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, 1998 Commission File Number 0-26230
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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
incorporation or organization) Identification Number)
4601 NE 77TH AVE, SUITE 200, VANCOUVER, WA 98662
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (360) 253-2346
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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 16, 1998: (a) 3,303,162 shares of Common Stock, $.001 par
value, of the registrant (the "Common Stock") were outstanding; (b) 1,303,162
shares of Common Stock were held by non-affiliates ; and (c) the aggregate
market value of the Common Stock held by non-affiliates was $6,027,124 based on
the closing sale price of $4.625 per share on October 15, 1998.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's Proxy Statement to be filed in connection with
the Annual Meeting of Shareholders are incorporated by reference in Part III.
<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, agricultural, and industrial equipment, parts, and related
products which are manufactured by Case Corporation ("Case") and certain other
manufacturers. 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 mobile highway signs.
The Company operates out of 27 facilities located in the states of
Washington, Oregon, Nevada, California, and Alaska. 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 growth strategy focuses on acquiring additional existing
distributorships and rental operations, opening new locations, and increasing
sales at its existing locations. 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 commenced business in November 1992 with the acquisition from
Case of seven retail distribution facilities located in Oregon and Washington.
The Company became a subsidiary of American United Global, Inc. ("AUGI"),
simultaneous with such acquisition. AUGI holds 60.6 percent of the outstanding
shares of the Company as of July 31, 1998.
In September 1994 and February 1996, in two different transactions, the
Company acquired from Case four retail construction equipment stores located in
California and Nevada. In addition, in June 1996 and January 1997, the Company
made two additional acquisitions of distributorships of predominantly
non-competing lines of equipment, with locations in California, Oregon,
Washington, and Alaska. From fiscal 1993 through fiscal 1997, the Company also
opened nine new stores in the states served by the acquired stores.
In fiscal 1998, the Company acquired four additional facilities through
acquisition, located in California and Alaska, and opened one new store in the
state of Washington. On December 11, 1997, the Company acquired substantially
all of the operating assets used by Case in connection with its business of
servicing and distributing Case agricultural equipment at a facility located in
Yuba City, California. The acquisition was consummated for approximately
$142,000 in cash, $628,000 in installment notes payable to Case and the
assumption of $1,175,000 in inventory floor plan debt with Case and its
affiliates.
On April 30, 1998, the Company acquired substantially all of the operating
assets of Yukon Equipment, Inc. (Yukon) in connection with Yukon's business of
servicing and distributing construction, industrial, and agricultural equipment
in Alaska. Yukon has facilities in Anchorage, Fairbanks, and Juneau, Alaska. The
acquisition was consummated for approximately $4,766,000 in cash, the assumption
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<PAGE>
of approximately $2,786,000 in floor plan debt with Case and its affiliates, and
50,000 shares of the Company's common stock.
Growth Strategy
The Company's growth strategy focuses on acquiring additional existing
distributorships and rental operations, 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 in
established or growing markets, as well as dealers or distributors of
construction, industrial, or agricultural equipment, and related parts,
manufactured by companies other than Case.
In addition to acquisitions, the Company plans to grow by opening new
retail outlets. The strategy in opening additional retail outlets 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 third prong of the Company's growth strategy 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 products to its inventories produced by
such quality manufacturers as Dynapac, Champion, Link-Belt, Takeuchi, Tymco,
Vactor, Kawasaki, Kubota, Daewoo, and Stewart & Stevenson. 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
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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 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 Oregon, Washington, Nevada, northern California, and Alaska (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.
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<PAGE>
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 one to six months,
depending upon the type of equipment floored, 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 six months after the date of shipment to the
Company by Case.
Other Products.
- ---------------
Although the principal products sold, rented, 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 35% of the Company's net sales for fiscal
year 1998 resulted from sales, rental, and servicing of products manufactured by
companies other than Case, significantly higher than the 25% figure for fiscal
year 1997 as the Company continued its planned growth in product lines other
than Case. Manufacturers other than Case represented by the Company offer
various levels of supplies and marketing support along with purchase terms which
vary from cash upon delivery to interest-free, 12-month flooring.
The Company's distribution business is divided into five general categories
of activity: (i) New Equipment sales, (ii) Used Equipment sales, (iii) Equipment
rentals, (iv) Equipment servicing, and (v) Parts sales.
New Equipment Sales.
- --------------------
At each of its distribution outlets, the Company maintains a fleet of
various Equipment for sale. 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. Subject to applicable limitations in the Company's
manufacturers' dealer contracts, each distribution outlet has access to the
Company's full inventory of Equipment.
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.
Used Equipment Sales.
- ---------------------
The Company sells 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.
Equipment Rental.
- -----------------
The Company maintains a separate fleet of Equipment that it holds solely
for rental. Such Equipment is generally held in the rental fleet for 12 to 36
months and then sold as used Equipment with 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. In October
1998, the Company opened its first rental-only store, located in the Seattle,
Washington area, under the name Western Power Rents. This store rents a wide
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<PAGE>
range of products including Equipment from Case and other manufacturers with
whom the Company has dealer agreements as well as Equipment from companies with
which the Company has had no prior relationship.
Equipment Servicing.
- --------------------
The Company operates a service center and yard at each retail distribution
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 145 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 to be purchased by
customers for Equipment sold and serviced by the Company, 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 18,000 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, 1998.
For fiscal years 1998, 1997, and 1996, the revenue breakdown by source for
the business operated by the Company were approximately as follows:
FY 1998 FY 1997 FY 1996
------- ------- -------
New Equipment Sales 58% 58% 58%
Used Equipment Sales 11% 11% 12%
Rental Revenue 8% 9% 9%
Parts Sales 18% 18% 17%
Service Revenue 5% 4% 4%
---- ---- ----
100% 100% 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 accepts orders from
customers for future delivery following manufacture by Case
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<PAGE>
or other manufacturers, during fiscal 1998 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 75 Equipment salespersons on July 31, 1998.
On July 31, 1998, the Company employed 7 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 1998. 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, agricultural, and
industrial 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 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, but are not limited to, JCB Corporation--backhoes, Kobelco
Corporation -- excavators, Dresser Industries -- light and medium duty dozers,
Komatsu Corporation -- wheel loaders and crawler dozers, and Bobcat, Inc. --skid
steer loaders.
The Company is currently the only Case dealer for construction equipment in
Washington, Alaska, northern Nevada, and in the northern California area (other
than Case-owned distribution outlets), and is one of two Case dealers in 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
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<PAGE>
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 rental and 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, 1998, the Company employed 450 full-time employees. Of that
number, 32 are in corporate administration for the Company, 33 are involved in
administration at the branch locations, 118 are employed in Equipment sales and
rental, 89 are employed in parts sales, and 178 are employed in servicing
construction equipment. At July 31, 1998, approximately 20 of the Company's
service technicians employed in the Sacramento, California operation were being
represented by Operating Engineers Local Union No. 3 of the International Union
of Operating Engineers, AFL-CIO under the terms of a five-year contract expiring
August 31, 2001. The Company believes that its relations with its employees are
satisfactory.
Insurance
The Company currently has general, product liability, and umbrella
insurance policies covering the Company with limits, terms, and conditions which
the Company believes to be 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.
Forward Looking Statements
Information included within this section relating to projected growth and
future results and events constitutes forward-looking statements. Actual results
in future periods may differ materially from the forward-looking statements
because of a number of risks and uncertainties, including but not limited to
fluctuations in the construction, agricultural and industrial sectors and
general industrial cycles; the success of the Company's entry into new markets
through store openings or acquisitions; the success of the Company's expansion
of its equipment rental business; rental industry conditions and competitors;
competitive pricing; the Company's relationship with Case and other suppliers;
relations with the Company's employees; the Company's ability to manage its
operating costs and to integrate acquired businesses in an effective manner; the
continued availability of financing; governmental regulations and environmental
matters; risks associated with regional, national and world economies; and
implementation and completion of the Company's year 2000 compliance program. Any
forward-looking statements should be considered in light of these factors.
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<PAGE>
ITEM 2. Properties
The following table sets forth information as to each of the properties
which the Company owns or leases (all of which are retail sales, rental,
service, storage, and repair facilities except as otherwise noted):
<TABLE>
<CAPTION>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ----------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
1745 N.E. Columbia Blvd. Carlton O. Fisher, 12/31/2000 $67,500/1 plus Approx. 4 No
Portland, Oregon 97211 CNJ Enterprises CPI acres; building
adjustments 17,622 sq. ft.
1665 Silverton Road, N.E. LaNoel Elston 7/10/2001 $33,600/1 Approx. 1 No
Salem, Oregon 97303 Myers Living Trust acre; buildings
14,860 sq. ft.
1702 North 28th Street McKay Investment 6/14/2001 $69,000/1 Approx. 5 No
Springfield, Oregon 97477 Company acres; building
17,024 sq. ft.
West 7916 Sunset Hwy. U.S. Bank 9/30/2003 $69,600/1 Approx. 5 No
Spokane, Washington 99204 acres; building
19,200 sq. ft.
3217 Hewitt Avenue Dick Calkins Month to $40,320/1 Approx. 2.5 No
Everett, Washington 98201 Month acres; building
12,483 sq. ft.
1901 Frontier Loop The Landon 4/30/2002 $40,500/1 Approx. 7 No
Pasco, Washington 99301 Group acres; building
14,200 sq. ft.
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.
63291 Nels Anderson Road B&K Management 10/31/98 $31,800/1 Approx. 1.9 No
Bend, Oregon 97701 Corp. acres; building
3,600 sq. ft.
4601 N.E. 77th Avenue Parkway Limited 4/30/2001 $147,288 Building 8,627 No
Suite 200 Partnership sq. ft.
Vancouver, Washington 98662
(Executive Offices)
2702 W. Valley Hwy No. Avalon Island LLC 11/30/2015 $204,000/1 Approx. 8 No
Auburn, Washington 98001 acres; building
33,000 sq. ft.
500 Prospect Lane Frederick 9/15/2002 $26,496/1 Approx. 1.5 No
Moxee, Washington 98936 Peterson acres; building
4,320 sq. ft.
2112 Wildwood Way James Ghia 8/31/99 $18,720 Approx. 1 No
Elko, Nevada 89431 acre; building
2,400 sq. ft.
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<PAGE>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ----------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
1455 Glendale Ave. Owned N/A N/A Approx. 5 N/A
Sparks, Nevada 89431 acres; building
22,475 sq. ft.
25886 Clawiter Road Fred Kewel II, 11/30/99 $110,088/1 Approx. 2.8 No
Hayward, California 94545 Agency acres; building
21,580 sq. ft.
3540 D Regional Parkway Soiland 2/28/99 $43,284/1 plus Approx. 1.25 No
Santa Rosa, California 95403 annual CPI acres; building
adjustments 5,140 sq. ft.
1751 Bell Avenue McLain-Rubin 2/2/2016 $168,000/2 Approx. 8 No
Sacramento, California 95838 Realty Group acres; building
35,940 sq. ft.
1041 S. Pershing Avenue Raymond 3/14/2001 $44,400/1 plus Approx. 2 No
Stockton, California 95206 Investment Corp. annual CPI acres; building
adjustments 8,000 sq. ft.
8271 Commonwealth Avenue M.E. Robinson 3/31/2001 $81,600/1 Approx. 1 Yes
Buena Park, California 90621 acre; building
11,590 sq. ft.
672 Brunken Avenue R. Jay De Serpa, 7/31/2001 $28,800/1 Approx. .8 No
Salinas, CA 93301 Ltd. acre; building
4,000 sq. ft.
13691 Whitaker Way D&J Enterprises 5/1/2001 $77,700 Approx. 2 No
Portland, OR 97230 acres; building
11,760 sq. ft.
2535 Ellis Street Hart Enterprises 2/15/2002 $33,600 Approx. 2 Yes
Redding, OR 96001 acres; building
6,200 sq. ft.
1702 Ship Avenue D&J Enterprises 1/18/99 $94,200/1 Approx. 4 No
Anchorage, AK 99501 acres; building
11,800 sq. ft.
913 S. Central McLain-Rubin 5/31/2017 $205,200/2 plus Approx. 4.4 No
Kent, WA 98032 Realty II CPI acres; building
(Rental only facility) adjustments 21,400 sq. ft.
723 15th Street Mark Flerchinger 11/02/2002 $18,600 Approx. 1.2 Yes
Clarkston, WA 99403 acres; building
3,750 sq. ft.
3199 E. Onstott Road McLain-Rubin 12/31/2017 $54,000/2 Approx. 13 No
Yuba, City, CA 95991 Realty III acres; building
23, 900 sq. ft.
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<PAGE>
Expiration Size/Square Purchase
Location and Use Lessor Date Annual Rental Feet Options
- ----------------- ------ ---- ------------- ---- -------
<S> <C> <C> <C> <C> <C>
2020 E. Third Avenue Owned N/A N/A Approx. 4 N/A
Anchorage, AK 99501 acres; building
15,650 sq. ft.
3510 International Way C & N Partners 6/15/99 $30,900 Approx 2 No
Fairbanks, AK 99701 acres; building
4,500 sq. Ft.
2275 Brandy Lane Excaliber Drill 2/29/2000 $42,000 Approx. 0.5 No
Juneau, AK 99801 acre; building
1,500 sq, ft.
85454 Highway 11 Eagle Enterprises Month to $21,600 Approx. 0.5 No
Milton-Freewater, OR 97862 month acres; building
1,000 sq. ft.
- --------------
/1 Net lease with payment of insurance, property taxes, and maintenance
costs paid by the Company.
/2 Net lease with payment of insurance, property taxes and maintenance
costs, including structural repairs, paid by the Company.
</TABLE>
================================================================================
The Company's operating facilities are separated into nine "hub" outlets
and eighteen "sub-stores". The hub stores are the main distribution centers
located in Auburn, Pasco, and Spokane, Washington; Portland and Springfield,
Oregon; Sparks, Nevada; Hayward and Sacramento, California; and Anchorage,
Alaska; and the sub-stores are the smaller facilities located in Everett, Moses
Lake, Kent, Clarkston, and Yakima, Washington; Portland, Salem,
Milton-Freewater, and Bend, Oregon; Santa Rosa, Stockton, Buena Park, Redding,
Yuba City, and Salinas, California; Elko, Nevada; and Fairbanks and Juneau,
Alaska.
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 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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<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (1)
<TABLE>
<CAPTION>
Name Officer Since Age Position Held With the Registrant
---- ------------- --- ---------------------------------
<S> <C> <C> <C>
C. Dean McLain 1993 45 Chairman, President and Chief Executive
Officer (2)
Mark J. Wright 1997 42 Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary
- --------------
(1) The officers serve for a term of one year and until their successors are
elected.
(2) Elected Chairman in 1998, Chief Executive Officer and President in 1993.
