20) years/two hundred forty (240) months.
Commencement Date. The 1st day immediately following date of closing
the sale. If closing does occur on the first day of the month, the first
months rental will be prorated accordingly.
C. Net Rent
Months 1-60 $17,000
Months 61-120 $19,000
Months 121-180 at market* to be determined 18 months prior to lease
expiration.**
Months 181-240 at market* to be determined 18 months prior to lease
expiration.
D. Lease Type. The lease shall be written as a net lease by which the Lessee
pays for, by way of illustration and not limitation, the following:
1. Real Estate taxes, assessments and LID's.
2. Insurance.
3. All maintenance and repairs, excluding roof, walls, foundation.
E. HAZARDOUS MATERIALS AND/OR WASTE. Purchaser requires indemnification
regarding Hazardous Materials and/or Waste to the full extent of the law
within the purchase and sale agreement and its related lease.
It is understood that this LOI shall not be deemed to be a binding contract
and is subject to the execution of the Purchase Agreement and Lease, in form
and substance mutually acceptable to Purchase/Lessor and Seller/Lessee. If
the Purchase Agreement and its related lease has not been executed within
forty five (45) days from the date of Seller's acceptance hereof, unless such
date is extended in writing by Purchaser/Lessor and Seller/Lessee, this
Agreement shall automatically terminate and be of no further force or effect.
3
<PAGE>
If the foregoing meets with your approval, please execute the enclosed
duplicate copy of this Agreement and return the same to Purchaser/Lessor. If
such copy is not received within fourteen (14) days from the date hereof,
fully executed by Seller/Lessee, it shall be of no further force or effect.
Very truly yours,
/s/ Ford W. Kiene
Ford W. Kiene
P.O. Box 1357
Kent, WA 98035-1357
Accepted and agreed to this 5th day of September, 1995.
By: /s/ Tom Berkompas
Its duly authorized: Vice President of Finance & CFO
-----------------------------
* Market lease rate shall be determined by lessee and lessor each hiring a
local real estate broker/agent who will jointly hire a third broker/agent to
submit an opinion of lease rates for the following five year term. The three
lease rate opinions will be averaged to arrive at the lease rate for the
following five year term. The cost incurred to obtain the third opinion will
be split by the purchaser and seller.
** Resulting market value shall not be less than $21,000 per month, net nor
greater than $24,000 per month, net.
4
<PAGE>
TABLE OF CONTENTS
1. Occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Original Term. . . . . . . . . . . . . . . . . . . . 1
1.2 Possession.. . . . . . . . . . . . . . . . . . . . . 1
2. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Base Rent. . . . . . . . . . . . . . . . . . . . . . 1
2.2 Determination of Market Rate . . . . . . . . . . . . 2
2.3 Additional Rent. . . . . . . . . . . . . . . . . . . 2
3. Use of the Premises. . . . . . . . . . . . . . . . . . . . . . 2
3.1 Permitted Use. . . . . . . . . . . . . . . . . . . . 2
3.2 Restrictions on Use. . . . . . . . . . . . . . . . . 2
3.3 Signage. . . . . . . . . . . . . . . . . . . . . . . 3
3.4 Hazardous Substances . . . . . . . . . . . . . . . . 3
4. Repairs and Maintenance. . . . . . . . . . . . . . . . . . . . 5
4.1 Landlord's Obligations . . . . . . . . . . . . . . . 5
4.2 Tenant's Obligations . . . . . . . . . . . . . . . . 5
4.3 Repairs to Comply with Laws. . . . . . . . . . . . . 5
4.4 Landlord's Interference with Tenant. . . . . . . . . 6
4.5 Reimbursement for Repairs Assumed. . . . . . . . . . 6
4.6 Inspection of Premises . . . . . . . . . . . . . . . 6
5. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Alterations Prohibited . . . . . . . . . . . . . . . 6
5.2 Ownership and Removal of Alterations . . . . . . . . 7
6. Insurance; Indemnification; Subrogation. . . . . . . . . . . . 7
6.1 Liability Insurance. . . . . . . . . . . . . . . . . 7
6.2 Property Insurance . . . . . . . . . . . . . . . . . 7
6.3 Indemnification. . . . . . . . . . . . . . . . . . . 7
6.4 Waiver of Subrogation . . . . . . . . . . . . . . . . 8
7. Taxes; Utilities . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Property Taxes . . . . . . . . . . . . . . . . . . . 8
7.2 Special Assessments. . . . . . . . . . . . . . . . . 8
7.3 Contest of Taxes . . . . . . . . . . . . . . . . . . 9
7.4 Proration of Taxes . . . . . . . . . . . . . . . . . 9
7.5 New Charges or Fees. . . . . . . . . . . . . . . . . 9
7.6 Payment of Utilities Charges . . . . . . . . . . . . 9
8. Damage and Destruction. . . . . . . . . . . . . . . . . . . . 9
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8.1 Damaged Premises . . . . . . . . . . . . . . . . . . 9
8.2 Damage or Destruction Late in Term . . . . . . . . . 9
8.3 Rent Abatement . . . . . . . . . . . . . . . . . . . 10
8.4 Personal Property. . . . . . . . . . . . . . . . . . 10
9. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1 Partial Taking . . . . . . . . . . . . . . . . . . . 10
9.2 Total Taking . . . . . . . . . . . . . . . . . . . . 10
9.3 Sale in Lieu of Condemnation . . . . . . . . . . . . 11
10. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
11. Quiet Enjoyment; Mortgage Priority . . . . . . . . . . . . . . 11
11.1 Landlord's Warranty. . . . . . . . . . . . . . . . . 11
11.2 Mortgage Priority. . . . . . . . . . . . . . . . . . 11
11.3 Estoppel Certificate . . . . . . . . . . . . . . . . 12
12. Assignment and Subletting. . . . . . . . . . . . . . . . . . . 12
13. Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 Default in Rent. . . . . . . . . . . . . . . . . . . 13
13.2 Default in other covenants . . . . . . . . . . . . . 13
13.3 Insolvency . . . . . . . . . . . . . . . . . . . . . 13
13.4 Abandonment. . . . . . . . . . . . . . . . . . . . . 13
14. Remedies on Default. . . . . . . . . . . . . . . . . . . . . . 13
14.1 Termination. . . . . . . . . . . . . . . . . . . . . 13
14.2 Reletting. . . . . . . . . . . . . . . . . . . . . . 14
14.3 Remedies . . . . . . . . . . . . . . . . . . . . . . 14
14.4 Landlord's Right to Cure Defaults. . . . . . . . . . 14
14.5 Remedies Cumulative. . . . . . . . . . . . . . . . . 14
15. Surrender at Expiration. . . . . . . . . . . . . . . . . . . . 14
15.1 Condition of Premises. . . . . . . . . . . . . . . . 14
15.2 Fixtures . . . . . . . . . . . . . . . . . . . . . . 14
15.3 Holdover . . . . . . . . . . . . . . . . . . . . . . 15
16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 Nonwaiver . . . . . . . . . . . . . . . . . . . . . 15
16.2 Attorney Fees . . . . . . . . . . . . . . . . . . . 15
16.3 Notices . . . . . . . . . . . . . . . . . . . . . . 16
16.4 Succession. . . . . . . . . . . . . . . . . . . . . 16
16.5 Recordation . . . . . . . . . . . . . . . . . . . . 16
16.6 Entry for Inspection. . . . . . . . . . . . . . . . 16
16.7 Interest on Rent and other Charges. . . . . . . . . 16
16.8 Proration of Rent . . . . . . . . . . . . . . . . . 16
<PAGE>
16.9 Time of Essence . . . . . . . . . . . . . . . . . . 16
17. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
EXHIBIT 10.28
COMMERCIAL LEASE
Date:
Between: AVALON ISLAND, L.L.C. ("Avalon" or "Landlord")
a Washington limited liability company
P.O. Box 1357
Kent, WA 98035-1357
And: WESTERN POWER & EQUIPMENT CORP., an
Oregon corporation ("Western Power" or "Tenant")
1745 NE Columbia Boulevard
Portland, OR 97211
Western Power owns the real property and improvements thereon described on
Exhibit A attached hereto (the "Premises"). Under a Purchase and Sale Agreement
dated September 22, 1995, Western Power has agreed to sell the Premises to
Avalon. Concurrently with closing the sale of the Premises and the transfer of
fee title to the Premises to Avalon (the "Closing Date"), Western Power will
lease the Premise from Avalon on the terms and conditions stated herein.
Section 1.Occupancy
1.1 Original Term. The term of this Lease shall commence upon the Closing
Date and continue through November 30, 2015, unless sooner terminated as
hereinafter provided.
1.2 Possession. Tenant's right to possession and obligations under the
Lease shall commence on the Closing Date. If the Closing Date does not fall on
the first day of the month, rent for the first month under this Lease shall be
prorated accordingly, and shall be due on the Closing Date.
Section 2.Rent
2.1 Base Rent. Tenant covenants and agrees to pay the Base Rent to
Landlord, in advance, without demand, deduction or set off, at such place as may
be designated by Landlord, on the first day of each month, throughout the
Original Term of this Lease. Without waiving the foregoing covenant, Landlord
agrees that Tenant may take as an offset to the Base Rent the cost of any
necessary repairs to the foundation, the roof, or the external walls which
Tenant incurs because Landlord fails to make such repairs as required by Section
4.5,
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or any costs incurred for failure of Landlord to undertake Cleanup Activity
as required under Section 3.4. Tenant shall pay to Landlord as monthly rent
the following amounts:
TERM MONTHLY RENT ANNUAL RENT
Closing Date to 11-30-2000 $17,000 $204,000
12-1-2000 to 11-30-2005 $19,000 $228,000
12-1-2005 to 11-30-2010 Market Rate pursuant to Section 2.2
12-1-2010 to 11-30-2015 Market Rate pursuant to Section 2.2
2.2 Determination of Market Rate. Four months prior to the beginning of
the five-year periods that begin on December 1, 2005 and December 1, 2010
referenced in Section 2.1, Landlord and Tenant shall each choose a qualified,
independent real estate agent familiar with commercial rental values in the
area, and the two agents chosen shall choose a third agent, each of whom shall
submit a determination of market rates for the following five-year term. The
three market rate opinions shall be averaged to arrive at the Market Rate for
the five-year term. The determination shall be final and binding upon the
parties. The cost incurred to obtain the third opinion shall be borne equally
by both parties.
Notwithstanding the foregoing, for the five-year period beginning December
1, 2005, in no event shall the Market Rate determined pursuant to this Section
be less than $21,000 per month nor greater than $24,000 per month.
2.3 Additional Rent. All taxes, insurance costs, utility charges,
maintenance costs and repair charges that Tenant is required to pay by this
Lease, and any other sum that Tenant is required to pay to Landlord or third
parties shall be additional rent.
Section 3.Use of the Premises
3.1 Permitted Use. The Premises shall be used for retail sales, service,
storage and repair of agricultural, utility or industrial equipment, machinery
and parts and for no other purpose without the consent of Landlord, which
consent shall not be unreasonably withheld.
3.2 Restrictions on Use. In connection with the use of the Premises,
Tenant shall:
(a) Conform to all applicable laws and regulations of any public
authority affecting the Premises and the use, and correct at Tenant's own
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expense any failure of compliance created through Tenant's fault or by reason of
Tenant's use, but Tenant shall not be required to make any structural changes to
effect such compliance.
(b) Refrain from any activity that would make it impossible to insure
the Premises against casualty, would permanently increase the insurance rate, or
would prevent Landlord from taking advantage of any ruling allowing Landlord to
obtain reduced premium rates for long-term fire insurance policies, unless
Tenant pays the additional cost of the insurance.
(c) Refrain from any use that would be reasonably offensive to other
tenants or owners or users of neighboring premises or that would tend to create
a nuisance or damage the reputation of the Premises.
(d) Refrain from loading the electrical system or floors beyond the
point considered safe by a competent engineer or architect selected by Landlord.
(e) Subject to Section 3.3, refrain from making any marks on or
attaching any additional sign, insignia, antenna, aerial, satellite dish or
other device to the exterior or interior walls, windows, or roof of the Premises
without the written consent of Landlord, which shall not be unreasonably
withheld.
3.3 Signage. Tenant will be responsible for providing its own signage.
Tenant will obtain Landlord's prior approval of the design, size, color,
materials, and other details of the sign face. Landlord acknowledges that
Tenant already has signage on the Premises and hereby consents to such signage.
3.4 Hazardous Substances.
(a) Definitions. For purposes of this Section, the term "Hazardous
Substance" means any substance, material or waste, including oil or petroleum
products or their derivatives, solvents, PCB's, explosive substances, asbestos,
radioactive materials or waste, and any other toxic, ignitable, reactive,
corrosive, contaminating or pollution materials which are now or in the future
subject to any governmental regulation; the term Hazardous Substance Laws" means
all federal, state and local lows, ordinances, regulations and standards
relating to the use, analysis, production, storage, sale, release, discharge,
disposal or transportation of any Hazardous Substance.
(b) Tenant Compliance With Hazardous Substance Laws. Neither Tenant
or its officers, employees, agents, invitees, sub-lessees or assigns shall cause
or permit any Hazardous Substance to be spilled, leaked, disposed of, or
otherwise released or discharged on or under the Premises, or cause any
Hazardous Substance to be spilled, leaked, disposed of, or otherwise released or
discharged on or under any property adjacent to the Premises. Tenant may
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use or otherwise handle on the Premises only those Hazardous Substances
typically used or sold in the prudent and safe operation of the business
specified in Section 3.1. Tenant may store such Hazardous Substances on the
Premises only in quantities necessary to satisfy Tenant's reasonably
anticipated needs. Tenant shall comply with all Hazardous Substance Laws and
exercise care in the use, handling, storage and transportation of Hazardous
Substances and shall take all possible measures consistent with the
practicable operation of its business to minimize the quantity and toxicity
of Hazardous Substances used, handled, transported or stored on the Premises.