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded on the NASDAQ National Market System under
the symbol WPEC. The high and low closing prices for the Company's common stock
for the years ended July 31, 1997 and July 31, 1998 were as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1997
-----------
1st Quarter - August 1, 1996 through October 31, 1996 $5.250 $4.313
2nd Quarter - November 1, 1996 through January 31, 1997 $5.375 $4.000
3rd Quarter - February 1, 1997 through April 30, 1997 $5.500 $4.688
4th Quarter - May 1, 1997 through July 31, 1997 $5.500 $4.750
Fiscal 1998
-----------
1st Quarter - August 1, 1997 through October 31, 1997 $6.375 $4.500
2nd Quarter - November 1, 1997 through January 31, 1998 $6.625 $4.563
3rd Quarter - February 1, 1998 through April 30, 1998 $7.313 $5.375
4th Quarter - May 1, 1998 through July 31, 1998 $6.625 $5.000
</TABLE>
The number of shareholders of record of the Company's Common Stock on
October 15, 1998 was 38, and the number of beneficial holders of the Company's
Common Stock is estimated by management to be over 500 holders.
As part of the Company's acquisition of the business of Yukon Equipment,
Inc., the Company issued 50,000 shares of unregistered common stock from its
treasury stock to Yukon Equipment, Inc. in May, 1998. the shares were issued as
partial consideration for the assets acquired at a stated value of $7.00 per
share. The shares were issued in reliance on Section 4(2) of the Securities Act
of 1933, as amended.
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.
- II-1 -
<PAGE>
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 PricewaterhouseCoopers
LLP, independent accountants. See notes to Consolidated Financial Statements in
Part IV, Item 14(a)(1) for information concerning the effect of acquisitions
completed by the Company during the periods reflected.
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended
July 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 163,478 $ 148,130 $ 106,555 $ 86,172 $ 67,370
Gross profit $ 19,176 $ 15,870 $ 12,649 $ 10,028 $ 8,231
(% of sales) 11.7 10.7 11.9 11.6 12.2
Selling, general and administrative $ 12,092 $ 11,194 $ 7,827 $ 6,078 $ 5,295
(% of sales) 7.4 7.6 7.3 7.1 7.9
Income before income taxes 3,193 $ 1,664 $ 3,363 $ 2,602 $ 2,084
(% of sales) 2.0 1.1 3.2 3.0 3.1
Tax rate (%) 42 42 38 38 27
Net income $ 1,839 $ 971 $ 2 ,079 $ 1,613 $ 1,520
Net income per common share $ 0.53 $ 0.27 $ 0.59 $ 0 .74 $ 0 .75
Shares used in basic earnings
per share calculations 3,473 3,533 3,533 2,192 2,038
Net income per diluted common share $ 0.49 $ 0.27 $ 0.58 $ 0.74 $ 0.75
Shares used in diluted earnings
per share calculations 3,772 3,609 3,579 2,192 2,038
- -------------------------------------------------------------------------------------------------------------------------------
Working capital (deficit) $ (6,339) $ (2,569) $ 15,326 $ 10,883 $ 3,957
Long-term debt (including capital leases) $ 7,457 $ 3,767 $ 2,924 $ 47 $ 99
Stockholders' equity $ 23,138 $ 22,765 $ 21,794 $ 19,715 $ 10,051
Total assets $ 138,766 $ 107,423 $ 85,290 $ 67,192 $ 46,040
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- II-2 -
<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. Certain matters discussed herein contain forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected, including, but not limited
to, projected sales levels, expense reductions, reduced interest expense, and
increased inventory turnover, one or more of which may not be realized.
General
The Company acquired its first seven retail distribution stores in November
1992. The Company expanded to 18 stores in four states by the end of fiscal
1996, to 23 stores in five states by the end of fiscal 1997, and to 27 stores in
five states by the end of fiscal 1998. The Company's growth has been
accomplished through a combination of new store openings, strategic
acquisitions, and to a lesser extent, comparable stores revenue increases.
<TABLE>
<CAPTION>
Store activity for the last three years is summarized as follows:
Fiscal No. of Stores at No. of Stores No. of Stores No. of Stores No. of Stores at
Year Beginning of Year Opened Closed Acquired End of Year
------ ----------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1996 13 3 0 2 18
1997 18 2 0 3 23
1998 23 1 1 4 27
</TABLE>
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. The Company's results can be impacted by the timing of, and costs
incurred in connection with, new store openings and acquisitions.
Results of Operations
Fiscal Year 1998, as Compared with Fiscal Year 1997
The Company reported net revenue for fiscal 1998 of $163,478,000 which is
an increase of 10 percent over net revenue of $148,130,000 for fiscal 1997.
Approximately $17.4 million of revenue came from stores opened or acquired in
fiscal 1998. Stores opened prior to fiscal 1998 showed an overall revenue
decrease of 3.9 percent from prior year revenue reflecting a general softening
in economic conditions in the northwest, increased competitive pressures, and
some weather related business interruptions.
Net Income for fiscal 1998 was $1,839,000 or $0.53 per share ($0.49 per
share on a diluted basis) compared with $971,000 or $0.27 per share in fiscal
1997 ($0.27 per share on a diluted basis). In fiscal 1997, the Company
recognized a fourth quarter charge of approximately $440,000 (pre-tax) for
warranty service related expenses that the Company anticipated would not be
reimbursed by Case Corporation. The Company did not experience a similar problem
in fiscal 1998.
Gross margin was 11.7 percent during fiscal 1998 which is higher than the
10.7 percent gross margin during fiscal 1997. Margins increased in fiscal 1998
on new unit sales, rental, and service business. Management continues to place a
high priority on improving overall gross margins by working to increase higher
margin service, parts, and rental revenues, focusing more sales efforts on
speciality and niche product lines, and by obtaining higher prices for new
equipment.
Selling, general, and administrative expenses were $12,092,000 or 7.4
percent of revenues for fiscal 1998 compared to $11,194,000 or 7.6 percent of
sales for fiscal 1997. The decrease in selling, general, and administrative
- II-3 -
<PAGE>
expenses as a percent of revenues resulted in part from management's cost
control and efficiency improvement efforts as well as a generally higher level
of revenues.
Interest expense for fiscal 1998 was $4,687,000, up from $3,518,000 in
fiscal 1997 due in part to an increase in inventory levels, particularly
inventory dedicated to rentals. In addition, effective with deliveries after
July 1, 1998, Case changed factory to dealer terms lowering from 3% to 2% the
cash payment 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 on a majority of its Case purchases in fiscal
1998. In June 1997, the Company obtained a $75 million inventory flooring and
operating line of credit facility through Deutsche Financial Services. The
facility is a three-year, floating rate facility at rates as low as 50 basis
points under the prime rate. Management has used this facility to allow the
Company to take advantage of more purchase discounts and to lower overall
interest expense. Management believes that the positive impact of the discounted
cost of new inventory on gross margins has more than offset the increased
interest expense related to foregoing the interest-free flooring periods.
Fiscal Year 1997, as Compared with Fiscal Year 1996
The Company reported net sales for fiscal 1997 of $148,130,000 which is an
increase of 39 percent over net sales of $106,555,000 for fiscal 1996. Stores
opened prior to fiscal 1997 showed an overall revenue increase of 25 percent
over the prior year results reflecting a continuation of generally good economic
conditions, increased market acceptance of our products, full-year operation, as
well as revenues realized from the addition of numerous new parts and equipment
lines to our product offerings.
Net income for fiscal 1997 was $971,000 or $0.27 per share ($0.27 per share
on a diluted basis) compared with $2,079,000 or $0.59 per share ($0.58 per share
on a diluted basis) in fiscal 1996. The Company recognized a fourth quarter
charge of approximately $440,000 (pre-tax) for warranty service related expenses
that it anticipates will not be reimbursed from Case Corporation for
manufacturing problems experienced by customers who have purchased Case
Corporation backhoes from the Company. The Company wrote-down equipment it had
loaned its customers at no charge and accrued a reserve for warranty service
work that the Company anticipated would not be reimbursed by Case Corporation.
Gross margin was 10.7 percent during fiscal 1997 which is slightly lower
than the 11.9 percent figure for the prior year due in part to the fourth
quarter charge previously mentioned and increased competitive pressure.
Management will be placing a high priority on improving overall gross margins by
working to increase higher margin service and parts revenues, focusing more
sales efforts on speciality and niche product lines, and by obtaining higher
prices for new equipment.
Selling, general and administrative expenses were $11,194,000 or 7.6
percent of sales for fiscal 1997 compared to $7,827,000 or 7.3 percent of sales
for fiscal 1996. 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 Sahlberg Equipment operations.
The $1,680,000 increase in interest expense for fiscal 1997 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 $12,000,000 in fiscal 1996 to more than
$18,400,000 in fiscal 1997, 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
three months interest free. Case also granted a 3% cash discount if the dealer
pays for the machine outright rather than utilizing the interest-free floor
planning. The Company was not able to take full advantage of the cash discounts
on its purchases in fiscal 1997. However, in June 1997, the Company obtained a
$75 million inventory flooring and operating line of credit facility through
Deutsche Financial Services. The facility is a three-year, floating rate
facility at rates as low as 50 basis points under the prime rate. Management
intends to use this facility to allow the Company to take advantage of more
purchase discounts and to lower overall interest expense. Management believes
that the positive impact of the discounted cost of new inventory will, when
sold, more than offset the increased interest expense.
- II-4 -
<PAGE>
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 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.
Liquidity and Capital Resources
The Company's primary needs for liquidity and capital resources are related
to its inventory for sale and its rental and lease fleet inventories, store
openings, and acquisitions of additional stores. The Company's primary source of
internal liquidity has been its profitable operations. As more fully described
below, the Company's primary sources of external liquidity are equipment
inventory floor plan financing arrangements provided to the Company by the
manufacturers of the products the Company sells, and Deutsche Financial Services
("DFS") and, with respect to acquisitions, secured loans from Case.
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 one to twelve months, after which interest
commences to accrue monthly at rates ranging from zero percent to two 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, 1998, the Company was indebted under manufacturer provided floor
planning arrangements in the aggregate amount of $11,038,000. As of September
30, 1998, approximately $10,836,000 was outstanding under these manufacturer
provided floor plan arrangements.
In order to take advantage of the cash discount offered by Case, 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 had entered into a separate secured floor planning
line of credit with Seafirst Bank ("Seafirst"). The Seafirst line of credit was
entered into in June 1994 and was renewed on September 1, 1997. This was a
$22,000,000 line of credit which could be used to finance new and used equipment
or equipment to be held for rental purposes. The Company has had no outstanding
balance on the Seafirst line of credit since March 1998. On July 1, 1998, the
term of the credit line expired without renewal at the mutual agreement of
Seafirst and the Company.
- II-5 -
<PAGE>
In June 1997, the Company obtained a $75 million inventory flooring and
operating line of credit through Deutsche Financial Services ("DFS"). The DFS
credit facility is a three-year, floating rate facility based on prime with
rates between 0.50% under prime to 1.00% over prime depending on the amount of
total borrowing under the facility. Amounts are advanced against the Company's
assets, including accounts receivable, parts, new equipment, rental fleet, and
used equipment. The Company expects to use this borrowing facility to lower
flooring related interest expense by using advances under such line to finance
inventory purchases in lieu of financing provided by suppliers, to take
advantage of cash purchase discounts from its suppliers, to provide operating
capital for further growth, and to refinance some its acquisition related debt
at a lower interest rate. As of July 31, 1998, approximately $75,886,000 was
outstanding under the DFS credit facility. As of September 30, 1998,
approximately $67,855,000 was outstanding under this facility. At July 31, 1998,
the Company was in technical default of the leverage covenant in the Deutsche
Financial Services Loan Agreement. The Company obtained a waiver letter for the
period July 31, 1998 through September 30, 1998. There is no guarantee that
Deutsche Financial Services will not call this debt at any time after September
30, 1998. The Company and DFS have reached preliminary agreement on increasing
this credit facility to $100,000,000. Finalization of this increase is expected
by October 31, 1998. Amounts owing under the DFS credit facility are secured by
inventory purchases financed by DFS, as well as all proceeds from their sale or
rental, including accounts receivable thereto.
During the year ended July 31, 1998, cash and cash equivalents increased by
$680,000 primarily due to the increased borrowing from DFS. The Company had
positive cash flow from operating activities during the year of $8,342,000
reflecting net income for the year after adding back depreciation and
amortization. Purchases of fixed assets during the period were related mainly to
the opening of new distribution outlets and the Yukon acquisition.
The Company's cash and cash equivalents of $2,555,000 as of July 31, 1998
and available credit facilities are considered sufficient to support current or
higher levels of operations for at least the next twelve months.
Inventory; Effects of Inflation and Interest Rates; General Economic Conditions
Controlling inventory is a key ingredient to the success of an equipment
distributor because the equipment industry is characterized by long order
cycles, high ticket prices, and the related exposure to "flooring" interest. The
Company's interest expense may increase if inventory is too high or interest
rates rise. The Company manages its inventory through company-wide information
and inventory sharing systems wherein all locations have access to the Company's
entire inventory. In addition, the Company closely monitors inventory turnover
by product categories and places equipment orders based upon targeted turn
ratios.
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,
agricultural, and industrial sectors. Accordingly, the Company's sales are
affected by inflation or increased interest rates which tend to hold down new
construction, and consequently adversely affect demand for the construction and
industrial equipment sold and rented by the Company. In addition, although
agricultural equipment sales are less than 5% of the Company's total revenues,
factors adversely affecting the farming and commodity markets also can adversely
affect the Company's agricultural equipment related business.
The Company's business can also be affected by general economic conditions
in its geographic markets as well as general national and global economic
conditions that affect the construction, agricultural, and industrial sectors.
An erosion in North American and/or other countries' economies could adversely
affect the Company's business. Market specific factors could also adversely
affect one or more of the Company's target markets and/or products.
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.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
- II-6 -
<PAGE>
The Company has determined that it will be required to modify or replace
significant portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 issue can be mitigated. However, if such modifications and conversions are
not made, are not timely completed, or do not work as anticipated, the Year 2000
issue could have a material impact on the operations of the Company.
The Company has a plan in place to contact all of its significant suppliers
to determine the extent to which the Company is vulnerable to those third
parties' failure to remediate their own Year 2000 issues. There can be no
guarantees that the systems of third parties on which the Company's systems rely
or which influence the business of the Company's customers will be timely
remediated, that any attempted remediation will be successful, or that such
conversions would be compatible with the Company's systems. The Company has not
yet determined the projected costs of the Company's Year 2000 project and cannot
yet determine whether the Company has any exposure to contingencies related to
the Year 2000 issue for the products it has previously sold.
The Company will utilize both internal and external resources to reprogram,
or replace, and test the Company's software for Year 2000 modifications. The
Company plans to complete its Year 2000 project by July 31, 1999. Funding for
the costs of the program are anticipated to come from operating cash flows.
The Company's current plan to complete the Year 2000 modifications are
based on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans, and the ability to meet projected
time lines. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and other uncertainties.