Upon the expiration or termination of this Lease, Tenant shall remove from
the Premises all Hazardous Substances stored there by Tenant or its
sublessees or assigns.
(c) Indemnification by Tenant. Tenant shall indemnify, defend, and
hold Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses which arise during or after the Lease term
as a result of contamination by Hazardous Substances as a result of Tenant's use
or activities or the use or activities of Tenant's officers, employees, agents,
invitees, sublessees or assigns. This indemnification of Landlord by Tenant
shall include, without limitation, all costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Substances present in the soil and
ground water on or under the Premises.
(d) Indemnification by Landlord. Landlord shall indemnify, defend,
and hold Tenant harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses which arise during or after the Lease term
as a result of contamination by Hazardous Substances as a result of Landlord's
use or activities on the Premises or the use or activities of Landlord's
officers, employees, agents, invitees, or assignees on the Premises. This
indemnification of Tenant by Landlord shall include, without limitation, all
costs incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal or restoration work required by any federal, state,
or local governmental agency or political subdivision because of Hazardous
Substances present in the soil and ground water on or under the Premises.
(e) Notification. Each party shall give written notice to the other
within three (3) business days after the date on which the party learns or first
has reason to believe that:
(1) there has or will come to be located on or about the Premises any
Hazardous Substance;
(2) a release, discharge or emission of a Hazardous Substance has
occurred on or about the Premises;
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(3) an enforcement, cleanup, removal or other governmental or
regulatory action has been threatened or commenced against the party or with
respect to the Premises pursuant to any Hazardous Substance Laws;
(4) a claim has been made or threatened by any person or entity
against the party or the Premises on account of an alleged loss or bodily injury
claimed to result from the alleged presence or release on the Premises of a
Hazardous Substance; or
(5) a report, notice, or complaint has been made to or filed with a
governmental agency concerning the presence, use or disposal of any Hazardous
Substance on the Premises. Any such notice shall be accompanied by copies of
any such claim, report, complaint, notice, warning or other communication that
is in the possession of or is reasonably available to the party.
(f) Cleanup Activity.
(1) If during the term of this Lease any remedial action is necessary
to clean up any environmental contamination of the Premises (the "Cleanup
Activity") to which Tenant's indemnification of Landlord in Section 3.4(c)
applies, Tenant shall proceed with reasonable diligence to complete the Cleanup
Activity as promptly as possible in compliance with all Hazardous Substance
Laws. If after written notice from Landlord Tenant fails to proceed with
reasonable diligence to complete the Cleanup Activity, Landlord shall have the
right, but not the obligation, to carry out the Cleanup Activity, and to recover
all of the costs and expenses thereof from Tenant. The rights and obligations
of the parties set forth in this Section 3.4(f) shall be in addition to those
rights and obligations set forth elsewhere in this Lease.
(2) Except as set forth in Section 3.4(f)(1), if any other Cleanup
Activity is necessary, Landlord shall proceed with reasonable diligence to
complete the Cleanup Activity as promptly as possible in compliance with all
Hazardous Substance Laws. If Landlord fails to proceed with reasonable
diligence to complete the Cleanup Activity, Tenant shall have the right, but not
the obligation, to carry out the Cleanup Activity, and to recover all of the
costs and expenses thereof from Landlord as a set off against payment of rent
under this Lease. The rights and obligations of the parties set forth in this
Section 3.4(f) shall be in addition to those rights and obligations set forth
elsewhere in this Lease.
(g) Survival. The parties obligations under this Section 3.4 shall
survive the expiration or earlier termination of this Lease.
Section 4.Repairs and Maintenance
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4.1 Landlord's Obligations. Landlord shall maintain and repair the roof,
exterior walls and foundation of the Premises. Tenant shall immediately notify
Landlord of any condition, damage, or occurrence which may require maintenance
or repair of the roof, exterior walls or foundation.
4.2 Tenant's Obligations. Except as set forth in Section 4.1 and subject
to Section 8 herein, Tenant shall repair and maintain the Premises as necessary
to preserve the Premises in good working order and condition, including but not
limited to providing regularly scheduled maintenance and replacement of the
heating and air conditioning system.
4.3 Repairs to Comply with Laws. Any repairs, alterations, or other
improvements required by any governmental authority which require repair,
alteration or improvements to the roof, foundation or external walls of the
Premises shall be performed by Landlord at its sole cost and expense. Any and
all other repairs, alterations, or other improvements on or to the Premises
required by any governmental authority shall be performed by Tenant at its sole
cost and expense.
4.4 Landlord's Interference with Tenant. In performing any repairs,
replacements, alterations, or other work performed on or around the Premises,
Landlord shall not cause unreasonable interference with use of the Premises by
Tenant. Tenant shall have no right to an abatement of rent nor any claim
against Landlord for any inconvenience or disturbance resulting from Landlord's
activities performed in conformance with the requirement of this provision.
4.5 Reimbursement for Repairs Assumed. If either party fails or refuses
to make repairs that are required by this Section 4 in a timely manner, the
other party may make the repairs and charge the actual costs of repairs to the
first party. Such expenditures by Landlord shall be charged to Tenant as
additional rent and shall be reimbursed by Tenant on demand. Such expenditures
by Tenant shall be reimbursed by Landlord on demand or may be deducted from rent
as set forth in Section 2.1. Except in an emergency creating an immediate risk
of personal injury or property damage, neither party may perform repairs which
are the obligation of the other party and charge the other party for the
resulting expense unless at least ten (10) days before work is commenced the
defaulting party is given notice in writing outlining with reasonable
particularity the repairs required, and such party fails within that time to
initiate such repairs in good faith.
4.6 Inspection of Premises. Landlord shall have the right to inspect the
Premises at any reasonable time or times to determine the necessity of repair.
Section 5.Alterations
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5.1 Alterations Prohibited. Tenant shall make no improvements or
alterations to the Premises without first obtaining Landlord's written consent,
which consent shall not be unreasonably withheld. All alterations shall be made
according to architectural designs and plans, construction drawings and
specifications approved by Landlord, which approval shall not be unreasonably
withheld or delayed, and in a good and workmanlike manner, and in compliance
with applicable laws and building codes. As used herein, "alterations" includes
the exterior installation of transmitters and receivers (e.g., satellite dishes)
and related wiring, cables, and conduit. All approved improvements and
alterations shall be made at Tenant's sole expense and Tenant shall keep the
Premises free from any lien arising out of work performed pursuant to this
Section. In the event any such lien is filed against the Premises by any person
claiming by, through or under Tenant, Tenant shall, upon request of Landlord, at
Tenant's expense, immediately furnish a bond in form and amount and issued by a
surety satisfactory to Landlord, indemnifying the Landlord and the Premises
against all liability relating to such lien. Provided that such bond has been
furnished to Landlord, Tenant, at its sole cost and expense may contest, by
appropriate proceedings conducted in good faith and with due diligence, any
lien, encumbrance or charge against the Premises arising from work done or
materials provided to and for Tenant, providing that such contest is conducted
in a manner that does not cause any risk that Landlord's interest in the
Premises will be foreclosed for nonpayment.
5.2 Ownership and Removal of Alterations. All approved improvements and
alterations made to the Premises by either Landlord or Tenant during the term of
this Lease, other than Tenant's trade fixtures, shall be the property of
Landlord when installed unless the applicable Landlord's consent provides
otherwise. Upon expiration of the term or earlier termination under this Lease,
Tenant's trade fixtures shall be removed by Tenant and the Premises restored to
its condition prior to installation if the applicable consent so required.
Section 6.Insurance; Indemnification; Subrogation
6.1 Liability Insurance. Tenant shall procure and thereafter maintain
during the term of this Lease shall continue to carry the following insurance at
Tenant's cost: commercial general liability policy (occurrence version) in a
responsible company with coverage for bodily injury and property damage
liability with a general aggregate limit of not less than $1,000,000 for injury
to one person, $3,000,000 for injury to two or more persons in once occurrence.
Such insurance shall cover all risks arising directly or indirectly out of
Tenant's activities on or any condition of the Premises. Such insurance shall
protect Tenant against the claims of Landlord on account of the obligations
assumed by Tenant under Section 6.3, and shall name Landlord as an additional
insured. Certificates evidencing such insurance and bearing endorsements
requiring 10 days' written notice to Landlord prior to any change or
cancellation shall be furnished to Landlord prior to Tenant's occupancy of the
Premises.
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6.2 Property Insurance. Tenant shall, at Tenant's expense, keep the
Premises insured against loss or damage resulting from perils covered by what is
commonly referred to as "all risk" coverage insurance (but excluding earthquake
and flood) for the full insurable replacement cost (guaranteed replacement).
All premiums on said policy(s) shall be paid by Tenant. The policy(s) or a
certificate thereof signed by the insurer shall be delivered to Landlord within
five (5) days after the issuance and/or renewal of the policy(s) to the Tenant.
Each policy shall name Landlord as an additional insured, and shall provide that
such policy(s) may not be amended or canceled without thirty (30) days' prior
written notice to Landlord. If Tenant fails to obtain the above required
insurance, Landlord may, but shall not be required to procure such insurance and
charge the cost to Tenant as additional rent, payable on demand. Tenant shall
carry similar insurance insuring the property of Tenant on the property against
such risks.
6.3 Indemnification. Except as set forth in Section 3.4(d), Tenant shall
indemnify and hold Landlord harmless from and against any and all third-party
claims, loss or liability for accident, injury or damage to persons or property
arising from or in connection with, Tenant's possession, operation, use, or
occupation of the Premises. In case any action or proceeding is brought against
Landlord and such claim is a claim from which Tenant is obligated to indemnify
Landlord pursuant to this Section, Tenant, upon notice from Landlord, shall
resist and defend such action or proceeding (by counsel reasonably satisfactory
to Landlord). Landlord and Landlord's agents shall have no liability to Tenant
for any injury, loss, or damage caused by third parties or by any condition of
the Premises except to the extent caused by Landlord's negligence or breach of
any of Landlord's covenants contained in this Lease.
6.4 Waiver of Subrogation. Neither party, nor its officers, directors,
employees, agents or invitees, nor, in the case of Tenant, subtenants, shall be
liable to the other party or to any insurance company (by way of subrogation or
otherwise) insuring the other the other party for any loss or damage to any
building, structure or other tangible property, when such loss is caused by any
of the perils which are or could be insured against under a standard policy of
full replacement cost insurance for fire, theft and all risk coverage, or losses
under workers' compensation laws and benefits, even though such loss or damage
might have been occasioned by the negligence of such party, its agents or
employees (this clause shall not apply, however, to any damages causes by
intentionally wrongful actions or omissions); provided, however, that if, by
reason of the foregoing waiver, either party shall be unable to obtain any such
insurance, such waiver shall be deemed not to have been made by such party and,
provided further, that if either party shall be unable to obtain any such
insurance without the payment of an additional premium therefor, then, unless
the party claiming the benefit of such waiver shall agree to pay such party for
the cost of such additional premium within thirty (30) days after notice setting
forth such requirement and the amount of the additional premium, such waiver
shall
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be of no force and effect between such party and such claiming party. Each
party shall use reasonable efforts to obtain such insurance from a company
that does not charge an additional premium or, if that is not possible, one
that charges the lowest additional premium. Each party shall give the other
party notice at any time when it is unable to obtain insurance with such a
waiver of subrogation without the payment of an additional premium and the
foregoing waiver shall be effective until thirty (30) days after notice is
given. Notwithstanding anything contained herein, Landlord is not obligated
under this Lease to insure the Premises.
Section 7.Taxes; Utilities
7.1 Property Taxes. Tenant shall pay as due all taxes on its personal
property located on the Premises. Tenant shall pay as due all real property
taxes levied against the Premises. As used herein, real property taxes includes
any fee or charge relating to the ownership, use, or rental of the Premises,
other than taxes on the net income of Landlord or Tenant.
7.2 Special Assessments. If an assessment for a public improvement is
made against the Premises, Tenant shall pay such assessment. Landlord shall
take all appropriate action to cause such assessment to be paid in the maximum
number of installments permitted by law, statute or ordinance (if such option
for installment payments is available to Landlord), in which case all
installments coming due during the Lease term shall be treated the same as
general property taxes pursuant to section 7.1.
7.3 Contest of Taxes. Tenant shall be permitted to contest the amount of
any tax or assessment as long as such contest is conducted in a manner that does
not cause any risk that Landlord's interest in the Premises will be foreclosed
for nonpayment.
7.4 Proration of Taxes. Tenant's share of real property taxes for the
years in which this Lease commences or terminates shall be prorated based on the
portion of the tax year that this Lease is in effect.
7.5 New Charges or Fees. If a new charge or fee relating to the ownership
or use of the Premises or the receipt of rental therefrom or in lieu of property
taxes is assessed or imposed, then, to the extent permitted by law, Tenant shall
pay such charge or fee. Tenant, however, shall have no obligation to pay any
income, profits, or franchise tax levied on the net income derived by Landlord
from this Lease.
7.6 Payment of Utilities Charges. Tenant shall pay when due all charges
for services and utilities incurred in connection with the use, occupancy,
operation, and maintenance of the Premises, including, but not limited to,
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charges for fuel, water, gas, electricity, sewage disposal, power,
refrigeration, air conditioning, telephone, and janitorial services.
Section 8.Damage and Destruction
8.1 Damaged Premises. Tenant shall give immediate notice to Landlord in
the event of any damage or destruction affecting the Premises. Subject to the
provisions of this Section 8, Tenant shall immediately proceed to restore the
Premises to substantially the same form as prior to the damage using the
proceeds of insurance carried pursuant to Section 6 of this Lease, provided that
Landlord shall make such insurance proceeds available to Tenant to cover the
cost of restoration work as it occurs. Restoration shall be performed according
to architectural designs, plans and construction drawings and specifications
approved in advance by Landlord, which approval shall not be unreasonably
withheld. Notwithstanding the foregoing, if the insurance proceeds are paid
over to Landlord's mortgagee and used to reduce any indebtedness, Tenant shall
have no obligation to restore and Tenant, at its option, may elect to terminate
this Lease, effective on the date of such damage or destruction.
8.2 Damage or Destruction Late in Term. If within four years before the
end of the lease term the Premises are destroyed or damaged such that the cost
of repair exceeds 50% of the value of the structure before the damage, Tenant
may elect to terminate the lease as of the date of the damage or destruction by
giving notice to Landlord in writing not more than 45 days following the date of
damage. In such event all rights and obligations of the parties shall cease as
of the date of termination, and Tenant shall be entitled to the reimbursement of
any prepaid amounts paid by Tenant and attributable to the anticipated term.
Tenant shall surrender possession of the Premises within a reasonable time after
such written notice is given, and assign any insurance proceeds paid on account
of such damage to Landlord. If Tenant does not elect to terminate, Tenant shall
proceed to restore the Premises to substantially the same form as prior to the
damage or destruction using the proceeds of insurance carried pursuant to
Section 6 of this Lease and any insurance proceeds available from Landlord's
insurance. Work shall be commenced as soon as reasonably possible and
thereafter shall proceed without interruption except for work stoppages on
account of labor disputes and matters beyond Tenant's reasonable control.
8.3 Rent Abatement. To the extent that the Premises are rendered
untenantable, the Rent shall proportionately abate, except in the event such
damage resulted from the fault, or neglect of Tenant, Tenant's contractors,
agents, employees, invitees or licensees, in which event Rent shall abate only
to the extent Landlord receives proceeds from a rental income insurance policy
to compensate Landlord for full loss of rent.
8.4 Personal Property. All personal property in said Premises shall be at
the risk of Tenant. Except to the extent caused by the negligent or intentional
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acts of Landlord, Landlord or Landlord's agents shall not be liable for any
damage either to person or property, sustained by Tenant or others, caused by
any defects now in said Premises or hereafter occurring therein, or any part
or appurtenance thereof, caused by being out of repair, or caused by the
bursting or leaking of water, gas, sewer or steam pipes.
Section 9.Eminent Domain
9.1 Partial Taking. If a portion of the Premises is condemned and Section
9.2 does not apply, the Lease shall continue on the following terms:
(a) The parties shall be entitled to share in the condemnation
proceeds in proportion to the values of their respective interests in the
Premises. Tenant's right to participate in the condemnation proceeds shall be
limited to the value of its leasehold interest and the depreciated value of any
improvements and alterations constructed on the Premises at the tenant's sole
expense subsequent to the commencement of this Lease.
(b) Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation.
(c) After the date on which title vests in the condemning authority
or an earlier date on which alterations or repairs are commenced by Landlord to
restore the balance of the Premises in anticipation of taking, the rent shall be
reduced in proportion to the reduction in value of the Premises as an economic
unit on account of the partial taking. If the parties are unable to agree on
the amount of the reduction of rent, the amount shall be determined by
arbitration in the manner provided in Section 17.
9.2 Total Taking. If a condemning authority takes all of the Premises or
a portion which Landlord and Tenant agree is sufficient to render the remaining
Premises reasonably unsuitable for the use that Tenant was then making of the
Premises, the Lease shall terminate as of the date the title vests in the
condemning authorities. The parties shall be entitled to share in the
condemnation proceeds in proportion to the values of their respective interests
in the Premises.
9.3 Sale in Lieu of Condemnation. Sale of all or part of the Premises to
a purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this Section 9 as a taking by condemnation.
Section 10.Liens
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10.1 Except with respect to activities for which Landlord is responsible,
Tenant shall pay as due all claims for work done on and for services rendered or
material furnished to the Premises, and shall keep the Premises free from any
liens. If Tenant fails to pay any such claims or to discharge any lien,
Landlord may do so and collect the cost as additional rent. Any amount so added
shall bear interest at the rate of 12% per annum from the date expended by
Landlord and shall be payable on demand. Such action by Landlord shall not
constitute a waiver of any right or remedy which Landlord may have on account of
Tenants default.
10.2 Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, as long as Landlord's property
interests are not jeopardized. If a lien is filed as a result of nonpayment,
Tenant shall, within ten (10) days after knowledge of the filing, secure the
discharge of the lien or deposit with Landlord cash or sufficient corporate
surety bond or other surety satisfactory to Landlord in an amount sufficient
to discharge the lien plus any costs, attorney fees, and other charges that
could accrue as a result of a foreclosure or sale under the lien.
Section 11.Quiet Enjoyment; Mortgage Priority
11.1 Landlord's Warranty. Landlord warrants that it is the owner of the
Premises and has the right to lease them free of all encumbrances. Landlord
will defend Tenant's right to quiet enjoyment of the Premises from the lawful
claims of all persons during the Lease term.
11.2 Mortgage Priority. This lease is and shall be prior to any mortgage
or deed of trust ("Encumbrance") recorded after the date of this lease and
affecting the Premises. However, if any lender holding such an Encumbrance
requires that this lease be subordinate to the Encumbrance, then Tenant agrees
that the lease shall be subordinate to the Encumbrance if the holder thereof
agrees in writing with Tenant that as long as Tenant performs its obligations
under this lease no foreclosure, deed given in lieu of foreclosure, or sale
pursuant to the terms of the Encumbrance, or other steps or procedures taken
under the Encumbrance shall affect Tenant's rights under this lease. If the
foregoing condition is met, Tenant shall execute the written agreement and any
other documents required by the holder of the Encumbrance to accomplish the
purposes of this paragraph. If the Premises are sold as a result of foreclosure
of any Encumbrance thereon, or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee.
11.3 Estoppel Certificate. Either party will, within 20 days after notice
from the other, execute and deliver to the other party a certificate stating
whether or not this Lease has been modified and is in full force and effect and
specifying any modifications or alleged breaches by the other party. The
certificate shall also state the amount of monthly base rent, the dates to which
rent has been
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paid in advance, and the amount of any security deposit or prepaid
rent. Failure to deliver the certificate within the specified time shall be
conclusive upon the party from whom the certificate was requested that the Lease
is in full force and effect and has not been modified except as represented in
the notice requesting the certificate.
Section 12.Assignment and Subletting.
12.1 Landlord hereby agrees that Tenant may assign this Lease or sublease
all or a portion of the Premises in writing to any other party, with the prior
written consent of Landlord, provided that:
(1) Landlord shall have the right to pre-approve each and every
proposed subtenant and assignee, which approval shall not be unreasonably
withheld.
(2) Any attempt by Tenant to assign, transfer, or sublet without
Landlord's prior written consent shall be void and shall constitute a material
default by Tenant.
(3) Regardless of Landlord's consent to an assignment or sublease,
Tenant shall not be released from any of its obligations and liabilities under
the lease, except as may be set forth in Landlord's written consent.
(4) Landlord's acceptance of rent from any other person or entity
pending a determination of whether to consent to an assignment or sublease shall
not constitute a waiver of Landlord's right to approve or disapprove such
assignment.
(5) A default by an assignee, sublessee, or transferee shall
constitute a default by Tenant and in the event of such default, Landlord may
proceed directly against Tenant.
(6) Tenant shall grant to Landlord a security interest in all of its
right, title and interest in all rents and income from an assignment or sublease
to secure the payment of rent owed under this Lease.
(7) Tenant shall pay all reasonable costs and fees incurred by
Landlord in connection with evaluating whether to give its consent and/or in
giving its consent to a proposed assignment or sublease, including attorneys',
architects', engineers' and consultants' fees, not to exceed $2500.
12.2 Notwithstanding any provision to the contrary, Tenant may assign this
Lease or sublet all or part of the Premises, without Landlord's approval, to a
parent corporation, any subsidiary, any affiliate, any partnership where Tenant
or any affiliate of Tenant is the managing or general partner, or in connection
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with a merger, acquisition, reorganization or consolidation of Tenant, or in
connection with the sale or transfer of all or substantially all of Tenants
(or its parent's or affiliates') stock or assets. The term "affiliate" as
used herein shall mean any entity in which Tenant or its parent corporation
holds thirty percent (30%) or more of the ownership interests.
Notwithstanding a transfer pursuant to this Section 12.2, Tenant shall not be
released from liability under this Lease upon the assignment or subletting of
all or part of the Premises to such parent corporation, subsidiary,
affiliate, or partnership.
Section 13.Default
The following shall be events of default:
13.1 Default in Rent. Failure of Tenant to pay any rent or other charge
within ten (10) days after it is due.
13.2 Default in other covenants. Failure of Tenant to Comply with any
term or condition or fulfill any obligation of the Lease (other than the
payment of rent or other charges) within 20 days after written notice by
Landlord specifying the nature of the default with reasonable particularity.
If the default is of such a nature that it cannot be completely remedied
within the 20-day period, this provision shall be complied with if Tenant
begins correction of the default within the 20-day period and thereafter
proceeds with reasonable diligence and in good faith to effect the remedy as
soon as practicable.
13.3 Insolvency. Insolvency of Tenant; an assignment by Tenant for the
benefit of creditors; the filing by Tenant of a voluntary petition in
bankruptcy; an adjudication that Tenant is bankrupt or the appointment of a
receiver of the properties of Tenant; the filing of any involuntary petition of
bankruptcy and failure of Tenant to secure a dismissal of the petition within 30
days after filing shall constitute a default. If Tenant consists of two or more
individuals or business entities, the events of default specified in this
Section 13.3 shall apply to each individual unless within ten (10) days after an
event of default occurs, the remaining individuals produce evidence satisfactory
to Landlord that they have unconditionally acquired the interest of the one
causing the default. If the Lease has been assigned, the events of default so
specified shall apply only with respect to Tenant and to the one then exercising
the rights of Tenant under the Lease.
13.4 Abandonment. Failure of Tenant for thirty (30) days or more to occupy
the Premises for one or more of the purposes permitted under this Lease, unless
such failure is excused under other provisions of this Lease.
Section 14.Remedies on Default
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14.1 Termination. In the event of a default, the Lease may be terminated
at the option of Landlord by written notice to Tenant. Whether or not the Lease
is terminated by the election of Landlord or otherwise, Landlord shall be
entitled to recover damages from Tenant for the default, and Landlord may
reenter, take possession of the Premises, and remove any persons or property by
legal action and without having accepted a surrender.
14.2 Reletting. Following reentry or abandonment, Landlord may relet the
Premises and in that connection may make any suitable alterations or refurbish
the Premises, or both, or change the character or use of the Premises, but
Landlord shall not be required to relet for any use or purpose other than that
specified in the Lease or which Landlord may reasonably consider injurious to
the Premises, or to any tenant that Landlord may reasonably consider
objectionable. Landlord may relet all or part of the Premises, alone or in
conjunction with other properties, for a term longer or shorter than the term of
this Lease, upon any reasonable terms and conditions, including the granting of
reasonable rent-free occupancy or other rent concession.
14.3 Remedies. In the event of material breach or default under the terms
of this Lease, either party shall have all rights and remedies available to them
under law or equity in the State of Washington.
14.4 Landlord's Right to Cure Defaults. If Tenant fails to perform any
obligation under this Lease, Landlord shall have the option to do so after 30
days' written notice to Tenant. All of Landlords expenditures to correct the
default shall be reimbursed by Tenant on demand with interest at the rate of 12%
annum from the date of expenditure by Landlord. Such action by Landlord shall
not waive any other remedies available to Landlord because of the default.
14.5 Remedies Cumulative. The foregoing remedies shall be in addition to
and shall not exclude any other remedy available to Landlord under applicable
law.
Section 15.Surrender at Expiration
15.1 Condition of Premises. Subject to the provisions of Section 8 herein,
upon expiration of the Lease term or earlier termination on account of default,
Tenant shall deliver all keys to Landlord and surrender the Premises in first
class condition and broom clean, reasonable wear and tear excepted. Alterations
constructed by Tenant with permission from Landlord shall not be removed or the
Premises restored to the original condition unless the terms of permission for
the alteration so require. Depreciation and wear from ordinary use for the
purpose for which Tenant is responsible shall be completed to the latest
practical date prior to such surrender.
15.2 Fixtures
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(a) All fixtures placed upon the Premises during the term, other than
Tenant's trade fixtures, shall, at Landlord's option, become the property of
Landlord. Tenant's trade fixtures include, without limitation, air compressors
in shop area (but excluding air lines that are attached to the wall) and
overhead bridge cranes and hoists attached to the shop ceiling, and those
additional trade fixtures placed on the Premises during the term of this Lease.