Forward Looking Statements
Information included within this section relating to projected growth and
future results and events constitutes forward-looking statements. Actual results
in future periods may differ materially from the forward-looking statements
because of a number of risks and uncertainties, including but not limited to
fluctuations in the construction, agricultural and industrial sectors and
general industrial cycles; the success of the Company's entry into new markets
through store openings or acquisitions; the success of the Company's expansion
of its equipment rental business; rental industry conditions and competitors;
competitive pricing; the Company's relationship with Case and other suppliers;
relations with the Company's employees; the Company's ability to manage its
operating costs and to integrate acquired businesses in an effective manner; the
continued availability of financing; governmental regulations and environmental
matters; risks associated with regional, national and world economies; and
implementation and completion of the Company's year 2000 compliance program. Any
forward-looking statements should be considered in light of these factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
- II-7 -
<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, 1998, 1997, and 1996..................... F-1
Consolidated Balance Sheets as of
July 31, 1998 and 1997............................................ F-2
Consolidated Statements of Stockholders'
Equity for the years ended July 31, 1998, 1997
and 1996............................................................ F-3
Consolidated Statements of Cash Flows for
the years ended July 31, 1998, 1997, and 1996..................... F-4
Notes to Consolidated Financial Statements............................ F-5
Report of Independent Accountants..................................... F-16
Financial Statement Schedule:
Report of Independent Accountants - Financial Statement Schedule...... F-17
Schedule II - Valuation and Qualifying Accounts....................... F-18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- II-8 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information with respect to Directors of the Company is incorporated herein
by reference to "Proposal 1: Election of Directors" continuing through "Report
of the Compensation Committee on Executive Compensation" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K. The information required by this Item with respect to the
Company's Executive Officers follows Part I, Item 4 of this document.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein
by reference to "Compensation of Executive Officers" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K.
ITEM 12. PRINCIPAL STOCKHOLDERS
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated herein by reference to "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Directors and Executive
Officers" in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is incorporated herein by reference to "Board Compensation, Attendance and
Committees, Certain Transactions" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be filed pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
- III-1 -
<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, 1998, 1997, and 1996.................. F-1
Consolidated Balance Sheets as of
July 31, 1998 and 1997......................................... F-2
Consolidated Statements of Stockholders'
Equity for the years ended July 31, 1998, 1997, and 1996....... F-3
Consolidated Statements of Cash Flows for
the years ended July 31, 1998, 1997, and 1996.................. F-4
Notes to Consolidated Financial Statements........................ F-5
Report of Independent Accountants................................. F-16
2. Financial Statement Schedule.
Report of Independent Accountants - Financial Statement Schedule.. F-17
Schedule II - Valuation and Qualifying Accounts................... F-18
3. Exhibits.
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of Registrant. (3)
3.2 By-laws of Registrant. (3)
10.1 1995 Employee Stock Option Plan. (4)
10.2 Second Amended and Restated Stock Option Plan for
Non-Employee Directors. (4)
10.3 Case New Dealer Agreement Package. (1)
10.4 Lease Agreement--Hayward, California. (3)
10.5 Lease Agreement--Auburn, Washington. (8)
10.6 Lease Agreement--Sacramento, California. (5)
10.7 Loan Agreement, dated January 17, 1997, between Western
Power & Equipment Corp. and Case Credit Corp. including
related promissory notes. (6)
10.8 Security Agreement, dated January 17, 1997, made by
Western Power & Equipment Corp. in favor of Case Credit
Corporation to secure payment for and collateralized by
all assets acquired by Western Power & Equipment Corp.
from Sahlberg Equipment, Inc. (6)
10.9 Loan and Security Agreement dated as of June 5, 1997
between Western Power & Equipment Corp. and Deutsche
Financial Services Corporation. (7)
10.10 Commercial Lease dated June 1, 1997 between McLain-Rubin
Realty Company II, LLC and Western Power & Equipment
Corp. for Kent, Washington facility.
- IV-1 -
<PAGE>
10.11 Asset Purchase Agreement, dated December 11, 1997,
between Case Corporation and Western Power & Equipment
Corp. and McLain-Rubin Realty Company III, LLC.
10.12 Commercial Lease dated December 11, 1997 between
McLain-Rubin Realty Company III, LLC and Western Power &
Equipment Corp. for Yuba City, California facility.
10.13 Employment Agreement, by and between Registrant and C.
Dean McLain, dated January 1, 1998.
10.14 Asset Purchase Agreement, dated April 30, 1998, between
Yukon Equipment, Inc. and Western Power & Equipment
Corp. (9)
10.15 Employment Agreement dated May 1, 1998 between Maurice
Hollowell and Western Power & Equipment Corp. (9).
10.16 Consulting Agreement, by and between Registrant and
Robert M. Rubin.
10.17 Employment Agreement, by and between Registrant and
Robert M. Rubin. (2)
21. Subsidiaries of the Company.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
- --------------
(1) 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.
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1,
filed on February 24, 1995. (Registration 33-89762)
(3) 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).
(4) Filed as an Exhibit to the Registrant's Registration Statement on Form S-8,
filed on September 18, 1998 (Registration No. 33-63775).
(5) Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
Equipment, as filed on March 6, 1996 and incorporated herein by reference
thereto.
(6) Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
Equipment, as filed on February 3, 1997 and incorporated herein by
reference thereto.
(7) Filed as an Exhibit to the Western Power & Equipment Annual Report on Form
10-Q, as filed on June 11, 1997 and incorporated herein by reference
thereto.
(8) Filed as an Exhibit to the Western Power & Equipment Corp. Annual Report on
Form 10-K, as filed on October 28, 1996 and incorporated herein by
reference thereto.
(9) Filed as an Exhibit to the Current Report on Form 8-K of Western Power &
Equipment, as filed on May 11, 1998 and incorporated herein by reference
thereto.
- IV-2 -
<PAGE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on May 11, 1998, with
respect to the acquisition of the assets of Yukon Equipment, Inc.
(c) Exhibits
See (a)(3) above.
(d) Additional Financial Statement Schedules
See (a)(2) above.
- IV-3 -
<PAGE>
<TABLE>
<CAPTION>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended July 31,
-------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net revenue $ 163,478 $ 148,130 $ 106,555
Cost of goods sold 144,302 132,260 93,906
--------- --------- ---------
Gross profit 19,176 15,870 12,649
Selling, general and administrative expenses 12,092 11,194 7,827
--------- --------- ---------
7,084 4,676 4,822
Other income (expense):
Interest expense (4,687) (3,518) (1,838)
Other income 796 506 379
--------- --------- ---------
Income before income taxes 3,193 1,664 3,363
Provision for income taxes 1,354 693 1,284
--------- --------- ---------
Net income $ 1,839 $ 971 $ 2,079
========= ========= =========
Basic Earnings per common share $ 0.53 $ 0.27 $ 0.59
========= ========= =========
Average Outstanding Common Shares
for Basic EPS 3,473 3,533 3,533
========= ========= =========
Diluted Earnings per common share $ 0.49 $ 0.27 $ 0.58
========= ========= =========
Average Outstanding Common Shares
And Equivalents for Diluted EPS 3,772 3,609 3,579
========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
July 31,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,555 $ 1,875
Accounts receivable, less allowance for
doubtful accounts of $670 and $519 23,626 9,677
Inventories 73,491 64,917
Prepaid expenses 172 39
Income taxes receivable - 514
Deferred income taxes 1,298 936
--------- ---------
Total current assets 101,142 77,958
Property, plant and equipment, net 8,614 8,149
Rental equipment fleet, net 23,080 18,452
Lease equipment fleet, net 2,760 -
Intangibles and other assets, net of accumulated
amortization of $1,262 and $1,052 3,170 2,864
--------- ---------
Total assets $ 138,766 $ 107,423
--------- ---------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under floor plan financing $11,038 $ 55,490
Short-term borrowings 76,019 4,074
Accounts payable 17,574 18,107
Accrued payroll and vacation 858 736
Other accrued liabilities 1,653 1,914
Income taxes payable 255 -
Covenant not to compete 21 100
Capital lease obligations 63 106
--------- ---------
Total current liabilities 107,481 80,527
Covenant not to compete - 46
Deferred income taxes 690 364
Capital lease obligations 2,827 2,453
Long-term borrowings 1,156 1,268
Deferred lease income 3,474 -
--------- ---------
Total liabilities 115,628 84,658
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock-10,000,000 shares authorized; none outstanding - -
Common stock, $.001 par value -
Authorized, 20,000,000 shares
Outstanding, 1998 - 3,303,162; 1997 - 3,533,462 shares 4 4
Additional paid-in capital 16,072 16,047
Retained earnings 8,553 6,714
Less common stock in treasury, at cost
(230,300 shares) (1,491) -
--------- ---------
Total stockholders' equity 23,138 22,765
--------- ---------
Total liabilities and stockholders' equity $ 138,766 $ 107,423
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Common Stock
------------------------- Additional Total
Number Paid-in Retained Treasury Stockholders'
of Shares Amount Capital Earnings Stock Equity
--------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
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
Net income - - - 971 - 971
--------- -------- ---------- --------- --------- ----------
Balance at
July 31, 1997 3,533,462 4 16,047 6,714 - 22,765
Repurchase of shares (280,300) - - - (1,816) (1,816)
Issuance of shares -
Yukon acquisition 50,000 25 - 325 350
Net income - - - 1,839 - 1,839
--------- -------- ---------- --------- --------- ----------
Balance at
July 31, 1998 3,303,162 $ 4 $ 16,072 $ 8,553 $ (1,491) $ 23,138
========= ======== ========== ========= ========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended July 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,839 $ 971 $ 2,079
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 1,237 1,105 820
Loss on disposal of fixed assets - (18) -
Amortization 210 159 71
Changes in assets and liabilities
(excluding effects of acquisitions):
Accounts receivable (13,298) (3,171) (199)
Inventories (4,982) (13,039) (12,840)
Inventory floor plan financing (47,246) 1,126 12,411
Short-term financing 67,179 (2,155) (5,732)
Prepaid expenses (133) 4 (8)
Deferred income taxes 369 (399) (55)
Accounts payable (533) 15,693 264
Accrued payroll and vacation 122 (57) 142
Other accrued liabilities (992) 530 582
Income taxes receivable/payable 769 (551) (85)
Deferred lease income 3,474 - -
Other assets/liabilities 327 193 (108)
-------- -------- --------
Net cash provided by (used in) operating activities 8,342 391 (2,658)
-------- -------- --------
Cash flow from investing activities:
Purchase of fixed assets (5,570) (602) (695)
Proceeds on sale of fixed assets 35 53 2,075
Covenant not to compete (125) - -
Purchase of other assets (9) - -
Purchase of distribution outlets - (326) (2,325)
-------- -------- --------
Net cash used in investing activities (5,669) (875) (945)
-------- -------- --------
Cash flows from financing activities:
Principal payments on capital leases (66) (174) (62)
Payable to/receivable from parent - (188) (53)
Receivable from underwriter - 1,102
Treasury stock repurchases (1,816) - -
Long-term borrowings (111) - 1,268
-------- -------- --------
Net cash provided by (used in) financing activities (1,993) (362) 2,255
-------- -------- --------
Increase (decrease) in cash and cash equivalents 680 (846) (1,344)
Cash and cash equivalents at beginning of year 1,875 2,721 4,065
-------- -------- --------
Cash and cash equivalents at end of year $ 2,555 $ 1,875 $ 2,721
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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., an Oregon corporation,
was formed and incorporated 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 acquisition was completed
effective November 1, 1992. Simultaneously, American United Global, Inc.
("AUGI") acquired all of the outstanding shares of the Oregon corporation.
In March 1995, in connection with a contemplated initial public offering, a
new corporation under the name Western Power & Equipment Corp. was
incorporated in Delaware (the "Company") to hold all the shares of the
Oregon corporation. Upon formation, AUGI contributed to the Company all
outstanding common stock of the Oregon corporation. The consolidated
financial statements include the accounts of the Company 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 Washington, Oregon,
California, Nevada, and Alaska. 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. These lives are based on the factors influencing the
acquisition decision and on industry practice. The Company reviews for
asset impairment on a periodic basis and whether events or changes in
circumstances indicate that the carrying amount of the intangible asset may
not be recoverable. Based on this review, no write-down for impairment loss
on intangible assets has been recorded during the three-year period ended
July 31, 1998.
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 20 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>
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, 1998, 1997 and 1996 was $434, $501,
and $263 respectively.
Income Taxes
The Company recognizes 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.
Financial Instruments
The recorded amounts of cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable 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
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. Under the provisions of SFAS
128, basic net income per common share is computed using the average number
of common shares outstanding during the period. Diluted net income per
share is computed using the average number of common shares and common
share equivalents outstanding during the period. SFAS 128 has been
retroactively applied to calculate prior years' earnings per share.
Supplemental disclosures of cash flow information
A capital lease obligation of $292 was incurred during the year ended July
31, 1997 when the Company entered into a lease for computer equipment and
software.
A capital lease obligation of $680 was incurred in June 1997 when the
Company entered into a 20-year lease for the Kent, Washington facility.
A capital lease obligation of $397 was incurred in December 1997 when the
Company entered into a 20-year lease for the Yuba City, California
facility.
The Company has consummated various acquisitions using, in part, the
assumption of notes payable and the issuance of Company common stock and
notes payable. Such non-cash transactions have been excluded from the
statement of cash flows.
<TABLE>
<CAPTION>
Year ended July 31,
-----------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 4,377 $ 3,686 $ 1,838
Income taxes, net of refunds 1,063 1,621 1,284
</TABLE>
F-6
<PAGE>
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 February 29, 1996, the Company acquired the assets and operations
of two factory-owned stores of Case in 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
intangible 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 year ended July 31, 1996 as if the acquisition of such
stores had occurred as of the beginning of the period are summarized as
follows:
1996
----------
Net revenues $ 115,097
Net income $ 2,062
Basic earnings per share $ 0.58
Diluted earnings per share $ 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 intangible 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 was not provided because its
effect was immaterial. The accounts of the GCS stores have been included in
the Company's accounts from the effective date of acquisition.
On January 17, 1997 the Company acquired the operating assets of Sahlberg
Equipment, Inc.("Sahlberg"), a four-store Northwest distributor of
noncompeting lines of equipment with facilities in Kent, Washington,
Portland, Oregon, Spokane, Washington and Anchorage, Alaska. The purchase
price for the assets of Sahlberg was an aggregate of approximately
$5,290,000, consisting of $3,844,000 for equipment inventory, $797,000 for
parts inventories, $625,000 for fixed assets, and $24,000 for
work-in-process. The acquisition was accounted for as a purchase.
On December 11, 1997, the Company acquired substantially all of the
operating assets used by Case in connection with its business of servicing
and distributing Case agricultural equipment at a facility located in Yuba
City, California. The acquisition was consummated for approximately
$142,000 in cash, $628,000 in installment notes payable to Case and the
assumption of $1,175,000 in inventory floor plan debt with Case and its
affiliates. The acquisition was accounted for as a purchase.
On April 30, 1998, the Company acquired substantially all of the operating
assets of Yukon Equipment, Inc. (Yukon) in connection with Yukon's business
of servicing and distributing construction, industrial, and agricultural
equipment in Alaska. Yukon has facilities in Anchorage, Fairbanks, and
Juneau, Alaska. The acquisition was consummated for approximately
$4,766,000 in cash, the assumption of approximately $2,786,000 in floor
plan debt with Case and its affiliates, and 50,000 shares of the Company's
common stock. The acquisition was accounted for as a purchase.