If Landlord's applicable consent referenced in Section 5 so requires, Tenant
shall remove any or all fixtures placed upon the Premises by the Tenant that
would otherwise remain the property of Landlord, and shall repair any physical
damage resulting from the removal. If Tenant fails to remove such fixtures,
Landlord may do so and charge the cost to Tenant with interest at the 9.00% from
the date of expenditure.
(b) Prior to expiration or other termination of the Lease term Tenant
shall remove all furnishings, furniture, and trade fixtures that remain its
property. If Tenant fails to do so, this shall be an abandonment of the
property, and Landlord may retain the property and all rights of Tenant with
respect to it shall cease or, by notice in writing given to Tenant within 20
days after removal was required, Landlord may elect to hold Tenant to its
obligation of removal. If Landlord elects to require Tenant to remove, Landlord
may effect a removal and place the property in public storage for Tenant's
account. Tenant shall be liable to Landlord for the cost of removal,
transportation to storage, and storage, with interest at the 12.00% on all such
expenses from the date of expenditure by Landlord.
15.3 Holdover
(a) If Tenant does not vacate the Premises at the time required,
Landlord shall have the option to treat Tenant as a tenant from month-to-month,
subject to all of the provisions of this Lease except the provisions for term
and renewal and at a rental rate equal to the rent last paid by Tenant during
the original term, or to eject Tenant from the Premises and recover damages
caused by wrongful holdover. Failure of Tenant to remove fixtures, furniture,
furnishings, or trade fixtures that Tenant is required to remove under this
Lease shall constitute a failure to vacate to which this Section shall apply if
the property not removed will substantially interfere with occupancy of the
Premises by another tenant or with occupancy by Landlord for any purpose
including preparation for a new tenant.
(b) If a month-to-month tenancy results from a holdover by Tenant
under this Section 15.3, the tenancy shall be terminable at the end of any
monthly rental period on written notice from Landlord given not less than ten
(10) days prior to the termination date which shall be specified in the notice.
Tenant waives any notice that would otherwise be provided by law with respect to
a month-to-month tenancy.
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Section 16.Miscellaneous
16.1 Nonwaiver. Waiver by either party of strict performance of any
provision of this Lease shall not be a waiver of or prejudice the party's right
to require strict performance
of the same provision in the future or of any other provision.
16.2 Attorney Fees. If suit or action is instituted in connection with any
controversy arising out of this Lease, the prevailing party shall be entitled to
recover in addition to costs such sum as the court may adjudge reasonable as
attorney fees at trial, on petition for review, and on appeal.
16.3 Notices. Any notice required or permitted under this Lease shall be
given when actually delivered or 48 hours after deposited in United States mail
as certified mail addressed to the address first given in this Lease or to such
other address as may be specified from time to time by either of the parties in
writing.
16.4 Succession. Subject to the above-stated limitations on transfer of
Tenant's interest, this Lease shall be binding on and inure to the benefit of
the parties and their respective successors and assigns.
16.5 Recordation. Landlord shall execute and acknowledge a memorandum of
this lease in a form suitable for recording, and Tenant may record the
memorandum.
16.6 Entry for Inspection. Landlord shall have the right to enter upon the
Premises upon reasonable advance notice to determine Tenant's compliance with
this Lease, to make necessary repairs to the building or to the Premises, or to
show the Premises to any prospective tenant or purchaser, and in addition shall
have the right, at any time during the last two (2) months of the term of this
Lease, to place and maintain upon the Premises notices for leasing or selling of
the Premises.
16.7 Interest on Rent and other Charges. Any rent or other payment
required of Tenant by this Lease shall, if not paid within ten (10) days after
it is due, bear interest at the rate of 12% per annum (but not in any event at a
rate greater than the maximum rate of interest permitted by law) from the due
date until paid. In addition, if Tenant fails to make any rent or other payment
required by this Lease to be paid to Landlord within ten (10) days after it is
due, Landlord may elect to impose a late charge of five cents ($.05) per dollar
of the overdue payment to reimburse Landlord for the costs of collecting the
overdue payment. Tenant shall pay the late charge upon demand by Landlord.
Landlord may levy and collect a late charge in addition to all other remedies
available for Tenant's
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default, and collection of a late charge shall not waive the breach caused by
the late payment.
16.8 Proration of Rent. In the event of commencement or termination of
this Lease at a time other than the beginning or end of one of the specified
rental periods, then the rent shall be prorated as of the date of commencement
or termination and in the event of termination for reasons other than default,
all pre paid rent shall be refunded to Tenant or paid on its account.
16.9 Time of Essence. Time is of the essence of the performance of each of
Tenant's and Landlord's obligations under this Lease.
Section 17.Arbitration
17.1 Any dispute arising out of or relating to this Lease that cannot be
resolved by good faith negotiations between the parties shall be submitted to
J.A.M.S./Endispute in Seattle, Washington for non-binding mediation. Such
mediation shall take place and be completed within sixty (60) days after either
party declares good faith negotiations to be at an end. If complete compromise
and settlement is not achieved through mediation, any remaining issues shall be
submitted to J.A.M.S./Endispute in Seattle, Washington for final and binding
arbitration pursuant to J.A.M.S./Endispute's Streamlined Arbitration Rules and
Procedures. The substantive and procedural law of the State of Washington shall
govern this Lease and the mediation and arbitration proceedings. All statutes
of limitation which would otherwise be applicable will apply to the arbitration
proceedings. There will be one arbitrator agreed upon by the parties or, if not
agreed, selected by the J.A.M.S./Endispute judge/arbitrators. The arbitrator
shall conduct an arbitration hearing within ninety (90) days after the
arbitration demand is received by J.A.M.S./Endispute in Seattle, Washington.
The arbitrator shall issue a written award within fourteen (14) days after the
hearing.
17.2 The arbitrator may award damages, injunctive relief and/or any other
relief available in law or equity under Washington law. The prevailing party in
the arbitration shall be entitled to an award of costs and reasonable attorneys'
fees in addition to any other award or relief granted. The arbitration award
shall be final and may be reduced in judgment in any court of competent
jurisdiction.
17.3 Absent fraud, collusion or willful misconduct by the arbitrator, the
award will be final, and judgment may be entered in any court having
jurisdiction thereof. The arbitrator may award injunctive relief or any other
remedy available from a judge, including the joinder of parties or consolidation
of this arbitration with any other involving common issues of law or fact or
which may promote judicial economy, and may award attorneys' fees and costs to
the prevailing party but will not have the power to award punitive or exemplary
damages.
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17.4 If J.A.M.S/Endispute is no longer in existence at the time of any
dispute subject to this Section 17, the parties agree to use an alternative
arbitration service using substantially similar rules and procedures.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed the day and year first herein written.
Landlord: AVALON ISLAND, L.L.C.
By:
Its:
Tenant: WESTERN POWER & EQUIPMENT CORP.
By: Its:
[ACKNOWLEDGEMENTS ON FOLLOWING PAGE]
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STATE OF WASHINGTON )
) ss.
County of )
I certify that I know or have satisfactory evidence that
is the person who appeared before me, and said person acknowledged that said
person signed this instrument, on oath stated that said person was authorized
to execute the instrument, and acknowledged it as the
of Avalon Island, L.L.C., a Washington limited liability company, to be the free
and voluntary act of such company for the uses and purposes mentioned in the
instrument.
Dated this day of , 1995.
(Signature of Notary)
(Legibly print or Stamp Name of Notary)
Notary Public in and for the state of Washington, residing at
My Appointment Expires
STATE OF WASHINGTON )
) ss.
County of )
I certify that I know or have satisfactory evidence that
is the person who appeared before me, and said person acknowledged that said
person signed this instrument, on oath stated that said person was authorized to
execute the instrument, and acknowledged it as the
of Western Power & Equipment Corp., an Oregon corporation, to be the free and
voluntary act of such corporation for the uses and purposes mentioned in the
instrument.
Dated this day of , 1995.
(Signature of Notary)
(Legibly print or Stamp Name of Notary)
Notary Public in and for the state of Washington, residing at
My Appointment Expires
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EXHIBIT A
The land is located in the county of King, state of Washington, and is
described as follows:
Parcel A:
Lot 4, City of Auburn Short Plat No. SP-31-79, as recorded under King
County Recording No. 8302030070, being a correction of short plat survey
recorded under King County Recording No. 7912260411; except that portion as
conveyed to the City of Auburn under King County Recording No. 8107150753.
Parcel B:
Lot 3 and the South 143.08 feet of Lot 2, City of Auburn Short Plat No.
32-79, as recorded under King County Recording No. 8005080385, being a
correction of short plat surveys recorded under King County Recording Nos.
8003230699 and 7912260412; except that portion conveyed to the City of auburn
under King County Recording No. 8407230781.
Both situate in the County of King, State of Washington.
Commonly known as 2702 West Valley North, Auburn, Washington.
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EXHIBIT 10.31
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, is dated as of May 31, 1996, by and among
GCS, Inc., a California corporation (Seller), WESTERN POWER & EQUIPMENT
CORP., an Oregon Corporation (Buyer), and Ronald E. Happe and David R. Happe
(individually and collectively referred to as Shareholders).
R E C I T A L S
WHEREAS, Seller is the owner and operator of construction equipment
sales, service and leasing operations at its facilities located in Fullerton
and West Sacramento, California (collectively referred to herein as the
Retail Operations); and
WHEREAS, Buyer desires to purchase from Seller certain of the properties
and assets relating to the Retail Operations, and Seller is willing to sell
such assets and properties to the Buyer.
NOW, THEREFORE, in consideration of the premises, the covenants set
forth herein and the benefit to be derived herefrom, the parties agree as
follows:
ARTICLE 1.
DEFINITIONS
AFFILIATE shall mean any Person that directly, or indirectly through one
or more intermediaries, controls, is
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controlled by, or is under common control with the Person specified.
AGREEMENT shall mean this Asset Purchase Agreement, including the
exhibits attached hereto.
ANCILLARY AGREEMENTS shall mean those additional agreements, if any,
attendant to this Agreement.
ASSUMED LIABILITIES shall have the meaning set forth in Section 2.03.
WPE shall mean Western Power & Equipment Corp., a Delaware corporation
and the owner of 100% of the issued and outstanding capital stock of the
Buyer.
CLOSING shall have the meaning set forth in Section 3.01.
CLOSING DATE shall have the meaning set forth in Section 3.01.
ENVIRONMENTAL LAWS shall mean any applicable federal, state or local
law, rule or regulation not related to taxes in effect on the date hereof
relating to: (a) releases or threatened releases of Hazardous Materials; (b)
the manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Materials or materials containing Hazardous Materials; or (c)
otherwise relating to pollution of the environment or the protection of human
health.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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EXCLUDED ASSETS shall have the meaning set forth in Section 2.02.
HAZARDOUS MATERIALS shall mean materials which contain substances
defined as hazardous or toxic substances under the following federal statutes
and their state counterparts, as well as such statutes= implementing
regulations in effect on the date hereof: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Clean Air Act and any other materials which a
federal, state or local agency requires to be remediated pursuant to any
Environmental Law.
KEY PERSONNEL with respect to Seller shall mean those persons listed on
SCHEDULE I annexed hereto and made a part hereof.
KNOWLEDGE with respect to Seller shall mean the actual knowledge of
Ronald E. Happe and David R. Happe, President and Vice President,
respectively, of GCS, Inc., and those other Key Personnel of Seller listed on
SCHEDULE I annexed hereto.
LIEN shall mean any mortgage, pledge, security interest, lease, lien or
other encumbrance of any kind, including any
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conditional sale contract, title retention contract or similar arrangement.
PERSON shall mean any natural person, corporation, general partnership,
limited partnership, union, association, court, agency, government, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
PURCHASED ASSETS shall have the meaning set forth in Section 2.01.
RECORDS shall mean and include all agreements, documents, maps, books,
records and files in the possession of the Seller or any of its Affiliates
relating primarily to the ownership of the Purchased Assets or conduct of the
Retail Operations.
ARTICLE 2.
PURCHASE AND SALE
2.01 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions
of this Agreement, on the Closing Date (as hereinafter defined) unless
otherwise specified herein, Seller shall sell, transfer, assign and deliver
to Buyer, and Buyer shall purchase and acquire from Seller, the assets and
properties described herein (collectively, the APurchased Assets@); which
Purchased Assets represent substantially all of the assets of Seller and
shall (i) be located at or used in connection with the Retail Operations,
and, (ii) to the extent practicable, be specifically itemized and described
in EXHIBIT
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A to be delivered by Seller to Buyer simultaneous with the execution of this
Agreement, which EXHIBIT A shall be updated by Seller through and including
the Closing, and which shall consist of the following:
(a) NEW EQUIPMENT. All items of new construction equipment and
attachments located at and held for sale or lease in connection with the
Retail Operations on the Closing Date (New Equipment);
(b) USED EQUIPMENT. All items of used construction equipment and
attachments located at and held for sale or lease in connection with the
Retail Operations on the Closing Date including without limitation sign
trailers and potty trailers (Used Equipment);
(c) PARTS. All inventory held for sale or use in service
operations conducted by the Retail Operations on the Closing date (Parts);
(d) STANLEY TOOLS. All items of Stanley tools (including without
limitation Stanley Hydraulic Tools) located at or used in connection with the
Retail Operations on the Closing Date (collectively, the Stanley Tools);
(e) VEHICLES. All vehicles listed on the appropriate SCHEDULE
2.01(e) of EXHIBIT A hereto (the Vehicles);
(f) FURNITURE AND FIXTURES. All furniture and fixtures located at
or used in connection with the Retail
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Operations on the Closing Date identified in SCHEDULE 2.01(f) of EXHIBIT A
(the Furniture and Fixtures).