F-7
<PAGE>
Unaudited pro forma combined results of operations for the acquisitions
occurring during the two-year period ended July 31, 1998 as if such
acquisitions had occurred as of the beginning of the period are summarized
as follows:
1998 1997
---------- ----------
Net revenues $ 173,414 $ 175,396
Net income $ 1,776 $ (60)
Basic earnings per share $ 0.51 $ (0.02)
Diluted earnings per share $ 0.47 $ (0.02)
3. Related Party Transactions
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.
On June 1, 1997, the real property and improvements used in connection with
the Sahlberg operation located in Kent, Washington, was purchased by
McLain-Rubin Realty Company II, LLC ("MRR II"), 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
Kent, Washington, real property and improvements, MRR II leased such real
property and improvements to the Company under the terms of a 20-year
commercial lease agreement dated June 1, 1997 with the Company paying an
initial annual rate of $205. Under the lease, such annual rate increases to
$231 after five years and is subject to additional adjustments at the end
of ten and fifteen 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.
On December 11, 1997, the real property and improvements used in connection
with Case's Yuba City, California operation, was purchased by McLain-Rubin
Realty Company III, LLC ("MRR III"), 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 Yuba City,
California real property and improvements, MRR III leased such real
property and improvements to the Company under the terms of a 20-year
commercial lease agreement dated effective December 11, 1997 with the
Company paying an initial annual rate of $54. Under the lease, such annual
rate increases to $59 after five years and is subject to additional
adjustments at the end of ten and fifteen 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.
F-8
<PAGE>
4. Inventories
Inventories consist of the following:
July 31, July 31,
1998 1997
---------- ----------
Equipment:
New equipment $ 54,883 $ 48,524
Used equipment 10,073 8,234
Parts 8,535 8,159
---------- ----------
$ 73,491 $ 64,917
========== ==========
At July 31, 1998 and 1997 approximately $23,080 and $18,452, respectively,
of equipment was being held for rent. Equipment in the rental fleet has
been reclassified as rental equipment fleet in fixed assets. In addition,
equipment in the lease fleet has been reclassified as lease equipment in
fixed assets. In fiscal year 1998, rentals of all equipment was generally
charged to cost of goods sold at an amount equal to 70 percent of the
rental payments received.
The Company previously used a depreciation estimate on rented equipment of
80 percent of the rental payments received. This change in accounting
estimate was made to more closely match the actual reduction in the
relative value of rented equipment to the resulting book value after
depreciation. In fiscal 1998, this change in accounting estimate resulted
in a decrease in cost of goods sold of $1,286.
5. Fixed Assets
<TABLE>
<CAPTION>
Fixed assets consist of the following:
July 31, July 31,
1998 1997
--------- --------
<S> <C> <C>
Operating property, plant, and equipment:
Land $ 840 $ 840
Buildings 4,078 3,680
Machinery and equipment 3,236 2,508
Office furniture and fixtures 2,263 2,143
Computer hardware and software 1,045 927
Vehicles 1,291 1,095
Leasehold improvements 202 114
--------- --------
12,955 11,307
Less: accumulated depreciation (4,341) (3,158)
--------- --------
Property, plant, and equipment (net) $ 8,614 $ 8,149
--------- --------
Rental equipment fleet (net) 23,080 18,452
--------- --------
Leased equipment fleet (net) 2,760 -0-
</TABLE>
Equipment in the rental fleet has been reclassified as rental equipment
fleet in fixed assets. In addition, equipment in the lease fleet has been
reclassified as lease equipment in fixed assets.
F-9
<PAGE>
6. Borrowings
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 one-month to six-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 had an
inventory credit facility with Seafirst Bank to provide up to $22,000 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 expired July 1, 1998.
In June 1997, the Company obtained a $75,000 inventory flooring and
operating line of credit through Deutsche Financial Services ("DFS"). The
DFS credit facility is a three-year, floating rate facility based on prime
with rates between 0.50% under prime to 1.00% over prime depending on the
amount of total borrowing under the facility. Amounts may be advanced
against the Company's assets, including accounts receivable, parts, new
equipment, rental fleet, and used equipment. Interest payments on the
outstanding balance are due monthly.
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:
<TABLE>
<CAPTION>
July 31,
Interest Maturity ---------------------------
Rate Date 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Case Credit Corporation Prime + 2% 8 - 48 $ 11,038 $ 32,177
(10.50%) months
Seafirst Bank Prime 12 - 24 - 20,857
(8.50%) months
Deutsche Financial Services Prime 12 - 36 75,886 -
(8.50%) months
Other variable 12 - 48 133 2,456
(8.50%-10.50%) months ---------- ----------
$ 87,057 $ 55,490
</TABLE>
At July 31, 1998, the Company was in technical default of the leverage
covenant in the Deutsche Financial Services Loan Agreement. The Company
obtained a waiver letter for the period July 31, 1998 through September 30,
1998. There is no guarantee that Deutsche Financial Services will not call
this debt at any time after September 30, 1998. However, the amount due to
Deutsche Financial Services is already included as a current liability.
F-10
<PAGE>
7. Income Taxes
<TABLE>
<CAPTION>
The provision for income taxes is comprised of the following:
Year Ended
--------------------------------------------------
July 31, July 31, July 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 1,227 $ 974 $ 1,242
State 162 119 96
---------- ---------- ----------
1,389 1,093 1,338
---------- ---------- ----------
Deferred:
Federal (32) (357) (49)
State (3) (43) (5)
---------- ---------- ----------
(35) (400) (54)
---------- ---------- ----------
Total provision for income taxes $ 1,354 $ 693 $ 1,284
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------
July 31, July 31, July 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 5.0% 4.5% 2.7%
Purchase accounting adjustments - - -
Other 3.4% 3.1% 1.5%
---------- ---------- ----------
42.4% 41.6% 38.2%
========== ========== ==========
</TABLE>
Temporary differences and carry forwards which give rise to a significant
portion of deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------
July 31, July 31,
1998 1997
--------- ---------
<S> <C> <C>
Deferred assets:
Inventory reserve 775 439
Bad debt reserve 261 157
Accrued vacation and bonuses 98 79
Other accruals 164 261
--------- ---------
Current Deferred Tax Asset 1,298 936
--------- ---------
Deferred liabilities:
Depreciation and amortization $ (615) $ (295)
Goodwill and intangibles (75) (69)
--------- ---------
Long-term Deferred Tax Liability (690) (364)
--------- --------
Net Deferred Tax Asset $ 608 $ 572
========= =========
</TABLE>
F-11
<PAGE>
8. Stockholders' Equity
Stock Option Plans
Under the Company's 1995 Employee Stock Option Plan, 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 1,500,000 shares of the Company's common stock. 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. Outstanding options expire no later than
ten years after the date of grant.
In December 1995, the Board of Directors adopted a stock option plan for
non-employee directors under which each non-employee director is entitled
to receive on August 1 of each year beginning August 1, 1996, options to
purchase 2,500 shares of the Company's common stock at the fair market
value of the stock at the date of grant. In January 1998, the Company's
shareholders approved an amendment to this plan increasing the number of
shares for which options are granted yearly to non-employee directors from
2,500 to 5,000. Outstanding options expire no later than five years after
the date of grant.
During 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation," which defines a fair value
method of accounting for an employee stock option or similar equity
instrument. That pronouncement encourages all entities to adopt that method
of accounting for all compensation costs related to stock options issued to
all employees under these plans or to continue using the intrinsic value
method of accounting prescribed by the Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in APB 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value
based method of accounting defined in this statement has been applied.
The Company has elected to account for its stock based compensation under
APB 25; however, as required by SFAS 123, the Company has computed for pro
forma disclosure purposes the value of options granted during fiscal years
1998 and 1997 using the Black-Scholes option pricing model. The weighted
average assumptions used for stock option grants for fiscal years 1998 and
1997 were:
FY98 FY97
------ ------
Risk free interest rate 5.875% 6.562%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 56.43% 56.59%
Options vest over the five year expected life for purposes of this
valuation. Adjustments for forfeitures are made as they occur. For the
years ended July 31, 1998 and July 31, 1997, the total value of the options
granted, for which no previous expense has been recognized, was computed as
approximately $1,425 and $1,532, respectively, which would be amortized on
a straight-line basis over the vesting period of the options. The weighted
average fair value per share of the options granted in fiscal years 1998
and 1997 are $2.31 and $2.46, respectively.
F-12
<PAGE>
If the Company had accounted for these stock options issued to employees in
accordance with SFAS 123, the Company's net income and pro forma net income
and net income per share and pro forma net income per share would have been
reported as follows:
<TABLE>
<CAPTION>
Year Ended July 31, 1998 Year Ended July 31, 1997
--------------------------------- ---------------------------------
Basic Diluted Basic Diluted
Net Income E.P.S. E.P.S. Net Income E.P.S. E.P.S.
---------- ------ ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
As Reported $ 1,839 $ 0.53 $ 0.49 $ 971 $ 0.27 $ 0.27
Pro Forma $ 583 $ 0.17 $ 0.15 $ 600 $ 0.17 $ 0.17
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosure for
fiscal years 1998 and 1997 are not likely to be representative of the
effects on reported net income and earnings per share for future years
since options vest over several years and additional awards are made each
year.
The following summarizes the stock option transactions under the Company's
stock option plans:
<TABLE>
<CAPTION>
Shares Weighted Average
(000) Option Price
------ ----------------
<S> <C> <C>
Options outstanding July 31, 1995: 200 $ 6.50
Exercised - -
Surrendered (200) 6.50
Granted 200 4.50
------ ------
Options outstanding July 31, 1996: 200 4.50
Exercised - -
Surrendered (82) 4.45
Granted 707 4.48
------ ------
Options outstanding July 31, 1997: 825 4.49
Exercised - -
Surrendered (31) 4.38
Granted 714 4.62
------ ------
Options outstanding July 31, 1998: 1,508 4.56
====== ======
</TABLE>
The following table sets forth the exercise prices, the number of options
outstanding and exercisable, and the remaining contractual lives of the
Company's stock options at July 31, 1998:
<TABLE>
<CAPTION>
Weighted
Weighted Average No. Of Weighted
Exercise No. Of Options Average Contractual Life Options Average
Price Outstanding Exercise Price Remaining Exercisable Exercise Price
- -------- -------------- -------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.375 289,000 $ 4.375 8.00 192,667 $ 4.375
4.656 5,000 4.656 8.00 5,000 4.656
4.500 450,000 4.500 7.00 400,000 4.500
6.250 25,000 6.250 5.00 -0- n/a
F-13
<PAGE>
Weighted
Weighted Average No. Of Weighted
Exercise No. Of Options Average Contractual Life Options Average
Price Outstanding Exercise Price Remaining Exercisable Exercise Price
- -------- -------------- -------------- ---------------- ----------- --------------
4.875 5,000 4.875 5.00 5,000 4.875
4.563 683,500 4.563 4.33 683,500 4.563
5.125 50,000 5.125 8.50 16,666 5.125
--------- ----- --------- -----
1,507,500 4.556 1,302,833 4.524
</TABLE>
9. Commitments and Contingencies
The Company leases certain facilities and certain computer equipment and
software under noncancelable lease agreements. As more fully described in
Note 3, the building portion of four 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 month-to-month 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
$1,883, $1,474, and $924 for the years ended July 31, 1998, 1997, and 1996,
respectively. The computer equipment lease expires August 1999 and meets
certain specific criteria to be accounted for as a capital lease.
<TABLE>
<CAPTION>
Assets recorded under capital leases are as follows:
July 31, July 31, July 31,
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Capitalized asset value $ 3,036 $ 2,830 $ 1,836
Less accumulated amortization (315) (271) (134)
---------- --------- ---------
$ 2,721 $ 2,559 $ 1,702
========== ========= =========
</TABLE>
Future minimum lease payments under all noncancelable leases as of July 31,
1998, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending July 31, leases leases
------------------- ---------- ----------
<S> <C> <C>
1999 $ 394 $ 1,609
2000 286 1,346
2001 312 1,059
2002 338 608
2003 363 410
Thereafter 6,028 6,400
---------- ----------
Total annual lease payments $ 7,721 $ 11,432
==========
Less amount representing interest, with imputed
interest rates ranging from 6% to 15% 4,831
----------
Present value of minimum lease payments 2,890
Less current portion 63
----------
Long-term portion $ 2,827
==========
</TABLE>
F-14
<PAGE>
The Company issues purchase orders to Case Corporation for equipment
purchases. Upon acceptance by Case, these purchases become noncancelable by
the Company. As of July 31, 1998, such purchase commitments totaled $3,789.
As of July 31, 1998, the Company had entered into sales contracts
containing repurchase obligations totaling approximately $3,083 in
repurchase obligations. Subsequent to July 31, 1998, the Company entered
into sales contracts containing repurchase obligations totaling
approximately $1,289 in repurchase obligations.
10. Unaudited Quarterly Consolidated Financial Data (1)
<TABLE>
<CAPTION>
Quarter
------------------------------------------------ Total
First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Fiscal 1998:
Net sales $36,959 $39,659 $40,948 $45,912 $163,478
Gross Profit 4,336 4,990 4,391 5,459 19,176
Net income 516 616 101 606 1,839
Basic earnings per share 0.15 0.17 0.03 0.18 0.53
Diluted earnings per share 0.14 0.16 0.02 0.17 0.49
Quarter
------------------------------------------------ Total
First Second Third Fourth Year
------- ------- ------- ------- --------
Fiscal 1997:
Net sales $31,213 $34,988 $42,043 $39,886 $148,130
Gross Profit 3,765 3,601 4,239 4,265 15,870
Net income 517 335 245 (126) 971
Basic earnings per share 0.14 0.09 0.07 (0.03) 0.27
Diluted earnings per share 0.14 0.09 0.07 (0.03) 0.27
(1) The figures for the third and fourth quarters of fiscal year 1997 have been
revised from previously reported quarterly figures to reflect an
approximately $360 reclassification of costs of sales from the fourth
quarter to the third quarter. In addition, figures for the fourth quarter
of fiscal year 1997 reflect an approximately $440 one-time charge for
unreimbursed warranty related expenses already incurred and to accrue for
future warranty related expenses the Company does not expect to be
reimbursed by Case Corporation.
</TABLE>
F-15
<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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
September 30, 1998
F-16
<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 30, 1998 appearing on page F-16 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 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
September 30, 1998
F-17
<PAGE>
SCHEDULE II
WESTERN POWER & EQUIPMENT CORP.
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended July 31, 1998 and 1997
(Dollars in Thousands)
Balance at Charged to Charged Balance at
Beginning Costs and to End of
Description of Period Expenses Other Deductions Period
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Accounts Receivable Reserve:
Fiscal year ended July 31, 1998 $ 431 $ 596 $ --- $ (357) $ 670
Fiscal year ended July 31, 1997 519 516 --- (604) 431
Inventory Reserve:
Fiscal year ended July 31, 1998 1,597 1,734 --- (498) 2,833
Fiscal year ended July 31, 1997 1,212 598 --- (213) 1,597
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ C. DEAN MCLAIN President, Chief October 29, 1998
- ----------------------------------- Executive Officer
C. Dean McLain and Director
/s/ MARK J. WRIGHT Vice President of Finance, October 29, 1998
- ----------------------------------- Chief Financial and Principal
Mark J. Wright Accounting Officer,
Treasurer and Secretary
/s/ ROBERT M. RUBIN Director October 29, 1998
- -----------------------------------
Robert M. Rubin
/s/ HAROLD CHAPMAN, JR. Director October 29, 1998
- -----------------------------------
Harold Chapman, Jr.