(g) SHOP TOOLS. All shop tools and equipment located at or used
in connection with the Retail Operations on the Closing Date identified in
SCHEDULE 2.01(g) of EXHIBIT A (Shop Tools);
(h) MANUALS. All service libraries, technical publications, part
books, warranty cards and customer lists (including computer conversion tape)
located at or used in connection with the Retail Operations (Manuals);
(i) SUPPLIES. All office and shop supplies located at or used in
connection with the Retail Operations on the Closing Date (collectively, the
Supplies);
(j) TELEPHONE NUMBER. Seller=s telephone number which Seller
shall assign to Buyer; and all furniture and fixtures owned by Seller and
located at the Fullerton, California retail operations premises, free and
clear of any leases or other encumbrances;
(k) PURCHASE ORDERS. Those Purchase Orders identified in SCHEDULE
2.01(k) of EXHIBIT A (the Purchase Orders) which represent those customer
orders received by Seller for products not delivered or deliverable by Seller
prior to the May 31, 1996 and which Purchase Orders are hereby
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acceptable to Buyer, which Purchase Orders are subject to the further
provisions of Section 2.05(c). SCHEDULE 2.01(k) includes a copy of each of
the Purchase Orders as well as a break down of the gross sale amount, the
estimated costs of sale and resulting net profit expected from performance of
the subject Purchase Orders.
(l) CONTRACT RIGHTS. The benefits under contracts (other than
Purchase Orders) entered into or proceeds of contracts entered into on or
before the Closing Date for: (i) the sale of any item, constituting part of
the Purchased Assets, or (ii) for any other performance by the Seller,
whether or not delivered or to be delivered subsequent to the Closing Date
(the Contract Rights);
(m) FULLERTON LEASE. All of the right, title and interest of
Seller in the lease or rental agreement and leasehold improvements used in
connection with the Retail Operations at Fullerton, California (the Fullerton
Facility), as more particularly described in SCHEDULE 2.01(m) of EXHIBIT A
annexed hereto and made a part hereof (the Fullerton Lease).
(n) OTHER ASSETS. All of the goodwill (which goodwill constitutes
all of the goodwill of Seller), and intellectual property of Seller,
including without limitation, customer and vendor lists, identifications of
contracts,
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mailing lists, trade names, trademark registrations and applications, service
marks, patents, patent applications, copyrights, copyright applications,
copyright materials (brochures, etc.), signage and manuals described in
SCHEDULE 2.01(n) of EXHIBIT A (the Other Assets).
2.02 EXCLUDED ASSETS. The assets of Seller to be sold, transferred,
assigned and delivered to Buyer shall include only those Purchased Assets
described in Section 2.01 above. Such Purchased Assets shall not, however,
include any of the following assets or properties of Seller:
(1) utility or other security deposits paid by Seller prior to
Closing (except those associated with the Fullerton Lease or any other lease
associated with the Purchased Assets) and identified in SCHEDULE 2.02 of
EXHIBIT A;
(2) cash or cash equivalents on hand or in banks, except for Petty
Cash;
(3) prepaid taxes, insurance or other expenses and credits,
refunds and receivables of such items;
(4) accounts receivable;
(5) those Purchase Orders and Contract Rights identified in
SCHEDULE 2.02 of EXHIBIT A; and
(6) any other assets or properties of Seller not used specifically
in connection with the Retail Operations or otherwise described in Section
2.01.
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For purposes of this Agreement, all of the property, assets and rights
to be retained by Seller under this Section 2.02 are collectively referred to
as the Excluded Assets.
2.03 NO ASSUMED LIABILITIES. Buyer shall assume the liabilities and
obligations of Seller under the contracts and contract rights included in the
Purchased Assets, including the Fullerton Lease (if it should be memorialized
and asigned to Buyer by Seller and the lessor thereunder subject to Buyer's
consent thereto), to the extent, and ONLY to the extent, that such
obligations are incurred from and after the Closing Date.
2.04 NO ACQUISITION OF LIABILITIES. Notwithstanding anything to the
contrary contained herein, it is expressly understood and agreed by and
between the parties hereto that the Buyer is purchasing the Purchased Assets
specified under this Agreement only and is not purchasing any business or the
Retail Operations as a going concern. Except as otherwise expressly
specified in Section 2.03, above, or elsewhere in this Agreement, Buyer is
not assuming any debt, liability, contract, undertaking or commitment of, or
claim against Seller, the Retail Operations or the Purchased Assets of any
nature known or unknown, fixed or contingent, or whether pertaining to the
Purchased Assets or otherwise, that has been accrued or has had its origin
prior to the Closing Date.
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2.05 PURCHASE PRICE. The Purchase Price for the Purchased Assets (the
"Purchase Price") shall be paid as follows:
(a) CASH. Buyer shall pay in cash at Closing the amount equal to
a final appraised value of the Purchased Assets (the Cash Proceeds), which
items and their estimated value are set forth in SCHEDULE 2.05(a) to EXHIBIT
A hereto, and which appraisal shall be as mutually agreed between Seller and
Buyer on the Closing Date.
(b) DEPOSIT. Buyer previously delivered to Seller, as a down
payment on the Purchase Price, the sum of $20,000.00 (the Deposit). Such
Deposit, plus any actual interest earned thereon will be credited to the Cash
Proceeds at Closing.
(c) CONTRACT PERFORMANCE. Buyer will receive 30% of the net
profit (as determined hereinbelow, the Net Profit) and Seller will receive
70% of the Net Profit realized from performance by Buyer of the Purchase
Orders (the "Split"), as determined in accordance with the Split Formula
(defined below). The Split does not apply to any outstanding quotations or
bid awards received prior to May 31, 1996 which are not also the subject of a
valid customer Purchase Order received by Seller before May 31, 1996.
Further, the Split does not apply to any customer purchase orders received by
Seller on or after May 31, 1996 (the Subsequent Purchase Orders). Buyer
shall retain 100% of the Net Profit realized
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from performance by Buyer or Seller of the Subsequent Purchase Orders.
Purchase Orders received on or after May 31, 1996 which are stated, by their
terms, to be performed by Seller will be delivered, to the extent permissible
under the terms of the Purchase Order, under the name of Seller unless the
Purchase Order is assignable to Buyer (in which case the Purchase Order will
be assigned to Buyer and performed by and on behalf of Buyer). Whether or not
a Purchase Order received on or after May 31, 1996 is made, by its terms, to
be performed by Seller or Buyer, Buyer will deliver the equipment called for,
on its own behalf or nominally on behalf of Seller, but Buyer will receive
100% of the Net Profits generated from performance of the Purchase Order.
Subject to the terms of each Purchase Order with respect to its
assignability, all Purchase Orders will be assigned to Buyer at Closing by
Seller. At Closing, Buyer and Seller will negotiate in good faith to reach a
mutual agreement for the terms of an arrangement pursuant to which purchase
orders rejected by Buyer (and therefore not identified in SCHEDULE 2.01(k))
can be performed on behalf of Seller with Buyer's assistance. For purposes
of calculating the Split, the following formula shall be used: 70% or 30%,
as applicable, multiplied by the Net Profit, which Net Profit shall be
calculated as follows: the gross sales amount of the customer Purchase Order
minus each of the manufacturer's invoice,
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freight charges and commission due salesman; PROVIDED HOWEVER, as to each
TYMCO street sweeper included in a Purchase Order, there shall be deducted
from the gross sales amount of the customer Purchase Order (in addition to
the foregoing deductions) the amount of $600.00 per TYMCO street sweeper, as
a preparation charge (the Split Formula). Buyer and Seller agree to act
reasonably to arrange for payment of all invoices billed to Buyer or Seller
in respect of the products comprising the subject matter of the Purchase
Orders including without limitation manufacturer=s and freight carrier
invoices. Any dispute regarding the matters contained in this Section
2.05(c) which is not resolved within ten (10) days of the commencement of
such dispute shall be promptly submitted to arbitration (Arbitration) for
determination. The Arbitration shall be final and binding upon the parties
hereto, without a right by any party to an appeal or a trial de novo in a
court of competent jurisdiction, and shall be conducted under the auspices of
the American Arbitration Association (hereinafter referred to as AAA) in
Sacramento County, California, and in accordance with its Commercial
Arbitration Rules. Further, the prevailing party in the Arbitration shall be
entitled to enforce the AAA decision and seek any remedy at law or in equity,
including without limtiation specific performance and injunctive relief.
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(d) JOINT ACCOUNT. A joint banking account (the Joint Account)
will be established at Bank of America, Sacramento Branch, for the purpose of
handling the customer payments on outstanding Purchase Orders by Seller
received/prior to May 31, 1996. The Joint Account shall require one
signature of Buyer and one signature of Seller. The intent of the Joint
Account is to allow for proper distribution of the 30% - 70% Split between
Seller and Buyer, referenced in Section 2.05(c) with respect to performance
of Purchase Orders. The Vice President of Finance for Buyer=s parent, Western
Power & Equipment Corp., a Delaware corporation, and the President of Seller
will be responsible for auditing the Joint Account to insure proper
distribution of funds, and mutually determine the amounts distributed from
the Joint Account as a result of the Split (in accordance with the Split
Formula) within ten (10) days following final payment of amounts billed by
Buyer in connection with final performance of any Purchase Order, such
persons shall make their determination of such amounts to be distributed and
funds shall be distributed out of the Joint Account in accordance with their
determination within three (3) days following such determination. Any dispute
regarding the allocation of such funds which is not resolved within such
preceding ten (10) day period shall be promptly submitted to Arbitration for
determination. The Arbitration shall be final
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and binding upon the parties thereto, without a right by any party to an
appeal or a trial de novo in a court of competent jurisdiction, and shall be
conducted under the auspices of the AAA in Sacramento County, California, and
in accordance with its Commercial Arbitration Rules. Further, the prevailing
party in the Arbitration shall be entitled to enforce the AAA decision at law
or in equity, including specific performance and injunctive relief. Buyer and
Seller agree that: (i) at the time Buyer issues invoices in connection with
deliveries of products under the Purchase Orders, Buyer shall indicate
thereon that customer payments shall be sent to Buyer=s address, and, at
Closing Seller shall provide Buyer with Seller=s blank invoices for such
purpose; and (ii) one of the Shareholders shall sign any such invoices as may
be deemed necessary and requested by Buyer. Any payment from customers
received by a party hereto in respect of the Purchase Orders must be promptly
deposited into the Joint Account.
(e) ESCROW ACCOUNT. Three escrow accounts will be established
with a bank at Closing, to be funded by Seller from the Cash Proceeds at
Closing as follows:
(i) The first escrow account (the "Warranty Escrow") shall
cover all warranty expenses on equipment and other products sold by Seller
which shall be incurred or paid by Buyer and which equipment or products at
Closing are still covered by the respective manufacturers= warranties for
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product defects. On behalf of Seller, Buyer shall deposit from the Cash
Proceeds $10,000.00 into the Warranty Escrow at Closing in accordance with
the terms of the Warranty Escrow Agreement annexed as EXHIBIT B, which funds
shall be distributed only to pay for warranty costs (including labor and
materials) paid or incurred by Buyer in providing warranty service to
Seller=s customers with respect to products (the Warranty Claims). Seller
shall pay for labor at a rate of $30.00 per hour, which Buyer and Seller
agree is reasonable. Before any disbursements are made from the Warranty
Escrow, Buyer shall afford Seller the opportunity to review the warranty
claims. Upon the first to occur (x) the date that is one year from the
Closing Date and (y) the date that the respective manufacturers= warranty
periods end for all warranted sales of products by Seller on or prior to the
Closing Date, any remaining, undistributed amounts held in the Warranty
Escrow Account will be distributed to Seller. At Closing, Seller will be
required to supply Buyer with a complete listing of equipment sold by Seller
up through the Closing Date, identifying the time remaining with respect to
which such equipment will remain under manufacturers= warranty. On or before
Closing, Seller will also provide to Buyer copies of the relevant
manufacturers= warranty policies.
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(ii) The second escrow account (the "Sales Tax Escrow") shall
cover any sales or use tax liability of the Seller for its activities in
operating the Retail Operations on or prior to the Closing Date until Seller
delivers to Buyer a receipt from the California Board of Equalization showing
that all requisite amounts incurred on account of sales or use tax receipts
up to and including the Closing Date have been paid or a certificate
therefrom stating that no amounts of sales or use tax receipts are due to be
paid. Seller shall deposit from the Cash Proceeds $50,000.00 into the Sales
Tax Escrow at Closing, which amount represents Seller=s average monthly sales
tax payment to the California Board of Equalization for the twelve month
period preceding the Closing Date. Once Buyer receives from Seller a receipt
or a certificate from the State Board of Equalization showing that the tax
liability has been paid or no tax is due, Buyer shall release the escrowed
funds allocated for sales or use tax to Seller, less any amount previously
paid in respect of such sales or use tax liability.
(iii) The third escrow account (the Vactor Escrow) shall
cover the inability of the Buyer to enter into a satisfactory distributorship
agreement with Vactor Manufacturing, located in Streator, Illinois (Vactor)
on or before a date that is thirty (30) days from the Closing Date. Sales of
Vactor products by Seller account for approximately
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11% of Seller=s gross revenues. Seller shall deposit from the Cash Proceeds
$185,000.00 into the Vactor Escrow at Closing, which amount represents
approximately 11% of the Cash Proceeds. If Vactor provides Buyer with an
executed distribution agreement that is satisfactory to Buyer, in Buyer=s
sole discretion, before July 10, 1996, then the funds in the Vactor Escrow
shall be distributed to Seller. If Vactor does not provide Buyer with an
executed distribution agreement that is satisfactory to Buyer, in Buyer=s
sole discretion, before July 10, 1996, the funds in the Vactor Escrow shall
be distributed to Buyer.