/s/ MERRILL A. MCPEAK Director October 29, 1998
- -----------------------------------
Merrill A. McPeak
</TABLE>
EXHIBIT 10.10
COMMERCIAL LEASE
Date: as of June 1, 1997
Between: McLAIN-RUBIN REALTY COMPANY II, L.L.C., a
Delaware limited liability company
("Landlord") 38207 Northeast Gerber Road
Yacolt, WA 98675
And: WESTERN POWER & EQUIPMENT CORP., an Oregon
corporation ("Western Power" or "Tenant")
4601 N.E. 77th Avenue Vancouver, Washington
98662
Subject to the terms and conditions of this Lease, Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, the real property described
on Exhibit A hereto (which by this reference is made a part hereof), together
with all improvements now and hereafter situated on said land (said land,
together with such improvements, being hereinafter referred to as the
"Premises"). The Premises are located at 913 South Central Avenue, Kent,
Washington.
The parties hereto, for themselves, their heirs, administrators, executors,
successors and assigns, hereby covenant and agree as follows:
Section 1. Occupancy
1.1 Term. The term of this Lease (hereinafter referred to as the "Term")
shall commence on the date (the "Commencement Date") on which Landlord acquires
fee title to the Premises, and continue through, and expire on, May 31, 2017
(the "Expiration Date"), unless sooner terminated as hereinafter provided.
1.2 Possession. Tenant's right to possession of the Premises, and its
obligations under this Lease, shall commence on the Commencement Date. If the
Commencement Date does not fall on the first day of the month, Rent (as
hereinafter defined) for the first month under this Lease shall be prorated
accordingly, and shall be due on the Commencement Date.
1.3 Lease Conditional. This lease and all of Landlord's and Tenant's
obligations hereunder are expressly conditioned upon Landlord's acquisition of
fee title to the Premises on or before June 30, 1997. If for any reason,
including, without limitation, Landlord's refusal, Landlord does not acquire fee
title to the Premises on or before June 30, 1997, this lease shall be deemed
null and void and of no force or effect.
<PAGE>
Section 2. Rent
2.1 Base Rent. Tenant covenants and agrees to pay to Landlord an annual
base rent (the "Base Rent"), in equal monthly installments, 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 Term of this Lease, as follows:
(a) For the period commencing on the Commencement Date and ending on
May 31, 2002, both dates inclusive, $205,200.00 per year ($17,100.00 per month);
(b) For the period commencing on June 1, 2002 and ending on May 31,
2007, both dates inclusive, $230,856.00 per year ($19,238.00 per month);
(c) For the period commencing on June 1, 2007 and ending on May 31,
2012, both dates inclusive, $258,000.00 per year ($21,500.00 per month); and
(d) For the period commencing on June 1, 2012 and continuing
thereafter throughout the remainder of the Term, $288,000.00 per year
($24,000.00 per month).
2.2 Additional Rent. All taxes, insurance costs, utility charges,
maintenance costs, repair charges and other sums that Tenant is required to pay
pursuant to this Lease to Landlord or third parties, shall be "additional rent."
For the purposes of this Lease, Base Rent and additional rent are sometimes
collectively referred to as "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 incidental office use, and for any other lawful purpose, subject
to the applicable provisions of this Lease.
3.2 Restrictions on Use. In connection with the use of the Premises, Tenant
shall:
(a) Comply with all applicable laws and regulations of any public
authority having jurisdiction over the Premises and the use thereof, and
correct, at Tenant's own expense, any failure of compliance created through
Tenant's fault or by reason of Tenant's use;
(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
<PAGE>
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 reasonably selected
by Landlord; and
(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 or delayed.
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, which approval shall not be
unreasonably withheld or delayed. 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 laws, 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, sublessees 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 use or
otherwise handle on the Premises only those Hazardous Substances (hereinafter
referred to as "Ordinary 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.
<PAGE>
(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 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 Term as a
result of contamination by Hazardous Substances that exist on or before the date
of this Lease or 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 (other than Ordinary Hazardous Substances);
(2) a release, discharge or emission of a Hazardous Substance has
occurred on or about the Premises;
(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,
<PAGE>
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 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) Phase I Report. Within thirty (30) days prior to after the
expiration or sooner termination of the Term, Tenant, at its expense, shall
cause a so-called "Phase I" environmental inspection to be performed and a
report in respect thereof to be prepared and delivered to both Landlord and
Tenant to determine whether any Cleanup Activity is required, Landlord and
Tenant agreeing that the responsibility for the Cleanup Activity shall be
determined by the preceding provisions of this Section.
(h) Survival. The parties obligations under this Section 3.4 shall
survive the expiration or earlier termination of this Lease.
Section 4. Repairs and Maintenance
4.1 Tenant's Obligations. Tenant shall repair and maintain the entire
Premises to the extent necessary to preserve the Premises in good working order
and condition, including but not limited to providing regularly scheduled
maintenance and replacement (if necessary) of the heating and air conditioning
system, and making structural repairs. Tenant's repair obligation shall include,
but not be limited to, the repair of any damage to exterior building siding and
<PAGE>
internal walls of the Premises caused by moving furniture, fixtures and
equipment in and out of the Premises.
4.2 Repairs to Comply with Laws. All repairs, alterations and other
improvements on or to the Premises that are required by any governmental
authority having jurisdiction over the Premises or the use thereof shall be
performed by Tenant at its sole cost and expense.
4.3 Reimbursement for Repairs Assumed. If Tenant fails or refuses to make
the repairs that are required by this Section in a timely manner, Landlord may
(but shall not be obligated to) make the repairs and charge the actual costs of
repairs to Tenant. Such expenditures by Landlord shall be charged to Tenant as
additional rent and shall be reimbursed by Tenant within ten (10) days after
Landlord's demand therefor. Except in an emergency creating an immediate risk of
personal injury or property damage, Landlord may not perform repairs which are
the obligation of Tenant and charge Tenant for the resulting expense, unless at
least ten (10) days before work is commenced Tenant is given notice in writing
outlining with reasonable particularity the repairs required, and Tenant fails
within that time to initiate such repairs in good faith.
4.4 Inspection of Premises. Landlord shall have the right to inspect the
Premises at any reasonable time or times, and upon reasonable prior (written or
oral) notice, to determine the necessity of repair.
Section 5. Alterations
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 or delayed. 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,
within fifteen (15) days after Landlord's demand therefor, at Tenant's expense,
either cause such lien to be removed from the record or furnish a bond in form
and amount and issued by a surety reasonably satisfactory to Landlord,
indemnifying the Landlord 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
<PAGE>
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 Tenant during the Term, 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 requires.
Section 6. Insurance; Indemnification; Subrogation
6.1 Liability Insurance. Tenant shall procure, and thereafter maintain
during the Term, 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 one 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.
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
<PAGE>
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 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 (Landlord and Tenant agreeing that the preceding clause shall not
apply, however, to any damages causes by intentionally wrongful actions or
omissions of such party); 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 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
<PAGE>
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,
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, Tenant shall immediately proceed to restore the
Premises using the proceeds of insurance carried pursuant to Section 6 of this
Lease and any insurance proceeds available from Landlord's insurance.
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 or delayed.
8.2 Damage or Destruction Late in Term. If within two 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 destruction or
damage, Tenant may elect to terminate this 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 destruction or 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 what would have otherwise been the unexpired 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
<PAGE>
disputes and other matters beyond Tenant's reasonable control.
8.3 Rent Abatement. To the extent that the Premises are rendered
untenantable as a result of a fire or other casualty, the Rent shall not be
abated or reduced in any way.
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
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, this 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 Date.
(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 Base 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 Base 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, this 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
<PAGE>
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
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 Interest Rate (as hereinafter defined) 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 Tenant's default. For the purposes of this Lease "Interest Rate"
shall mean three (3%) percent per annum over the then prime rate of interest
established by Citibank, N.A. (or any successor thereto), adjusted daily, but in
no event in excess of the maximum lawful rate of interest permitted by
applicable law.
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 interest in
the Premises will not be foreclosed for nonpayment. 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 reasonably 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, except for
the encumbrances (the "Permitted Encumbrances") set forth on Exhibit B hereto
(which by this reference is made a part hereof) and except as expressly set
forth in Section 11.2 below. Landlord will defend Tenant's right to quiet
enjoyment of the Premises from the lawful claims of all persons during the Term.
Tenant hereby acknowledges and agrees that this Lease, and the leasehold estate
created hereby, are subject and subordinate to all of the Permitted
Encumbrances.
11.2 Mortgage Priority. This lease is and shall be prior to all mortgages
or deeds of trust (collectively, "Fee Mortgages") recorded after the date of
this lease and affecting Landlord's interest in the Premises. However, if any
lender holding a Fee Mortgage requires that this Lease be subordinate to the Fee
Mortgage in question, then Tenant agrees that this Lease shall be subordinate to
such Fee Mortgage 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 such Fee
Mortgage, or other steps or procedures taken under such Fee Mortgage shall
affect Tenant's rights under this Lease. If the foregoing
<PAGE>
condition is met, Tenant shall execute the written agreement and any other
documents required by the holder of such Fee Mortgage to accomplish the purposes
of this paragraph. If the Premises are sold as a result of foreclosure of any
Fee Mortgage 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
Base Rent and any other Rent payments have been 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 this 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 or delayed.
(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
this 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 or sublease.
(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.
<PAGE>
(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, limited
liability company or other business entity where Tenant or any affiliate of
Tenant is the managing or general partner, manager or the equivalent, as the
case may be, or in connection with a merger, acquisition, reorganization or
consolidation of Tenant, or in connection with the sale or transfer of all or
substantially all of Tenant's (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 fifty percent (50%) 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,
partnership, limited liability company or other business entity.
Section 13. Default
The following shall be events of default:
13.1 Default in Rent. Failure of Tenant to pay any installment of Rent
within ten (10) days after written notice by Landlord specifying the nature of
the default with reasonable particularity.
13.2 Default in other covenants. Failure of Tenant to comply with any other
term or condition or fulfill any other obligation of this Lease 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, an event of default shall not have
occurred 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; or the filing of any involuntary petition
of bankruptcy and failure of Tenant to secure a dismissal of the petition within
90 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
<PAGE>
the one causing the default. If this 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 this 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
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 this 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 and/or City of Kent.
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 Interest
Rate 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
<PAGE>
expiration of the 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. Improvements and
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 improvement or alteration so require.
15.2 Fixtures
(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 walls and
overhead bridge cranes and hoists attached to the shop ceiling or otherwise
attached to the walls or floors of the shop area), and those additional trade
fixtures placed on the Premises during the Term. 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 Interest Rate from the date of
expenditure.
(b) Prior to expiration or other termination of the Term, Tenant shall
remove all furnishings, furniture, and trade fixtures that remain its property
and repair any damage to the Premises caused by such removal. 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 Interest Rate 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 $30,000.00 per month, 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.
<PAGE>
(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.
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 to 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. Except as otherwise expressly permitted in this Lease, all
notices, demands, approvals, consents, requests and other communications which
under the terms of this Lease, or under any statute, must or may be given or
made by the parties hereto, must be in writing, and must be made either (i) by
depositing such notice in registered or certified mail of the United States of
America, return receipt requested, or (ii) by delivering such notice by a
commercial courier, which courier provides for delivery with receipt guaranteed,
addressed to each party at the addresses set forth on the first page of this
Lease. All notices, demands, approvals, consents, requests and other
communications shall be deemed to have been delivered (i) if mailed as provided
for in this Paragraph, on the date which is three (3) business days after
mailing or (ii) if sent by commercial courier, on the date which is one (1)
business day after dispatching. Either party may designate by notice in writing
given in the manner herein specified a new or other address to which such
notice, demand, approval, consent, request and other communication shall
thereafter be so given or made. Notwithstanding the foregoing all Rent
statements, bills and invoices may be given by regular mail.
16.4 Exculpation. Tenant shall look solely to the estate and property of
Landlord in the Premises (including Landlord's rights to the rents, profits,
insurance proceeds and condemnation awards related thereto), for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and
conditions of this Lease to be observed and/or performed by Landlord, and no
other property or assets of Landlord (or of any direct or indirect, disclosed or
undisclosed, partner, member, shareholder, officer, director, employee or
principal in or of Landlord) shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder, or
Tenant's use and
<PAGE>
occupancy of the Premises.
16.5 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, heirs, executors and
administrators.
16.6 Recordation. Landlord shall execute and acknowledge a memorandum of
this lease in a form suitable for recording, and Tenant may record the
memorandum.
16.7 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 repairs to the Premises which it expressly has the right to
make under this Lease, 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.
16.8 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 Interest Rate 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 shall 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 default, and collection
of a late charge shall not waive the breach caused by the late payment.
16.9 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.
16.10 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
the American Arbitration Association in Portland, Oregon ("AAA") for final and
binding arbitration pursuant to AAA's 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
<PAGE>
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
AAA. The arbitrator shall conduct an arbitration hearing within ninety (90) days
after the arbitration demand is received by the AAA. 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.
<PAGE>
17.4 If AAA 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 as of the day and year first herein written.
Landlord: McLAIN-RUBIN REALTY COMPANY II, L.L.C.,
a Delaware limited liability company
By: /s/ C. DEAN McLAIN
------------------ ------------------
Its: Manager
------------------ ------------------
Tenant: WESTERN POWER & EQUIPMENT CORP.,
an Oregon corporation
By: /s/ C. DEAN McLAIN
------------------ ------------------
Its: President
------------------ ------------------
<PAGE>
STATE OF WASHINGTON )
) ss.
County of King )
----
I certify that I know or have satisfactory evidence that C. Dean McLain 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 Manager of McLain-Rubin
Realty Company II, L.L.C., a Delaware limited liability company, to be the free
and voluntary act of such company for the uses and purposes mentioned in the
instrument.
Dated this 30th day of May, 1997.
/s/ JENNY L. MILLS
---------------------------------- -----
(Signature of Notary)
/s/ JENNY L. MILLS
---------------------------------- -----
(Legibly print or Stamp Name of Notary)
Notary Public in and for the state of
Washington, residing at Issaquah
My Appointment Expires 6/15/98
STATE OF WASHINGTON )
) ss.
County of King )
----
I certify that I know or have satisfactory evidence that C. Dean McLain 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 President of Western Power &
Equipment Corp., an Oregon corporation, to be the free and voluntary act of such
company for the uses and purposes mentioned in the instrument.
Dated this 30 day of May, 1997.