(iv) In the event the warranty claims exceed the funds
available in the Warranty Escrow, or similarly, if Seller's sales or use tax
liability exceeds the funds available in the Sales Tax Escrow (the "Excess
Claims"), David R. Happe and Ronald E. Happe, jointly and severally, shall
indemnify Buyer for and pay over to Buyer in accordance with Article 9 of
this Agreement, the amount of the Excess Claims.
(v) The Warranty Escrow, the Sales Tax Escrow and the Vactor
Escrow shall be subject to the terms and conditions of the Warranty Escrow
Agreement, the Sales Tax Escrow Agreement and the Vactor Escrow Agreement
(collectively, respectively, the Escrow Agreements) to be executed on the
Closing Date by the Shareholders, the Buyer
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and the Escrow Agent, Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
substantially in the forms attached hereto as EXHIBITS B, C AND C-1.
2.06 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated in the manner set forth in EXHIBIT D annexed hereto. Except for
their respective transaction costs and expenses which will be separately
allocated by the parties, Seller and Buyer will follow and use such
allocation in the income, sales registration and other tax returns, filings
or other related reports made by them to any governmental agencies. To the
extent that disclosures of this allocation are required to be made by the
parties to the Internal Revenue Service (IRS) under the provisions of the
Internal Revenue Code of 1986, as amended, or any regulations thereunder (the
Code), Buyer and Seller will disclose such reports to the other prior to
filing with the IRS.
ARTICLE 3.
THE CLOSING
3.01 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated by this Agreement (the AClosing@) shall be held at Buyer's
offices located at 1751 Bell Avenue, Sacramento, California 98538,
commencing at 9:00 a.m. (Local Time) on June 11, 1996, or as soon thereafter
as is practicable (the Closing Date).
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3.02 DELIVERIES BY SELLER. Concurrently herewith, Seller has delivered
or caused to be delivered to the Buyer the following:
(a) An executed and acknowledged Bill of Sale (Bill of Sale) and
Assignment and Assumption Agreement (Assignment Agreement) in the forms
attached hereto as EXHIBIT E-1 and EXHIBIT E-2, respectively, all in the form
and substance necessary to legally transfer to Buyer all of Seller's right,
title and interest in and to the Purchased Assets;
(b) Certified copies of a good standing certificate from the
office of the Secretary of State of California, confirming that Seller is in
good standing as a domestic corporation in the State of California and dated
no earlier than five days before the Closing Date;
(c) A copy of the resolutions of the Board of Directors and
Shareholders of Seller authorizing and approving this Agreement and the
transactions contemplated by this Agreement certified by the Secretary of
Seller;
(d) Assignments or consents to sale of Purchased Assets and
purchase orders as determined to be necessary by Buyer, including without
limitation an assignment of the Fullerton Lease (the "Assignment of Lease");
(e) Copies of distribution agreements between Seller and the
vendors listed on SCHEDULE 3.02 ("Key
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Vendors/Suppliers"), and such assignments of those agreements to Buyer as
shall be requested by Buyer in such form as shall be approved by Buyer.
(f) The Escrow Agreements in form of EXHIBIT B and EXHIBIT C and
EXHIBIT C-1;
(g) The Amendment to Articles of Incorporation of Seller, changing
Seller=s name;
(h) The Non-Competition Agreement signed by Seller and
Shareholders in form of EXHIBIT F and EXHIBIT F-1; and
(i) Such other documents, instruments and writings required to be
delivered by Seller at the Closing or otherwise required in connection
therewith.
3.03 DELIVERIES BY BUYER. Concurrently herewith, Buyer has delivered or
caused to be delivered to Seller the following:
(a) The amount of the Purchase Price due on the Closing Date,
payable:
(i) as to the cash portion thereof, [less the funds deposited
into the Warranty Escrow and the Sales Tax Escrow by Buyer on behalf of Seller
(the Escrowed Funds)], by confirmed wire transfer in immediately available
funds to a bank account which shall be designated by Seller, or such other
means as agreed by Seller and the Buyer; and
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(ii) as to the Escrowed Funds, by confirmed wire transfer in
immediately available funds to a bank account designated by Buyer.
(b) Certified copies of a good standing certificate from the
office of the Secretary of State of the State of Oregon confirming that Buyer
is in good standing in the State of Oregon and dated not earlier than five
days before the Closing Date;
(c) A copy of the resolutions of the Board of Directors of Buyer
authorizing and approving this Agreement and the transactions contemplated by
this Agreement certified by the Secretary of Buyer; and
(d) Such other documents, instruments and writings required to be
delivered by Buyer at the Closing pursuant to this Agreement or otherwise
required in connection herewith.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller and each of Ronald E. Happe and David R. Happe, jointly and
severally, represent and warrant to Buyer as set forth below, which
representations and warranties shall survive Closing:
4.01 ORGANIZATION AND QUALIFICATION. Seller is a corporation validly
existing a and in good standing under the laws of the State of California and
is duly qualified to
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conduct business in the State of California as a domestic corporation.
4.02 AUTHORITY RELATIVE TO THIS AGREEMENT. The Shareholders and the
Seller have the requisite legal right, power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which it/they are a
party and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Seller of this Agreement and the Ancillary
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement and the Ancillary
Agreements to which Seller and/or the Shareholders are parties have been duly
executed and delivered by Seller and/or Shareholders and constitute legal,
valid and binding obligations of Seller and/or Shareholders and are
enforceable against Seller and/or Shareholders in accordance with their
respective terms subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors=
rights and remedies generally and to the effect of general principles of
equity (regardless of whether enforcement is considered in a proceeding at
law or in equity).
4.03 CONSENTS AND APPROVALS. The execution and delivery by Seller of
this Agreement and the Ancillary Agreements to which
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it is a party does not, and compliance by Seller with the terms thereof and
consummation by Seller of the transactions contemplated thereby will not,
require Seller to obtain any consent, approval, exemption, authorization or
other action of, or make any filing with or give any notice to, any court,
administrative agency or other governmental authority or any other Person,
except as disclosed on SCHEDULE 4.03, or except where failure to obtain such
consents, approvals, exemptions, authorizations or actions, make such filings
or give such notices would not have a material adverse effect on the
ownership or operation of the Purchased Assets and the Retail Operations,
individually or taken as a whole, or materially adversely affect the ability
of Seller to perform any of its obligations hereunder.
4.04 NO VIOLATION. Assuming all consents, approvals, exemptions,
authorizations and other actions described in SCHEDULE 4.03 have been
obtained, the execution and delivery by Seller of this Agreement and the
Ancillary Agreements to which Seller is a party does not, and the performance
by Seller of this Agreement and the Ancillary Agreements to which Seller is a
party will not,
(i) conflict with or result in a breach of the Articles of
Incorporation or Bylaws of Seller, or
(ii) violate, or conflict with, or constitute a default under, or
give to others any right of termination,
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amendment, acceleration or cancellation of, or result in the creation or
imposition of any Lien upon the Purchased Assets under, any mortgage,
indenture, deed of trust agreement, contract, instrument, judgment, decree or
court order to which Seller is a party or by which any of the Purchased
Assets are bound.
4.05 LITIGATION. Except as set forth on SCHEDULE 4.05:
(a) at the date of this Agreement, Seller is not a party to any
actual suits, actions or claims, or investigations, hearings, forfeiture
proceedings or inquiries by any Person, administrative or governmental agency
affecting the Retail Operations or the Assets; and
(b) no action, suit or proceeding before any court or any
governmental or regulating authority has been commenced or is, to the
knowledge of the Seller, threatened; and no investigation by any governmental
or regulating authority has been commenced against Seller or any of its
Affiliates, officers or directors, in either case, (i) seeking to restrain,
prevent or change the transactions contemplated hereby, or (ii) questioning
the validity or legality of such transactions, or (iii) seeking damages in
connection therewith, or (iv) which otherwise, individually or in the
aggregate, could have a material adverse effect on the ownership and
operation of the Purchased Assets or the Retail Operations as currently
conducted by Seller.
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4.06 OWNERSHIP OF PURCHASED ASSETS. Seller currently has and on the
Closing Date will have good and marketable title to the tangible personal
property included in the Purchased Assets and Seller=s leasehold interest in
the Fullerton Lease, free and clear of all Liens. The Bill of Sale, to be
delivered on the Closing Date, and the Assignment of Lease to be delivered on
the Closing Date will transfer all of the Purchased Assets free of all such
Liens.
4.07 LABOR MATTERS. Seller is not a party to any collective bargaining
agreement relating to employees who are employed at the Retail Operations.
Except as set forth on SCHEDULE 4.07:
(a) there are no organizational activities or other labor
controversies pending, or to the knowledge of Seller, threatened with respect
to the Retail Operations which could have, individually or in the aggregate,
a material adverse effect on the operation of the Purchased Assets or the
Retail Operations as currently conducted by Seller; and
(b) there are no grievances outstanding, unfair labor practice
complaints, petitions for election or other proceedings or investigations
pending before the National Labor Relations Board, Equal Employment
Opportunity Commission, Department of Labor or any state labor agency,
against Seller in respect of employees who are employed at the Retail
Operations which could have, individually or in the
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aggregate, a material adverse effect on the operation of the Purchased Assets
or the Retail Operations as currently conducted by Seller.
4.08 ENVIRONMENTAL COMPLIANCE. Except as otherwise disclosed to Buyer
on SCHEDULE 4.08, the Retail Operations have been conducted in accordance
with applicable Environmental Laws, except where the failure to so comply
would not have a material adverse effect on the Retail Operations as
currently conducted by Seller, Seller's financial condition, or Seller's
results of operations.
4.09 ACCURACY OF INFORMATION. To the knowledge of Seller, all
information contained in EXHIBIT A, including descriptions of the Purchased
Assets, purchase price information and information on the schedules to such
EXHIBIT A and to the Agreement, is true and correct.
4.10 FINANCIAL DATA. SCHEDULE 4.10 sets forth the unaudited financial
statements of each of the Retail Operations for each of the four calendar
years ended December 31, 1995 (collectively, the Financial Statements). Such
Financial Statements have been derived from the books and records of Seller.
Seller has furnished the Financial Statements to Buyer for informational
purposes only and Buyer shall use such data for such purposes as it deems
appropriate. Nothing contained herein shall negate or conflict with the
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parties= understanding that this transaction constitutes a sale of the
Purchased Assets only.
4.11 BROKERS OR FINDERS. Other than Crader & Associates (whose fees are
payable solely by Seller at Closing), neither Seller nor any of its
directors, officers, employees or agents have retained, employed or used any
broker or finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
4.12 SHAREHOLDERS. Ronald Happe and David Happe own 100% of the issued
and outstanding voting capital stock of the Seller, free and clear of any
liens and encumbrances.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as set forth below:
5.01 ORGANIZATION. Buyer is a corporation validly existing and in good
standing under the laws of the State of Oregon.
5.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Buyer has the requisite
corporate power to execute and deliver this Agreement, and the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Buyer of this
Agreement, and the Ancillary Agreements to which Buyer is a party, and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary
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corporate action on the part of Buyer. The Agreement and the Ancillary
Agreements to which Buyer is a party have been duly executed and delivered by
Buyer and constitute legal, valid and binding obligations of Buyer and are
enforceable against Buyer in accordance with their terms subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors= rights and remedies generally and to the
effect of general principles of equity (regardless of whether enforcement is
considered in a proceeding at law or in equity).
5.03 CONSENTS AND APPROVALS. Except as otherwise set forth on SCHEDULE
5.03, the execution and delivery by Buyer of this Agreement and the Ancillary
Agreements to which Buyer is a party do not, and compliance by Buyer with the
terms hereof and thereof and consummation by Buyer of the transactions
contemplated hereby and thereby will not, require Buyer to obtain any
consent, approval, exemption, authorization, or other action of, or make any
filing with or give any notice to, any court, administrative agency or other
governmental authority or any other Person, except where failure to obtain
such consents, approvals, exemptions, authorizations or actions, make such
filings or give such notices would not materially adversely affect the
ability of Buyer to perform any of its obligations under this Agreement or
the Ancillary Agreements.
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5.04 NO VIOLATION. Assuming all consents, approvals, exemptions,
authorizations and other actions described on SCHEDULE 5.03 have been
obtained, the execution and delivery by Buyer of this Agreement and the
Ancillary Agreements to which Buyer is a party do not, and the performance by
Buyer of this Agreement and the Ancillary Agreements to which Buyer is a
party will not: (i) conflict with or result in a breach of Buyer=s charter or
Bylaws, or (ii) violate, or conflict with, or constitute a default under, or
give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation or imposition of any Lien upon the
properties or assets of Buyer under any mortgage, indenture, agreement,
judgment, decree or court order to which Buyer is a party or by which any of
the properties or assets of Buyer is bound, which violation, conflict,
default or Lien would adversely affect the ability of Buyer to perform its
obligations under this Agreement or the Ancillary Agreements to which Buyer
is a party.