/s/ JENNY L. MILLS
---------------------------------- -----
(Signature of Notary)
/s/ JENNY L. MILLS
---------------------------------- -----
<PAGE>
(Legibly print or Stamp Name of Notary)
Notary Public in and for the state of
Washington, residing at Issaquah
My Appointment Expires 6/15/98
<PAGE>
EXHIBIT A
Description of Real Property
----------------------------
That portion of the S.W. Russell Donation Claim No. 41 in Sections 24 and 25,
Township 22 North, Range 4 East, Willamette Meridian, in King County,
Washington, described as follows:
Beginning at the northeast corner of said Section 25; thence South 1B 02' 03"
East along the East line of said Section 25, a distance of 269.23 feet; thence
South 88B 41' 07" West 511.58 feet to the center line of primary state highway
No. 5 and the true point of beginning; thence continue South 88B 41' 07" West
623.63 feet to the East line of the Northern Pacific Railway Co. right of way;
thence north 0B 57' 50" west along said east line 337.63 feet; thence north 88B
08' 10" east 603.96 feet to the center line of said primary state highway No. 5;
thence south 0B 56' 50" east along said center line 124.89 feet to an angle
point; thence south 6B 08' 10" east along said center line 219.30 feet to the
true point of beginning;
Except right of way for said primary state highway No. 5;
Also except that potion of the above described property conveyed to City of Kent
by instruments recorded under recording numbers 7304260169 and 7304260170, for
widening of South Central Avenue.
Commonly known as ______________________________.
<PAGE>
EXHIBIT B
Permitted Encumbrances
----------------------
Encroachments, overlaps, boundary line disputes, or other matters which would be
disclosed by an accurate survey and inspection of the premises.
Easements, or claims of easements, not shown by the public records.
Any lien, or right of lien, for contributions to employee benefits funds, or for
state workers' compensation, or for services, labor, or material heretofore or
hereafter furnished, all as imposed by law, and not shown by the public records.
Taxes or special assessments which are not shown as existing liens by the public
records.
Any service, installation, connection, maintenance, tap, capacity or
construction charges for sewer, water, electricity, other utilities, or garbage
collection and disposal.
Reservations or exceptions in patents or in Acts authorizing the issuance
thereof; Indian tribal codes or regulations; Indian treaty or aboriginal rights,
including easements or equitable servitudes.
Water rights, claims, or title to water.
Defects, liens, encumbrances, adverse claims or other matters, if any, created,
first appearing in the public records, or attaching subsequent to the effective
date hereof but prior to the date the proposed insured acquires of records for
value the estate or interest or mortgage thereon covered by this Commitment.
Easement and the terms and conditions thereof:
Grantee: The Pacific Telephone and Telegraph Company, a corporation
Purpose: Lines of telephone and telegraph, or other signal or
communication circuits
Area Affected: The westerly 12 feet of said premises
Recorded: November 20, 1957
Recording No.: 4851982
<PAGE>
Easement and the terms and conditions thereof:
Grantee: City of Kent
Purpose: Constructing and maintaining highway slopes in excavation
and/or easement
Area Affected: The east 1 feet of said premises
Recorded: April 26, 1973
Recording No.: 7304260171 and 7304260172
Easement and the terms and conditions thereof:
Grantee: City of Kent, a municipal corporation
Purpose: Waterline with necessary appurtenances
Area Affected: The west 15 feet of said premises
Recorded: September 17, 1985
Recording No.: 8509170012
Perpetual lease to Snoqualmie Falls Power Company, and of record in Volume 12 of
Leases, page 592 under recording number 270142, records of said county, granted
to said corporation:
That portion of the Samuel W. Russell Donation Land Claim lying adjacent to and
contiguous to the east line of the right of way of the Northern Pacific Railway
now definitely located and in operation as a railway and extending north and
south for the entire and full length of the lands belonging to the first
parties, being about 880 yards in length and of a sufficient width to enable
second party to erect, construct and maintain an electric pole line over, across
and through the same, with right of entry, second party agreeing to set said
line of poles as near as possible to said right of way of railway company, not
exceeding a distance of 5 feet from said east line of said right of way on
particular conditions. Covers said premises and other lands.
The following matters disclosed by survey recorded under recording number
9307169004:
Encroachment by 7 foot high chain link fence by 0.5 feet into the westerly
adjoiner.
Encroachment by 7 foot high chain link fence ranging from 1.0 feet to 7.0 feet
into the southerly adjoiner at the westerly end of the property.
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Commonly known as _____________________________.
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EXHIBIT B
Permitted Encumbrances
----------------------
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
Dated as of December 11, 1997
Between
CASE CORPORATION
And
WESTERN POWER & EQUIPMENT CORP.
And
MCLAIN-RUBIN REALTY COMPANY III, L.L.C.
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TABLE OF CONTENTS
Page
Article Description No.
- ------- ----------- ----
ARTICLE 1 DEFINITIONS 1
-----------
ARTICLE 2 PURCHASE AND SALE 4
-----------------
Section 2.01 Purchase and Sale of Assets. 4
Section 2.02 Purchase and Sale of Real Property. 5
Section 2.03 Excluded Assets. 5
Section 2.04 Assumed Liabilities. 6
Section 2.05 Purchase Price. 7
Section 2.06 Allocation of Purchase Price. 9
Section 2.07 Severance Expenses; Sales and Expense Adjustment. 9
ARTICLE 3 THE CLOSING 9
-----------
Section 3.01 Time and Place of Closing. 9
Section 3.02 Deliveries by Seller. 10
Section 3.03 Deliveries by Buyers. 10
Section 3.04 Delivery by Both Parties. 11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER 12
----------------------------------------
Section 4.01 Organization and Qualification. 12
Section 4.02 Authority Relative to this Agreement. 12
Section 4.03 Consents and Approvals. 12
Section 4.04 No Violation. 13
Section 4.05 Litigation. 13
Section 4.06 Ownership of Purchased Assets and Real Property. 13
Section 4.07 Labor Matters. 13
Section 4.08 Environmental Compliance. 14
Section 4.09 Accuracy of Information. 14
Section 4.10 Brokers Or Finders. 14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYERS 14
----------------------------------------
Section 5.01 Organization and Qualification. 14
Section 5.02 Authority Relative to this Agreement. 15
Section 5.03 Consents and Approvals. 15
Section 5.04 No Violation. 15
Section 5.05 Litigation. 16
Section 5.06 Financing. 16
Section 5.07 Capitalization. 16
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Section 5.08 Inspection of Assets and Real Property. 16
Section 5.09 Bankruptcy. 17
Section 5.10 Employer Identification Number. 17
Section 5.11 Organization and Qualification. 17
Section 5.12 Authority Relative to this Agreement. 17
Section 5.13 Consents and Approvals. 17
Section 5.14 No Violation. 18
Section 5.15 Litigation. 18
Section 5.16 Financing. 18
Section 5.17 Capitalization. 18
Section 5.18 Inspection of Assets and Real Property. 19
Section 5.19 Bankruptcy. 19
Section 5.20 Employer Identification Number. 19
Section 5.21 No Brokers or Finders. 19
ARTICLE 6 ADDITIONAL AGREEMENTS AND COVENANTS--BUYERS 19
-------------------------------------------
Section 6.01 Insurance to be Procured by Buyers. 19
Section 6.02 Product Warranties. 20
Section 6.03 Relationship of Parties. 20
Section 6.04 Results of Operations. 20
Section 6.05 Distribution System. 20
ARTICLE 7 ADDITIONAL COVENANTS OF THE PARTIES 21
-----------------------------------
Section 7.01 Taxes. 21
Section 7.02 Public Announcements. 21
Section 7.03 Further Assurances. 21
Section 7.04 Nonassignable Contracts. 21
Section 7.05 Preservation of Records. 22
Section 7.06 Environmental Matters. 22
Section 7.07 Bulk Sales. 23
Section 7.08 Risk of Loss. 23
Section 7.09 Case Parts Return and Case Parts Reorder. 23
Section 7.10 Certain Personnel Matters. 24
Section 7.11 Liens; Encumbrances. 24
Section 7.12 Business Cutoff. 24
Section 7.13 Conduct of Business Pending the Closing. 25
ARTICLE 8 CONDITIONS PRECEDENT TO BUYERS' OBLIGATIONS 25
-------------------------------------------
ARTICLE 9 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS 25
--------------------------------------------
ARTICLE 10 TERMINATION 25
-----------
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ARTICLE 11 INDEMNIFICATION AND LIMITATIONS ON LIABILITY 25
-------------------------------------------
Section 11.01 Definitions. 25
Section 11.02 Indemnity by Seller. 27
Section 11.03 Indemnity by Buyer. 28
Section 11.04 Notification of Third-Party Claims. 28
Section 11.05 Defense of Claims. 28
Section 11.06 Notice of Other Claims. 29
Section 11.07 Access and Cooperation. 29
Section 11.08 No Insurance. 29
Section 11.09 Indemnification Matters Related to Taxes. 30
Section 11.10 Limitations on Liabilities. 30
ARTICLE 12 EXTENT AND SURVIVAL OF REPRESENTATIONS,
---------------------------------------
WARRANTIES, COVENANTS AND AGREEMENTS 32
------------------------------------
Section 12.01 Scope of Representations. 32
Section 12.02 Survival. 33
ARTICLE 13 BROKERS 33
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ARTICLE 14 EXPENSES 33
--------
ARTICLE 15 NOTICES; MISCELLANEOUS 33
----------------------
Section 15.01 Notices. 33
Section 15.02 Miscellaneous. 34
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EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A List of Purchased Assets
(to be delivered at Closing)
Exhibit B Real Property
Exhibit C-1A Promissory Note--Used Equipment-Tractors
Exhibit C-1B Promissory Note--Used Equipment-Seasonal
Exhibit C-2 Promissory Note--Case Parts
Exhibit C-3 Promissory Note--Accounts Receivable
Exhibit C-4 Promissory Note--Shop Tools
Exhibit C-5 Promissory Note--Furniture & Fixtures
Exhibit C-6 Promissory Note--Real Property
Exhibit D-1 Bill of Sale
Exhibit D-2 Assignment and Assumption Agreement
Exhibit E Grant Deed
Exhibit F Security Agreement
Exhibit G Deed to Secure Trust
Exhibit H-1 Guarantee Agreement
Exhibit H-2 Guarantee Agreement
Exhibit I Sublease Agreement [Omitted]
Exhibit J Lease [Omitted]
Exhibit K Required Consents--Seller
Exhibit L Required Consents--Buyer
Exhibit M Capitalization of Buyer
Exhibit N Tax Matters
Exhibit O Seller's Closing Certificate
Exhibit P Buyer's Closing Certificate
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ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT is dated as of December 11, 1997, by and between
CASE CORPORATION, a Delaware corporation ("Case" or "Seller") and WESTERN POWER
& EQUIPMENT CORP. ("Western"), an Oregon corporation and MCLAIN-RUBIN REALTY
COMPANY III, L.L.C. ("LLC"), a Delaware limited liability company ("collectively
Buyers").
RECITALS
--------
WHEREAS, Seller is the owner and operator of agricultural equipment sales,
service and leasing operations transacting business under the trade name of
"Case Power and Equipment" in Yuba City, California (the "Retail Operations");
and
WHEREAS, Buyers desire 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 Buyers.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
-----------
"Affiliate" shall mean any Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with the Person specified.
"Agreement" shall mean this Asset Purchase Agreement, including the
exhibits attached hereto.
"Assumed Liabilities" shall have the meaning set forth in Section 2.04
"Closing" shall have the meaning set forth in Section 3.01.
"Closing Date" shall have the meaning set forth in Section 3.01.
"Cutoff Date" shall mean December 3, 1997.
"Environmental Laws" shall mean any applicable federal, state or local law,
rule or regulation in effect on the date hereof: (a) relating to releases or
threatened releases of Hazardous Materials; (b) relating to the manufacture,
handling, transport, use, treatment,
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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.
"Excluded Assets" shall have the meaning set forth in Section 2.03.
"Hazardous Materials" shall mean materials that contain substances defined
as hazardous or toxic substances under the following statutes, as well as such
statutes' implementing regulations as 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 that a federal,
state or local agency requires to be remediated pursuant to any Environmental
Law.
"Knowledge" with respect to Seller shall mean the best knowledge of Jon
Carlson, Vice President - North American Retail Stores, and Audrey Van Dyke,
Case Environmental Manager.
"Lien" shall mean any mortgage, pledge, security interest, lease, lien or
other encumbrance of any kind, including without limitation any conditional sale
contract, title retention contract or similar arrangement.
"Notes" shall mean all promissory notes delivered pursuant to Section 2.05
or Section 2.07 of this Agreement.
"Permitted Exceptions" shall mean:
(a) Liens for taxes not yet due and payable or being contested in good
faith.
(b) Materialmen's, mechanics', workers', repairman's, employees' or other
similar Liens arising in the ordinary course of the operation of the
Retail Operations.
(c) Liens to be released at Closing.
(d) All rights to consent by, required notices to, filings with, or other
actions by governmental entities if the same are customarily obtained
or made subsequent to sale or conveyance.
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(e) Rights reserved to or vested in any local, state or federal
governmental bodies, authorities or agencies to control or regulate
any of the Real Property in any manner, and all laws, rules,
regulations, ordinances and orders of any such bodies, authorities or
agencies.
(f) The state of facts that would be disclosed by an accurate survey of
the Real Property dated as of the Closing Date, including but not
limited to all encroachments, overlaps, overhangs and unrecorded
easements.
(g) All reservations and conveyances of minerals of whatever kind and
character (including, without limitation, all coal, iron ore, oil,
gas, sulfur, methane gas in coal seams, limestone and other minerals,
metals and ores) located on, in or under the Real Property and all
rights with respect to the mining, extraction and removal of the
minerals so located, that have been granted or leased to, or excepted
or reserved by, persons other than Seller, its Affiliates and its
corporate predecessors by merger.
(h) Any other Liens that would not reasonably be expected to have a
material adverse effect on the conduct of the Retail Operations as
currently conducted by Seller.
"Person" shall mean any natural person, corporation, general partnership,
limited partnership, limited liability company, limited liability 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.
"Real Property" shall have the meaning set forth in Section 2.02.
"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 the Real Property
or conduct of the Retail Operations.
"Secured Parties" shall mean Seller and Case Credit Corporation, a Delaware
corporation.
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ARTICLE 2.
PURCHASE AND SALE
-----------------
Section 1.021 Purchase and Sale of Assets.
---------------------------
At the Closing, Western shall purchase from Seller, and Seller shall sell
to Western, all of the right, title and interest of Seller in the following
assets, properties and rights associated with the Retail Operations (the
"Purchased Assets"), which Purchased Assets will be more particularly described
in "Exhibit A", a document that shall be delivered at the Closing:
(a) New Case Equipment. All items of new Case agricultural equipment and
attachments set forth on Exhibit A ("New Case Equipment").
(b) Allied Equipment. All items of allied equipment and attachments set
forth on Exhibit A ("Allied Equipment").
(c) Used Equipment. All items of used agricultural equipment and
attachments set forth on Exhibit A ("Used Equipment").
(d) Case Parts. All Case parts set forth on Exhibit A ("Case Parts").
(e) Allied Parts. All allied parts set forth on Exhibit A ("Allied
Parts").
(f) Accounts Receivable. All accounts receivable set forth on Exhibit A
("Accounts Receivable").
(g) Vehicles. All vehicles set forth on Exhibit A ("Vehicles").
(h) Furniture and Fixtures. All furniture and fixtures set forth on
Exhibit A ("Furniture and Fixtures"); provided, that such Furniture
and Fixtures shall exclude (i) the Case computers, software (other
than certain computer tapes identified in Section 2.01(j)) and related
computer equipment used in connection with the Retail Operations and
located at the Retail Operations (the "Computer Equipment") and (ii)
the "Case Power and Equipment" letters affixed to the buildings at the
Retail Operations.
(i) Shop Tools. All shop tools and equipment set forth on Exhibit A ("Shop
Tools").
(j) Manuals. All service libraries, technical publications, parts books,
warranty cards, computer tapes (containing parts inventory, sales
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history, and customer master list) and customer lists set forth on
Exhibit A ("Manuals").
(k) Supplies. All office and shop supplies set forth on Exhibit A
(collectively, the "Supplies"); provided, that such Supplies shall
exclude all items imprinted with the names "Case Power & Equipment",
"J.I. Case" or any other designation of Seller or "Tenneco Inc."
(l) Forklifts. [Intentionally left blank.]
(m) Work-In-Process. All parts and labor expended by Seller on service
orders in-process set forth on Exhibit A ("Work-In-Process").
(n) Office Equipment Leases. All leases for radios, copiers, facsimile
machines, telephones and telephone lines and other items of office
equipment set forth on Exhibit A ("Office Equipment Leases").
(o) Petty Cash. All petty cash set forth on Exhibit A ("Petty Cash").
(p) Customer Orders. All customer orders set forth on Exhibit A (the
"Customer Orders").
(q) Store Obligations. (i) All maintenance contracts between Seller and
certain municipalities and utility companies listed on Exhibit A, (ii)
all leases of equipment listed on Exhibit A financed by Case or its
Affiliates, and (iii) all equipment contracts between Seller and
governmental agencies pursuant to which Seller is obligated to
repurchase equipment listed on Exhibit A (collectively, "Store
Obligations").
Section 1.022 Purchase and Sale of Real Property.
----------------------------------
At the Closing, LLC shall purchase from Seller, and Seller shall sell to
LLC, all of the right, title and interest of Seller in the real estate and
improvements used in connection with the Retail Operations at Yuba City,
California, as more particularly described in Exhibit B (collectively, the "Real
Property").
Section 1.023 Excluded Assets.
---------------
The assets of Seller to be sold, transferred, assigned and delivered to
Western shall include only those Purchased Assets described in Section 2.01,
which Purchased Assets will be more specifically described in Exhibit A, and the
Real Property described in Section 2.02, which Real Property is more
specifically described in Exhibit B. Such Purchased
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Assets and Real Property shall not, however, include any of the following
assets or properties of Seller:
(a) Utility and other security deposits paid by Seller prior to the
Closing.
(b) Seller's "dealer reserves" as of the Closing Date.
(c) Trademarks, trade names and the like of Seller and its Affiliates.
(d) Cash and cash equivalents on hand or in banks, except for Petty Cash.
(e) Contracts entered into and proceeds of contracts entered into on or
before the Closing Date for the sale of any item, not constituting
part of the Purchased Assets, whether or not delivered or to be
delivered subsequent to the Closing Date.
(f) The Computer Equipment and computer software in connection therewith.
(g) Business records and printed business forms pertaining solely to the
Retail Operations.
(h) Prepaid taxes, insurance and other expenses and credits, refunds and
receivables of such items.
(i) Any other assets not specifically described in Section 2.01 or Section
2.02.
For purposes of this Agreement, all of the property, assets and rights to be
retained by Seller under this Section 2.03 are collectively referred to as the
"Excluded Assets".
Section 1.024 Assumed Liabilities.
-------------------
As of the Closing Date, Western shall assume and thereafter pay, perform or
otherwise discharge all obligations of Seller or any of its Affiliates under the
contracts and contract rights included in the Purchased Assets (including, but
not limited to, the Store Obligations) to the extent that such obligations
relate to the operation of Retail Operations from and after the Cutoff Date (the
"Assumed Liabilities"), it being understood and agreed that Western 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 specified in this Agreement, Western 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 occurred prior to the Cutoff Date.
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Section 1.025 Purchase Price.
--------------
(a) The purchase price for the Purchased Assets ("Purchase Price") shall
be set forth in Exhibit A, and shall be calculated as follows:
(b) The Purchase Price shall be equal to the sum of the purchase prices
for each of the assets, properties and rights making up the Purchased
Assets, as follows:
(1) New Case Equipment. The purchase price for the New Case Equipment
as set forth on Exhibit A attached hereto.
(2) Allied Equipment. The purchase price for the Allied Equipment as
set forth on Schedule A hereto.
(3) Used Equipment. The purchase price for the Used Equipment as set
forth on Schedule A hereto.
(4) Case Parts. The purchase price for the Case Parts shall be
Seller's current "dealer net" or "ship direct level one" value,
whichever is less.
(5) Allied Parts. The purchase price for the Allied Parts shall be
Seller's invoice price.
(6) Accounts Receivable. The purchase price for the Accounts
Receivable shall be as follows: Current accounts and those for
the prior month and the second prior month shall be sold for 100%
of face value. Accounts for the third prior month and the fourth
prior month shall be sold for 75% of face value.
(7) Vehicles. The purchase price for the Vehicles shall be $13,500.
(8) Furniture and Fixtures. The purchase price for the Furniture and
Fixtures shall be $15,000.
(9) Shop Tools. The purchase price for the Shop Tools shall be
$20,000.
(10) Manuals. The purchase price for the Manuals shall be $1,000.
(11) Supplies. The purchase price for the Supplies shall be $1,000.
(12) Forklifts. [intentionally omitted].
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(13) Work-in-Process. The purchase price for the Work-in-Process shall
be 80% of the customer hourly rate based upon the number of hours
involved.
(14) Office Equipment Leases. The purchase price for the Office
Equipment Leases shall be as mutually agreed upon by the parties.
(15) Petty Cash. The purchase price for the Petty Cash shall be as
mutually agreed upon by the parties.
(16) Customer Orders. The purchase price for the Customer Orders shall
be as mutually agreed upon by the parties.
(17) Store Obligations. The purchase price for the Store Obligations
shall be as mutually agreed upon by the parties.
(c) The Purchase Price shall be payable in cash at Closing, except as
follows:
(1) New Case Equipment. The purchase and sale of the items of New
Case Equipment listed on Exhibit A shall be governed by Seller's
standard terms for new equipment as reflected in Seller's
Schedule of Discounts and Terms for the particular item involved.
(2) Used Equipment. The purchase price for the Used Equipment shall
be paid in accordance with the terms of a promissory notes
substantially in the form attached hereto as Exhibits C-1A and
C-1B.
(3) Case Parts. 15% of the purchase price for the Case Parts shall be
paid in cash at Closing and 85% shall be paid in accordance with
the terms of a promissory note substantially in the form attached
hereto as Exhibit C-2.
(4) Accounts Receivable. The purchase price for the Accounts
Receivable shall be paid in accordance with the terms of a
promissory note substantially in the form attached hereto as
Exhibit C-3.
(5) Shop Tools. The purchase price for the Shop Tools shall be 25%
cash down at Closing with the remaining balance being
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paid in accordance with the terms of a promissory note
substantially in the form attached hereto as Exhibit C-4.
(6) Furniture and Fixtures. The purchase price for Furniture and
Fixtures shall be paid with 25% cash down at closing with the
remaining balance being paid in accordance with the terms of a
promissory note substantially in the form attached hereto as
Exhibit C-5.
(d) The purchase price for the Real Property shall be in the amount set
forth in Exhibit A and shall be paid in accordance with the terms of a
promissory note substantially in the form attached hereto as Exhibit
C-6.
(e) Seller shall conduct an inventory of the Purchased Assets prior to the
Closing, which inventory may be reviewed by Western.
Section 1.026 Allocation of Purchase Price.
----------------------------
The Purchase Price shall be allocated in the manner set forth in Exhibit N.
Section 1.027 Severance Expenses; Sales and Expense Adjustment.
------------------------------------------------
In addition to the payment of the Purchase Price and the purchase price for
the Real Property, Buyers shall compensate Seller for a prorated portion of
expenses attributable to the conduct of Retail Operations between the Cutoff
Date and the Closing Date in the amount of $11,809, which amount shall be
payable in cash at Closing.
ARTICLE 3.
THE CLOSING
-----------
Section 1.031 Time and Place of Closing.
-------------------------
The closing of the transactions contemplated by this Agreement (the
"Closing") shall be held at the offices of Foley Lardner Weissburg & Aronson,
One Maritime Plaza in San Francisco, California, commencing at 10:00 a.m. (local
time) on December 11, 1997 (the "Closing Date").
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Section 1.032 Deliveries by Seller.
--------------------
At the Closing Seller will deliver or cause to be delivered the following:
(a) To Western, an executed and acknowledged bill of sale and assignment
and assumption agreement substantially in the forms attached hereto as
Exhibits D-1 and D-2, respectively, each in form and substance as
necessary to transfer to Western all of Seller's right, title and
interest in and to the Purchased Assets.
(b) To LLC, a grant deed substantially in the form attached hereto as
Exhibit E in form and substance necessary to transfer to LLC all of
Seller's right, title and interest in and to the Real Property.
(c) To Western, a certificate in the form attached hereto as Exhibit O
signed by Seller certifying that each of the representations and
warranties made by Seller in this Agreement is true and correct in all
material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made or given
on and as of the Closing Date (except for any changes permitted by the
terms of this Agreement or consented to in writing by Buyer) and that
Seller has performed and complied with all of its obligations under
this Agreement that are to be performed or complied with on or prior
to the Closing Date.
(d) To Western, the other documents, instruments and writings required to
be delivered by Seller at the Closing pursuant to this Agreement or
otherwise required in connection herewith.
Section 1.033 Deliveries by Buyers.
--------------------
At the Closing Buyers will deliver or cause to be delivered the following:
(a) The amount of the Purchase Price and any other amounts due on the
Closing Date by confirmed wire transfer in immediately available funds
to a bank account that shall be designated by Seller, or by such other
means as agreed upon by Seller and Buyers.
(b) To Seller, certified copies of a good standing certificate from the
office of the Secretary of State of Oregon confirming that Western is
in good standing in the State of Oregon and dated not earlier than
five days before the Closing Date.
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(c) To Seller, a copy of the Bylaws of Western certified by the Secretary
of Buyer and dated not earlier than five days before the Closing Date.
(d) To Seller, a copy of the Certificate of Incorporation of Western
certified by the Secretary of State of Oregon and dated not earlier
than five days before the Closing Date.
(e) To Seller, a copy of the resolutions of the Board of Directors of
Western authorizing and approving this Agreement and the transactions
contemplated by this Agreement certified by the Secretary of Western.
(f) To Seller, a copy of the LLC Partnership Agreement.
(g) To Seller, a Security Agreement substantially in the form of Exhibit F
(the "Security Agreement").
(h) To Seller, a Deed of Trust substantially in the form of Exhibit G (the
"Deed of Trust").
(i) To Seller, Guarantee Agreements executed and delivered by C. Dean
McLain and Robert M. Rubin guaranteeing the obligations of LLC under
the Promissory Note--Real Property.
(j) To Seller, certificates of insurance and proofs of payment of premium
to the extent such are required under Section 6.01.
(k) To Seller, a certificate in the form attached hereto as Exhibit P
signed by Buyer certifying that each of the representations and
warranties made by Buyer in this Agreement is true and correct on and
as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this
Agreement or consented to in writing by Seller) and that Buyer has
performed and complied with all of Buyer's obligations under this
Agreement that are to be performed or complied with on or prior to the
Closing Date.
(l) To Seller, the other documents, instruments and writings required to
be delivered by Buyer at the Closing pursuant to this Agreement or
otherwise required in connection herewith.
Section 1.034 Delivery by Both Parties.
------------------------
At the Closing Seller and Buyer will deliver a duly executed assignment and
assumption agreement substantially in the form attached hereto as Exhibit D-2 as
necessary
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for Seller to sell and assign to Western its interests in the Office Equipment
Leases and for Western to assume the Assumed Liabilities.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyers as set forth below:
Section 1.041 Organization and Qualification.
------------------------------
Seller is a corporation validly existing and in good standing under the
laws of the State of Delaware and is duly qualified to conduct business in the
State of California as a foreign corporation.
Section 1.042 Authority Relative to this Agreement.
------------------------------------
Seller has the requisite corporate power to execute and deliver this
Agreement and the related agreements contemplated hereby to which it is a party
and to consummate the transactions contemplated thereby. The execution and
delivery by Seller of this Agreement and the related agreements contemplated
hereby to which Seller is a party and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of Seller. This Agreement and the related agreements contemplated
hereby to which Seller is a party have been duly executed and delivered by
Seller and constitute legal, valid and binding obligations of Seller and are
enforceable against Seller in accordance with their terms subject to the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance 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).
Section 1.043 Consents and Approvals.
----------------------
The execution and delivery by Seller of this Agreement and the related
agreements contemplated hereby to which it is a party do 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 Exhibit K, or except where failure to
obtain such consents, approvals, exemptions, authorizations or actions, make
such filings or give such notices would not reasonably be expected to have a
material adverse effect on the Retail Operations as currently conducted by
Seller or would not reasonably be expected to materially adversely affect the
ability of Seller to perform any of its material obligations hereunder.
12
<PAGE>
Section 1.044 No Violation.
------------
Assuming all consents, approvals, exemptions, authorizations and other
actions described in Exhibit K have been obtained, the execution and delivery by
Seller of this Agreement and the related agreements contemplated hereby to which
Seller is a party do not, and the performance by Seller of this Agreement and
the related agreements contemplated hereby to which Seller is a party will not,
(i) conflict with or result in a breach of the Certificate 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, amendment, acceleration or
cancellation of, or result in the creation or imposition of any Lien upon the
Purchased Assets or the Real Property under, any mortgage, indenture, agreement,
judgment, decree or court order to which Seller is a party or by which any of
the Purchased Assets or the Real Property are bound, which violation, conflict,
default or Lien would reasonably be expected to have a material adverse effect
on the Retail Operations as currently conducted by Seller.
Section 1.045 Litigation.
----------
At the date of this Agreement (i) there are no actions, suits, claims,
arbitration proceedings or governmental investigations or inquiries pending, or
to the Knowledge of Seller threatened, against Seller, or its properties,
assets, operations or businesses (A) seeking to prevent the consummation of the
transactions contemplated hereby or (B) that would reasonably be expected to
have a material adverse effect on the Retail Operations as currently conducted
by Seller, and (ii) there are no judgments, decrees, injunctions, orders or
consent orders of any court, governmental authority or arbitrator issued in any
proceeding to which Seller or any of its Affiliates is or was a party that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Retail Operations as currently conducted by
Seller.
Section 1.046 Ownership of Purchased Assets and Real Property.