5.05 LITIGATION. Except as set forth on SCHEDULE 5.05:
(a) at the date of this Agreement, Buyer is not a party to any
actual suits, actions or claims, or investigations, hearings, forfeiture
proceedings or inquiries by any Person, administrative or governmental agency
affecting the Retail Operations or the Assets; and
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(b) no action, suit or proceeding before any court or any
governmental or regulating authority has been commenced or is, to the
knowledge of Buyer, threatened; and no investigation by any governmental or
regulating authority has been commenced against Buyer or any of its
Affiliates, officers or directors, in either case, (i) seeking to restrain,
prevent or change the transactions contemplated hereby, or (ii) questioning
the validity or legality of such transactions, or (iii) seeking damages in
connection therewith, or (iv) which otherwise, individually or in the
aggregate, could have a material adverse effect on the ability of Buyer to
perform its obligations under this Agreement, the Ancillary Agreements or the
transactions contemplated hereby or thereby.
5.06 BANKRUPTCY. Buyer is not, and has not, within the past six months,
been the subject of a bankruptcy or insolvency proceeding, nor is Buyer
subject to any Lien that might adversely affect Buyer's ability to perform
its obligations as contemplated by this Agreement.
5.07 NO BROKERS OR FINDERS. Neither Buyer nor any of its directors,
officers, employee or agents have retained, employed or used any broker or
finder in connection with the transaction provided for herein or in
connection with the negotiation thereof.
ARTICLE 6
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ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES
6.01 CONFIDENTIALITY OF DUE DILIGENCE INFORMATION. Buyer agrees to
retain all information obtained from Seller pursuant to Section 7.05 in
confidence. In the event that this Agreement is not consummated for any
reason, Buyer shall return promptly to Seller all documents or copies
received by Buyer from Seller in connection with the proposed transaction
(except such documents as shall be necessary to hold for purposes of meeting
applicable regulatory requirements).
6.02 TAXES. Seller shall pay any taxes (including without limitation
Seller=s income or capital gains taxes) imposed on Seller in connection with
the transfer of the Purchased Assets hereunder; PROVIDED, HOWEVER, Buyer
shall pay sales tax, if any, on the sale to Buyer of the Purchased Assets,
which sales tax amounts shall be paid by Buyer directly to the California
Board of Equalization and for which Buyer shall indemnify and hold Seller
harmless. The personal property taxes assessed for July 1, 1995 through June
30, 1996 in respect of the operation of the Retail Operations have been paid
by Seller and any proration is hereby waived by the parties hereto.
6.03 PUBLIC STATEMENT. Neither Seller nor Buyer will issue or approve a
press release or other public statement (the "Public Statement") concerning
the transactions contemplated in this Agreement without the prior approval of
other as to
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the contents of the Public Statement and its release, which approval will not
be unreasonably withheld; PROVIDED, that to the extent that Buyer=s counsel
deems it necessary to comply with federal and state securities laws that
Buyer or its affiliates issue a press release, or other Public Statement, in
advance of Seller=s approval, Buyer shall give Seller notice of such Public
Statement as soon as possible following issuance of the Public Statement by
Buyer; and PROVIDED FURTHER, that to the extent that Seller has advance
knowledge of any news release or other Public Statement by Buyer or its
affiliates. Seller shall hold the contents thereof strictly confidential
until it has been generally released to the public.
6.04 FURTHER ASSURANCES. Seller and Buyer will use reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or advisable to carry out all of their
respective obligations under this Agreement and to consummate and make
effective the purchase and sale of the Purchased Assets and the Retail
Operations pursuant to this Agreement. Seller and Buyer shall, and shall
cause their Affiliates to, execute, acknowledge and deliver all such further
conveyances, notices, assumptions, releases and acquittances and such other
instruments, and shall take such further actions, as may be necessary or
appropriate more fully to assure to Buyer, and
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its successors or assigns, all of the properties, rights, titles, interests,
estates, remedies, powers and privileges intended to be conveyed to Buyer
pursuant to this Agreement, and to assure fully to Seller and its Affiliates
and their successors and assigns the assumption of the liabilities and
obligations intended to be assumed by Buyer pursuant to this Agreement,
respectively.
6.05 NON-ASSIGNABLE CONTRACTS. To the extent any such lease, contract,
Contract Right, Purchase Order, or commitment included in the Purchased
Assets is not capable of being assigned, transferred, subleased or
sublicensed without the consent or waiver of the issuer thereof or the other
party thereto or any third party (including a government or governmental
unit), or if such assignment, transfer, sublease or sublicense or attempted
assignment, transfer, sublease or sublicense would constitute a breach
thereof or a violation of any law, decree, order, regulation or other
governmental edict, this Agreement shall not constitute an assignment,
transfer or sublease thereof, or an attempted assignment, transfer or
sublease of any such lease, contract, right or commitment.
(a) Anything in this Agreement to the contrary notwithstanding,
Seller shall not be obligated to unilaterally assign to Buyer any of its
rights and obligations in and to any such contract or agreement included in
Purchased Assets
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without first having obtained all necessary consents and waivers. For a
reasonable period of time after the Closing Date, Seller shall use all
reasonable efforts, and Buyer shall cooperate with Seller to obtain the
consents and waivers referred to in this Section 6.05.
(b) To the extent that such consents and waivers are not obtained
by Seller, the Buyer shall nonetheless enjoy all of the rights and benefits
of the relevant contract and agreement included in Purchased Assets
(including all payments and profits thereunder subject to Section 2.05(c) and
(d) of this Agreement) for its remaining term, and Buyer shall promptly and
fully pay and perform all obligations, costs, expenses and burdens of the
relevant contract, and assume all risk of loss thereunder, on behalf of
Seller, for the remaining term of such contract.
6.06 PRESERVATION OF RECORDS. Buyer shall preserve and keep (or cause
to be preserved and kept) the books and records conveyed pursuant to this
Agreement, and Seller and/or Shareholders shall preserve and keep (or cause
to be preserved and kept) all such other books and records (including tax
records) as they or any of their Affiliates shall retain with respect to the
Purchased Assets, for a period of seven years after the Closing Date, and
Buyer and Seller/Shareholders shall each grant to the other reasonable access
to such books and records retained by them during such period. In the event
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Buyer or Seller/Shareholders wishes to destroy such records after that time,
it shall first give written notice to the other party and the other party
shall have the right at its option, upon prior written notice given to the
party providing the initial notice, to take possession of said records as
promptly as practicable, but in any event within 45 days after the date of
its notice requesting the same.
6.07 BULK SALES. Each of the Seller and Buyer hereby waive compliance
with the applicable provisions of the Uniform Commercial Code, Article 6
(Bulk Sales), as adopted in the State of California as such provisions may
apply to the transactions contemplated by this Agreement.
6.08 RISK OF LOSS. Buyer assumes all risk of loss from all causes with
respect to the Purchased Assets from and after the Closing Date. Seller
assumes all risk of loss from all causes with respect to such Purchased
Assets at all times prior to and including the Closing Date.
6.09 CERTAIN PERSONNEL MATTERS.
(a) Compensation of, and bonuses for, all employees of the Retail
Operations owed for all periods of employment of such employees through and
including the Closing Date shall be borne and paid for by Seller.
Compensation and any bonuses for all employees hired by the Buyer for all
periods of employment subsequent to the Closing Date shall be borne and paid
for by Buyer. All vacation, sick day and holiday pay of
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all employees of the Retail Operations which have accrued or were earned
prior to the Closing Date, shall be the sole responsibility of the Seller and
shall be paid in full prior to the Closing Date, or accrued on the books of
Seller and remitted by the Seller to the employee at the time of his vacation
or holiday.
(b) Effective as at the Closing Date, the Seller will have
terminated the employment of all hourly and salaried employees (including
managers and executives) of the Retail Operations (collectively, the
"Employees"). Buyer may elect to offer continuing employment to a limited
number of Employees who are disclosed in a separate writing from Buyer to
Seller delivered prior to the Closing Date. Seller shall be liable, and the
Buyer shall not be liable, for any severance pay or any other obligations to
any Employee of Seller who Buyer shall elect not to offer employment on the
Closing Date. All Employees of Seller receiving an offer of employment with
Buyer, and accepting such employment, shall not be credited with any
seniority earned during their employment with Seller for purposes of
calculating their vacation and holiday pay. Subject to the foregoing, the
Buyer reserves the sole and absolute right to retain and discharge any
employees of Seller that it may engage and, from time to time, modify any
terms and conditions of their employment. In the event that Buyer shall
elect to subsequently terminate any
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employee of Seller that it may have engaged, the Buyer's severance pay
liability to such Employee, if any, shall be calculated only from and after
the Closing Date, and Seller shall be liable for any severance pay that may
be calculated for periods prior to or terminating on the Closing Date.
(c) Seller shall be solely liable and responsible for all deferred
compensation, pension, profit sharing, retirement, group insurance, or other
employee benefit or welfare plans, written or oral, relating to Employees of
the Retail Operations whether or not constituting an "employee benefit plan"
under ERISA, which have accrued through and including the Closing Date.
Buyer shall not be obligated to assume or adopt such obligation from and
after the Closing Date.
ARTICLE 7.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of
the following conditions:
7.01 REPRESENTATIONS AND WARRANTIES TRUE OF THE DATE OF CLOSING. Each
of the representations and warranties made by Seller and Shareholders in this
Agreement, and the statements contained in any instrument, list, certificate
or writing delivered by Seller and Shareholders pursuant to this
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Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing
Date as though such representations and warranties were made or given on and
as of the Closing Date.
7.02 COMPLIANCE WITH AGREEMENT. Seller and Shareholders shall have in
all material respects performed and complied with all of its and their
agreements, covenants and obligations under this Agreement which are to be
performed or complied with by them prior to or on the Closing Date, including
compliance by Seller and Shareholders with their respective covenants and
agreements contained in Article 6 above and the delivery of the closing
documents specified in Article 3 hereof. On the Closing Date, Buyer shall
receive a certificate of Shareholders and of the President of Seller
acknowledging compliance by Shareholders and Seller with this Section 7.02
and with Section 7.01.
7.03 CONSENTS AND APPROVALS. All required filings with approvals,
consents and waivers from local, municipal, state and federal regulatory
agencies, or any other third parties, in form satisfactory to Buyer, that are
required to effect the transactions contemplated hereby shall have been
received and shall have been delivered to Buyer.
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7.04 FINANCING. Buyer shall be able to secure debt and equity financing
to pay the Purchase Price on terms acceptable to Buyer in Buyer=s sole
discretion.
7.05 DUE DILIGENCE. Buyer shall have completed a due diligence review
of the Retail Operations and of the Seller and its Affiliates satisfactory to
Buyer in its sole discretion.
7.06 RENEGOTIATION AND ASSIGNMENT TO LEASE. Buyer shall have concluded
satisfactory negotiations with the lessor under the Fullerton Lease such that
Buyer is satisfied, in its sole discretion, with the terms of an assignment
to Buyer of the Fullerton Lease.
7.07 VENDOR SALES AGREEMENTS. With the assistance of the Seller and
subject to the Closing of this Agreement, Buyer shall have negotiated sales
and/or distribution agreements, in form satisfactory to Buyer, with Seller=s
key suppliers who are set forth on SCHEDULE 3.02.
7.08 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred since December 31, 1995, based upon Seller=s unaudited December 31,
1995 financial statements previously delivered to Buyer, in the financial
condition of Seller or the Retail Operations, as determined by Buyer in its
sole discretion.
7.09 ABSENCE OF LITIGATION, ETC.. No material litigation, environmental
or product liability condition or issue
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concerning the Retail Operations not disclosed in the Financial Statements,
and which could materially adversely affect the Retail Operations and its
future prospects for success shall have occurred on or prior to the Closing.
7.10 HIRING OF CERTAIN EMPLOYEES. Buyer shall have concluded
satisfactory negotiations with certain current employees of Seller, and
effective on the date of Closing, Buyer shall have entered into agreements to
hire all those employees of Seller that Buyer shall have a desire to hire.
7.11 NO MATERIAL LOSS OF CUSTOMERS. No loss of any of Seller=s material
customers shall occur or be discovered by Buyer on or prior to the Closing.
7.12 NON-COMPETITION AGREEMENT. On the Closing Date, Seller and
Shareholders shall each execute and deliver to Buyer a seven (7) year
non-competition agreement in favor of Buyer wherein, among other things,
Seller and Shareholders shall not compete with Buyer in the state of
California, Oregon, Washington and Nevada with respect to the retail or
wholesale distribution of highway construction and highway maintenance and
related equipment, which agreement shall be in the form of EXHIBIT F and
EXHIBIT F-1 hereto (the "Non-Competition Agreement").
7.13 ESCROW AGREEMENTS. On the Closing Date, Seller and Shareholders
shall each execute and deliver to Buyer and
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Escrow Agent the Escrow Agreements in connection with the Warranty Escrow,
the Sales Tax Escrow and the Vactor Escrow.
7.14 CHANGE OF NAME. On the Closing Date, Seller shall execute and
deliver an Amendment to Articles of Incorporation of GCS, Inc., changing
Seller=s name.
ARTICLE 8.
CONDITIONS PRECEDENT TO SELLER=S OBLIGATIONS
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the
following conditions:
8.01 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. Each of
the representations and warranties made by Buyer in this Agreement shall be
true and correct in all material respects when made and shall be true and
correct in all material respects at and as of the Closing Date as though such
representations and warranties were made or given on and as of the Closing
Date.
8.02 COMPLIANCE WITH AGREEMENT. Buyer shall have in all materials
respects performed and complied with all of Buyer's agreements and
obligations under this Agreement which are to be performed or complied with
by Buyer prior to or on the Closing Date, including compliance with Buyer's
covenants and agreements contained in Article 6 and the delivery of the
closing agreements specified in Article 3 hereof. On the
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Closing Date, Seller shall receive a certificate of an officer of Buyer
acknowledging compliance by Buyer with this Section 8.02 and Section 8.01.
8.03 CONSENTS AND APPROVALS. All approvals, consents and waivers that
are required to effect the transactions contemplated hereby shall have been
received and shall have been delivered to Seller.
ARTICLE 9.
INDEMNIFICATION AND LIMITATIONS ON LIABILITY
9.01 DEFINITIONS. As used in this Article 9, the following terms shall
have the meanings set forth below:
(a) LOSSES. The term "Loss" or "Losses" shall mean any and all
direct or indirect payments, assessments, liabilities, costs and expenses
paid or incurred (whether or not known, or asserted prior to the date hereof,
fixed or unfixed, conditional or unconditional, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute,
contingent or otherwise), including without limitation penalties, interest on
any amount payable to an unaffiliated party as a result of the foregoing and,
subject to Section 9.05, any legal or other expenses reasonably incurred in
connection with investigating or defending any Third Party Claims (defined
below), whether or not resulting in any liability, and all amounts paid in
respect of claims or
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actions in accordance with Section 9.05; PROVIDED, however, that Losses shall
not include any loss of profit or anticipated profit and shall be net of any
insurance proceeds received by an Indemnitee from a nonaffiliated insurance
company on account of such Losses (after deducting any direct costs incurred
in obtaining such proceeds); PROVIDED, however, that nothing in this Article
9 shall require an Indemnitee to proceed against its insurance carrier; and
PROVIDED FURTHER, that any Losses shall include the costs and expenses
related to the enforcement of an arbitrator=s determination rendered pursuant
to Section 2.05 (c) or (d).
(b) THIRD-PARTY CLAIMS. The term "Third-Party Claims" shall mean
any claims, actions or rights asserted against an Indemnitee by a party which
is not the Indemnitor and is not an Affiliate of the Indemnitee, including
without limitation, claims by governmental authorities.
(c) INDEMNITEE. The term "Indemnitee" shall mean any Person which
may be entitled to seek indemnification pursuant to the provisions of Section
9.02 or Section 9.03.
(d) INDEMNITOR. The term "Indemnitor" shall mean any Person which
may be obligated to provide indemnification pursuant to Section 9.02 or
Section 9.03.
(e) NOTICE PERIOD-THIRD-PARTY CLAIMS. The term "Notice Period", as
applied to any Third-Party Claim for which an Indemnitee seeks to be indemnified
pursuant to this Article
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9, shall mean any time within the survival period referenced in Section 9.09.
(f) CLAIM NOTICE. The term "Claim Notice" shall have the meaning
set forth in Section 9.04.
9.02 INDEMNITY BY SELLER. Subject to Section 9.08, Seller and
Shareholders shall, to the fullest extent permitted by law, jointly and
severally, defend and hold harmless Buyer and its Affiliates, including the
directors, officers, employees, agents and representatives of each of them
(each of whom may be an Indemnitee pursuant to this Section 9.02), from and
against the following:
(a) BULK SALES LAW. All Third-Party Claims to the extent that
such Third-Party Claims arise out of, result from, or relate to any Losses
resulting from Seller's or Buyer's failure to comply with the requirements of
any Bulk Sales or similar legislation applicable to the transaction provided
for in this Agreement;
(b) LIABILITIES. All Losses, other than Losses for which Buyer is
obligated to indemnify Seller pursuant to Section 9.03, relating to or
arising from the ownership, operation, occupancy, construction, condition
(including environmental conditions) or use of the Retail Operations or
Purchased Assets (including without limitation, the Fullerton Facility), to
the extent such Losses relate to, arise from or are associated with any
period on or before the Closing Date,
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and whether arising from the negligence, gross negligence or willful
misconduct of Seller or any of its Affiliates or otherwise; and
(c) BREACH. All Losses arising from the breach by Seller or
Shareholders of any of the covenants, agreements or representations set forth
in this Agreement, including the agreement made in Section 2.05(c) and
Section 2.05(d) that the AAA determination made pursuant thereto is final and
binding on all parties hereto.
9.03 INDEMNITY BY BUYER. Buyer shall, to the fullest extent permitted
by law, defend and hold harmless Seller and its Affiliates, including the
current and former directors, officers, employees, agents and representatives
of each of them (each of whom may be an Indemnitee pursuant to this Section
9.03), from and against the following:
(a) LIABILITIES. All Losses, other than Losses for which Seller
and the Shareholders are obligated to indemnify Buyer pursuant to Section
9.02, relating to or arising from the ownership, operation, occupancy,
construction, condition (including environmental conditions) or use of the
Retail Operations or Purchased Assets (including without limitation, the
Fullerton Facility), to the extent such Losses relate to, arise from or are
associated with any period after the Closing Date and whether arising from
the negligence, gross negligence
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or willful misconduct of Buyer or any of its Affiliates or otherwise; and
(b) BREACH. All Losses arising from the breach by Buyer of any of
its covenants or representations set forth in this Agreement, including the
agreement made in Section 2.05(c) and Section 2.05(d) that the AAA
determination made pursuant thereto is final and binding on all parties
hereto.
9.04 NOTIFICATION OF THIRD-PARTY CLAIMS. In no case shall any
Indemnitor under this Agreement be liable with respect to any Third-Party
Claim against any Indemnitee unless the Indemnitee shall have delivered to
the Indemnitor within the Notice Period a notice ("Claim Notice") describing
in reasonable detail the facts giving rise to such Third-Party Claim and
stating that the Indemnitee intends to seek indemnification for such
Third-Party Claim from the Indemnitor pursuant to this Article 9.
9.05 DEFENSE OF CLAIMS. Upon receipt of a Claim Notice from an
Indemnitee with respect to any Third-Party Claim, the Indemnitor may assume
the defense thereof with counsel reasonably satisfactory to such Indemnitee
and the Indemnitee shall cooperate in all reasonable respects in such
defense. The Indemnitee shall have the right to employ separate counsel in
any action or claim and to participate in the defense thereof, provided that
the fees and expenses of counsel employed by the Indemnitee shall be at the
expense of the
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Indemnitor only if such counsel is retained pursuant to the second succeeding
sentence or if the employment of such counsel has been specifically
authorized by the Indemnitor. The Indemnitor may conduct such defense in the
name of or on behalf of the Indemnitee or Indemnitor and shall have full
authority and control with respect thereto, including the settlement thereof.
If the Indemnitor does not notify the Indemnitee within 60 days after
receipt of the Claim Notice that it elects to undertake the defense thereof,
the Indemnitee shall have the right to defend at the expense of the
Indemnitor the claim with counsel of its choosing, subject to the right of
the Indemnitor to assume the defense of any claim at any time prior to
settlement or final determination thereof. In such event, the Indemnitee
shall send a written notice to the Indemnitor of any proposed settlement of
any claim, which settlement the Indemnitor may reject, in its reasonable
judgment, within 30 days of receipt of such notice. Failure to reject such
notice within such 30-day period shall be deemed an acceptance of such
notice. The Indemnitee shall have the right to settle any such claim over
the objection of the Indemnitor, provided the Indemnitee waives any right to
indemnity therefor, if
(i) the Indemnitor is contesting such claim in good faith, or
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(ii) the Indemnitor has assumed the defense from the Indemnitee.
9.06 NOTICE OF OTHER CLAIMS. In the event any Indemnitee should have a
claim against any Indemnitor under or in connection with this Agreement that
does not involve a Third Party Claim, the Indemnitee shall notify the
Indemnitor with reasonable promptness of such claim, specifying the nature of
and specific basis for such claim and the amount of such claim but in no
event later than when notice thereof is required to be made pursuant to
Section 9.09. The Indemnitor shall remit payment for the amount of such claim
upon receipt of an invoice therefor, or in the event of a dispute, the
Indemnitee and the Indemnitor shall proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations, such
dispute will be resolved by litigation in an appropriate court of competent
jurisdiction.
9.07 ACCESS AND COOPERATION. After the Closing Date, Seller, the
Shareholders and Buyer shall each cooperate fully with the other as to all
claims made under this Agreement, shall make available to the other as
reasonably requested all information, records and documents relating to all
such claims and shall preserve all such information, records and documents
until the termination of any such claim. Seller, the Shareholders and Buyer
also shall each make available to the other, as reasonably requested, its
personnel (including
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technical and scientific), agents and other representatives who are
responsible for preparing or maintaining information, records or other
documents, or who may have particular knowledge with respect to any such
Claim.
9.08 LIMITATIONS ON LIABILITIES. None of Buyer, Seller, or either
Shareholder shall have any liability for Indemnifiable Losses unless a Claim
Notice or other notice has been delivered to Seller, or either Shareholder or
Buyer as required by Section 9.04 or Section 9.06 within the period that the
representation giving rise to such Indemnifiable Losses survives as set forth
in Section 9.09 or for breaches of covenants within one year after
performance thereof is required under this Agreement.
9.09 SURVIVAL. The representations and warranties of Seller, Buyer and
the Shareholders set forth in this Agreement and in any certificate or
instrument delivered by them in connection herewith shall, with respect to
tax matters, survive for the applicable statute of limitations period, and as
to all other matters, survive for a period of three (3) years following the
Closing Date.
ARTICLE 10.
EXPENSES
Except as specifically provided herein, all legal and other costs and
expenses in connection with this Agreement and the
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transactions contemplated hereby shall be paid by Seller or Buyer, as the
case may be, depending upon which party incurred such costs and expenses.
ARTICLE 11.
NOTICES; MISCELLANEOUS
11.01 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
facsimile transmission or mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice; PROVIDED that notices of a change of address shall be effective only
upon receipt thereof):
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(i) To Seller and the Shareholders, as follows:
BY MAIL BY HAND DELIVERY
Ronald E. Happe Ronald E. Happe
4909 St. Thomas Drive 4909 St. Thomas Drive
Fair Oaks, CA 95628 Fair Oaks, CA 95628
and
David R. Happe David R. Happe
4505 Woodmont Court 4505 Woodmont Court
Fair Oaks, CA 95628 Fair Oaks, CA 95628
with a copy to:
BY MAIL BY HAND DELIVERY
William S. Gregory, Esq. William S. Gregory, Esq.
901 H Street, Suite 400 901 H Street, Suite 400
Sacramento, CA 95814 Sacramento, CA 95814
(ii) To Buyer, as follows:
BY MAIL BY HAND DELIVERY
Western Power & Equipment Corp. Western Power & Equipment Corp.
4601 N.E. 77th Avenue, Suite 200 4601 N.E. 77th Avenue, Suite 200
Vancouver, WA 98662 Vancouver, WA 98662
Attn: Dean McLain, Attn: Dean McLain,
Executive Vice President Executive Vice President
Facsimile: (206) 253-4830 Facsimile: (206) 253-4830
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with a copy to:
BY MAIL BY HAND DELIVERY
Greenberg Traurig Hoffman Greenberg Traurig Hoffman Lipoff
Lipoff Rosen & Quentel, P.A. Rosen & Quentel, P.A.
650 Fifth Avenue 650 Fifth Avenue
New York, NY 10019 New York, NY 10019
Attn: Peter W. Rothberg, Esq. Attn: Peter W. Rothberg, Esq.
Facsimile: (212) 246-2561 Facsimile: (212) 246-2561
11.02 MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement supersedes all prior
agreements between the parties (written or oral) and, except as aforesaid, is
intended as a complete and exclusive statement of the terms of the Agreement
between the parties. This Agreement may be amended only by a written
instrument duly executed by the parties.
(b) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with laws of the State of New York, without regard to
its principles of conflicts of laws.
(c) HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) ASSIGNABILITY. Neither Seller nor any Shareholder may
transfer, assign or encumber any of its or his rights, duties or obligations
under this Agreement or any part
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hereof without the prior written consent of Buyer. The Buyer may, at any
time, transfer, assign or encumber any of its rights, duties or obligations
under this Agreement to any of its Affiliates, without the consent of Buyer.
Except as otherwise provided herein, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(e) NO THIRD PARTY BENEFICIARIES. Except as expressly provided
herein, nothing in this Agreement shall entitle any person other than Seller,
or Buyer, or their respective successors and assigns permitted hereby to any
claim, cause of action, remedy or right of any kind.
(f) SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
(g) EQUITABLE RELIEF. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached.
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Accordingly, it is agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, no one of which needs to be executed by all the parties, and
this Agreement shall be binding upon all the parties with the same force and
effect as if all the parties had signed the same document, and each such
signed counterpart shall constitute an original of this Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SELLER: GCS, INC.
By:_______________________________
Ronald E. Happe, President
SHAREHOLDERS: ___________________________________
Ronald E. Happe
___________________________________
David R. Happe
BUYER: WESTERN POWER & EQUIPMENT CORP.
By:__________________________________
Name:________________________
Title:_______________________
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EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. Western Power & Equipment Corp., an Oregon Corporation (100% owned by the
Company).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found on pages of the Company's Form
10-K for the year ended July 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 2721
<SECURITIES> 0
<RECEIVABLES> 7025
<ALLOWANCES> 519
<INVENTORY> 65689
<CURRENT-ASSETS> 75515
<PP&E> 9104
<DEPRECIATION> 2073
<TOTAL-ASSETS> 85290
<CURRENT-LIABILITIES> 60189
<BONDS> 1656
0
0
<COMMON> 4
<OTHER-SE> 21790
<TOTAL-LIABILITY-AND-EQUITY> 85290
<SALES> 106555
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</TABLE>