-----------------------------------------------
Seller has title to (i) the tangible personal property included in the
Purchased Assets and (ii) the Real Property, sufficient (with the exception of
certain leased vehicles) for the conduct of the Retail Operations as currently
conducted by Seller, free and clear of any Liens other than Permitted
Exceptions. Seller makes no representations regarding computer software,
including Western's right to use same, its appropriateness for Western's
business, its future availability, Western's status with the software provider,
the cost to use same or the availability of updates.
Section 1.047 Labor Matters.
-------------
Seller is not a party to any collective bargaining agreement relating to
employees who are employed at the Retail Operations. There are no labor
controversies pending or, to the Knowledge of Seller, threatened with respect to
the Retail Operations that could reasonably be expected to have, individually or
in the aggregate, a material adverse
13
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effect on the ownership or operation of the Purchased Assets, the Real Property
or the Retail Operations, and there are no grievances outstanding, or unfair
labor practice complaints pending before the National Labor Relations Board,
against Seller in respect of employees who are employed at the Retail Operations
that would reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Retail Operations as currently conducted by
Seller.
Section 1.048 Environmental Compliance.
------------------------
The Retail Operations have, to the Knowledge of Seller, been conducted in
accordance with applicable Environmental Laws, except (a) as may be set forth in
the environmental audits to be performed pursuant to Section 7.06, (b) as
otherwise disclosed to Buyer, or (c) where the failure to so conduct would not
reasonably be expected to have a material adverse effect on the Retail
Operations as currently conducted by Seller.
Section 1.049 Accuracy of Information.
-----------------------
To the Knowledge of Robert E. Bowers and Seller, all information contained
in Exhibit A, including descriptions of the Purchased Assets, price information
and information on the schedules to such, including descriptions of the
Purchased Assets, price information and information on the schedules to such
Exhibit A and to the Agreement, is true and correct.
Section 4.10 Brokers Or Finders.
------------------
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.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
Western represents and warrants to Seller as set forth in Sections
5.01-5.10 below.
Section 1.051 Organization and Qualification.
------------------------------
Western is a corporation validly existing and in good standing under the
laws of the State of Oregon.
14
<PAGE>
Section 1.052 Authority Relative to this Agreement.
------------------------------------
Western has the requisite corporate power to execute and deliver this
Agreement and the related agreements contemplated hereby to which it is a party
and to consummate the transactions contemplated thereby. The execution and
delivery by Western of this Agreement and the related agreements contemplated
hereby to which Western is a party and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of Western. This Agreement and the related agreements contemplated
hereby to which Western is a party have been duly executed and delivered by
Western and constitute legal, valid and binding obligations of Western and are
enforceable against Western in accordance with their terms subject to the effect
of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
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).
Section 1.053 Consents and Approvals.
----------------------
The execution and delivery by Western of this Agreement and the related
agreements contemplated hereby to which Western is a party do not, and
compliance by Western with the terms thereof and consummation by Western of the
transactions contemplated thereby will not, require Western 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 set forth on Exhibit L, or
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 Western to perform any of its
material obligations hereunder.
Section 1.054 No Violation.
------------
Assuming all consents, approvals, exemptions, authorizations and other
actions described in Exhibit L have been obtained, the execution and delivery by
Western of this Agreement and the related agreements contemplated hereby to
which Western is a party do not, and the performance by Western of this
Agreement and the related agreements contemplated hereby to which Western is a
party will not, (i) conflict with or result in a breach of Western's Certificate
of Incorporation or bylaws, (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 Western under, any mortgage, indenture,
agreement, judgment, decree or court order to which Western is a party or by
which any of the properties or assets of Western is bound, which violation,
conflict, default or Lien would adversely affect the ability of Western to
perform its obligations under this Agreement or the related agreements
contemplated hereby to which Western is a party.
15
<PAGE>
Section 1.055 Litigation.
----------
At the date of this Agreement to the best knowledge of Western, (i) there
are no actions, suits, claims, arbitration proceedings or governmental
investigations or inquiries pending, or to the knowledge of Western threatened,
against Western or its properties, assets, operations or businesses (A) seeking
to prevent the consummation of the transactions contemplated hereby, or (B)
that, individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the ability of Western to perform its obligations
under this Agreement or the transactions contemplated hereby, and (ii) there are
no judgments, decrees, injunctions, orders or consent orders of any court,
governmental authority or arbitrator issued in any proceeding to which Western
or any of its Affiliates is or was a party that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
ability of Western to perform its obligations under this Agreement or the
transactions contemplated hereby.
Section 1.056 Financing.
---------
Western has sufficient funds or committed lines of credit to consummate the
transactions contemplated by this Agreement.
Section 1.057 Capitalization.
--------------
(a) The entire authorized capital stock of Western and the issued and
outstanding shares of capital stock of Western are as set forth on
Exhibit M hereto.
(b) Western does not have any outstanding subscriptions, options, warrants
or other rights for the issuance or purchase of any stock or other
securities, or any securities convertible into or exchangeable for any
stock or other securities, or any understandings or commitments of any
kind for the issuance of stock or securities convertible into or
exchangeable for stock or other securities amounting to more than 33%
of the outstanding shares of Western.
Section 1.058 Inspection of Assets and Real Property.
--------------------------------------
Western has inspected to its complete satisfaction the physical condition
of the Purchased Assets and the Real Property; provided, that the provisions of
this Section 5.08 shall not constitute a waiver by Western of any of Seller's
warranty obligations with respect to New Case Equipment or new Case Parts.
16
<PAGE>
Section 1.059 Bankruptcy.
----------
Western is not, and has not within the past six years been, the subject of
a bankruptcy or insolvency proceeding, nor is Western subject to any Lien that
might adversely affect Western's ability to perform its obligations as
contemplated by this Agreement.
Section 5.10 Employer Identification Number.
------------------------------
Western's federal employer identification number is 93-1096982.
LLC represents and warrants to Seller as set forth in Sections 5.11-5.21
below.
Section 5.11 Organization and Qualification.
------------------------------
LLC is a limited liability company validly existing and in good standing
under the laws of the State of Delaware.
Section 5.12 Authority Relative to this Agreement.
------------------------------------
LLC has the requisite organizational power to execute and deliver this
Agreement and the related agreements contemplated hereby to which it is a party
and to consummate the transactions contemplated thereby. The execution and
delivery by LLC of this Agreement and the related agreements contemplated hereby
to which LLC is a party and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary organizational action on the
part of LLC. This Agreement and the related agreements contemplated hereby to
which LLC is a party have been duly executed and delivered by LLC and constitute
legal, valid and binding obligations of LLC and are enforceable against LLC in
accordance with their terms subject to the effect of any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, 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).
Section 5.13 Consents and Approvals.
----------------------
The execution and delivery by LLC of this Agreement and the related
agreements contemplated hereby to which LLC is a party do not, and compliance by
LLC with the terms thereof and consummation by LLC of the transactions
contemplated thereby will not, require LLC 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 set forth on Exhibit L, or 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 LLC to perform any of its material obligations hereunder.
17
<PAGE>
Section 5.14 No Violation.
------------
Assuming all consents, approvals, exemptions, authorizations and other
actions described in Exhibit L have been obtained, the execution and delivery by
LLC of this Agreement and the related agreements contemplated hereby to which
LLC is a party to the best knowledge of LLC do not, and the performance by LLC
of this Agreement and the related agreements contemplated hereby to which LLC is
a party will not, (i) conflict with or result in a breach of LLC's Articles of
Organization or bylaws, (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 LLC under, any mortgage, indenture, agreement, judgment,
decree or court order to which LLC is a party or by which any of the properties
or assets of LLC is bound, which violation, conflict, default or Lien would
adversely affect the ability of LLC to perform its obligations under this
Agreement or the related agreements contemplated hereby to which LLC is a party.
Section 5.15 Litigation.
----------
At the date of this Agreement to the best knowledge of LLC, (i) there are
no actions, suits, claims, arbitration proceedings or governmental
investigations or inquiries pending, or to the knowledge of LLC threatened,
against LLC or its properties, assets, operations or businesses (A) seeking to
prevent the consummation of the transactions contemplated hereby, or (B) that,
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the ability of LLC to perform its obligations under
this Agreement or the transactions contemplated hereby, and (ii) there are no
judgments, decrees, injunctions, orders or consent orders of any court,
governmental authority or arbitrator issued in any proceeding to which LLC or
any of its Affiliates is or was a party that, individually or in the aggregate,
could reasonably be expected to have a material adverse effect on the ability of
LLC to perform its obligations under this Agreement or the transactions
contemplated hereby.
Section 5.16 Financing.
---------
LLC has sufficient funds or committed lines of credit to consummate the
transactions contemplated by this Agreement.
Section 5.17 Capitalization.
--------------
(a) The issued and outstanding membership interests of LLC are as set
forth on Exhibit M hereto.
(b) LLC does not have any outstanding subscriptions, options, warrants or
other rights for the issuance or purchase of any interest or other
securities, or any securities convertible into or exchangeable for any
18
<PAGE>
interest or other securities, or any understandings or commitments of
any kind for the issuance of interest or securities convertible into
or exchangeable for interest or other securities that would
substantially affect the capitalization LLC as set forth on Exhibit M.
Section 5.18 Inspection of Assets and Real Property.
--------------------------------------
LLC has inspected to its complete satisfaction the physical condition of
the Real Property.
Section 5.19 Bankruptcy.
----------
LLC is not, and has not within the past six years been, the subject of a
bankruptcy or insolvency proceeding, nor is LLC subject to any Lien that might
adversely affect LLC's ability to perform its obligations as contemplated by
this Agreement.
Section 5.20 Employer Identification Number.
------------------------------
LLC's federal employer identification number is _____________.
Section 5.21 No Brokers or Finders.
---------------------
Neither LLC nor any of its members, 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.
ARTICLE 6.
ADDITIONAL AGREEMENTS AND COVENANTS--BUYERS
-------------------------------------------
Buyers covenant and agree with Seller as follows:
Section 1.061 Insurance to be Procured by Buyers.
----------------------------------
Buyers shall keep all the Purchased Assets and Real Property, as
applicable, in which Secured Parties have a security interest, and that are
under Buyers' direct or indirect control, insured against all risk of physical
loss or damage, in an amount that shall be sufficient in Seller's opinion to
prevent Secured Parties from sustaining any financial loss in accordance with
Buyer's obligations under the standard Case Corporation Dealer Agreement. The
insurance policy or policies obtained for such purpose shall name Secured
Parties as additional insureds and provide that, in the event of loss, the
insurer will pay the proceeds of such policy or policies to the insureds as
their respective interests may appear. Such insurance policy or policies shall
be written by insurance companies licensed to do business in the state(s) in
which the Retail Operations are located and acceptable to Secured Parties
19
<PAGE>
and shall contain an endorsement thereon requiring the insurer to give Secured
Parties not less than thirty (30) days' written notice prior to any proposed
cancellation, modification or expiration thereof. Buyers shall deliver at the
Closing certificates of such insurance together with proof of payment of the
premium thereof to Secured Parties. Western may become an insured under the
insurance plan provided by Seller for its authorized dealers, in which event the
assets so covered under such plan shall be exempted from the foregoing
provisions of this Section 6.01.
Section 1.062 Product Warranties.
------------------
Western shall perform all warranty work required on all products sold by
Seller at the Retail Operations on or prior to the Closing Date in accordance
with Seller's currently applicable published warranty policies and procedures.
Seller shall pay Western in full for such work in accordance with Seller's
currently applicable published warranty policies and procedures.
Section 1.063 Relationship of Parties.
-----------------------
Western acknowledges that any payments by it for items held out for sale
(inventory) are bona fide wholesale prices for reasonable amounts of merchandise
to be held for resale. Western acknowledges that it is an independent operation
controlling its own business, that Seller has not suggested or prescribed in
substantial part a marketing plan and that Seller neither has significant
control of Western, nor has offered significant assistance to Western in
operating its business. Western specifically acknowledges that the relationship
between Seller and Western is not a franchise or franchisor/franchisee
relationship.
Section 1.064 Results of Operations.
---------------------
Western understands that the past results of Seller's operations may not be
indicative of results that Western might obtain from its own operations as an
independent dealer of Seller in the state(s) in which the Retail Operations are
located and acknowledges that Seller has made no promises, warranties and/or
guarantees to Buyers concerning possible future sales volume, gross profits, net
income, profits or losses that might be realized from the purchase of the
Purchased Assets and the Real Property and operation as an independent Case
dealer.
Section 1.065 Distribution System.
-------------------
Buyers are completely aware of, agree to and accept Seller's distribution
system and the assignment of areas of responsibility for other authorized
dealers of Seller.
20
<PAGE>
ARTICLE 7.
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
Section 1.071 Taxes.
-----
The agreement of the parties with respect to tax matters is set forth in
Exhibit N.
Section 1.072 Public Announcements.
--------------------
Each party will consult with each other before either of them or any of
their respective Affiliates issues any press releases or otherwise makes any
public statements with respect to this Agreement and the transactions
contemplated hereby, and neither of them nor any such Affiliate shall issue any
such press release or make any such public statement prior to such consultation
except, in each case, as may be required by law or by obligations pursuant to
any listing agreement with any securities exchange on which any of its or their
securities may be listed.
Section 1.073 Further Assurances.
------------------
Each party will use reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable to carry out all of its respective obligations under this Agreement
and to consummate and make effective the purchase and sale of the Purchased
Assets and the Real Property pursuant to this Agreement. Each party shall, and
shall cause its 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 Buyers and their successors or permitted
assigns, all of the properties, rights, titles, interests, estates, remedies,
powers and privileges intended to be conveyed to Buyers pursuant to this
Agreement and more fully to assure to Seller and its Affiliates and their
successors and assigns the assumption of the liabilities and obligations
intended to be assumed by Buyers pursuant to this Agreement, respectively.
Buyers shall execute and deliver to Secured Parties such other documentation,
including, but not limited to, all necessary Uniform Commercial Code financing
statements and such other documentation (including without limitation lists of
secured creditors) as may be reasonably required by Secured Parties to complete,
perfect or continue the security interest granted pursuant to this Agreement to
secure the payment for the Purchased Assets and the Real Property.
Section 1.074 Nonassignable Contracts.
-----------------------
(a) To the extent any lease, contract, right 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
21
<PAGE>
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, sublease or
sublicense thereof, or an attempted assignment, transfer, sublease or
sublicense of any such lease, contract, right or commitment.
(b) Anything in this Agreement to the contrary notwithstanding, Seller is
not obligated to transfer to Western any of its rights and obligations
in and to any such contract, lease, right or commitment 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 Western shall cooperate with Seller, to obtain the
consents and waivers referred to in Section 7.04(a).
(c) To the extent that such consents and waivers are not obtained by
Seller, Seller shall use all reasonable efforts to establish
alternative arrangements that are reasonable and lawful as to both
Seller and Western and that provide the benefits, risks and burdens of
the relevant contract, lease, right or commitment for the remaining
term.
Section 1.075 Preservation of Records.
-----------------------
Except for tax Records, Western shall preserve and keep (or cause to be
preserved and kept) the books and records conveyed pursuant to this Agreement,
and Seller shall preserve and keep (or cause to be preserved and kept) such
books and records as it or any of its Affiliates shall retain with respect to
the Purchased Assets, for a period of seven years after the Closing Date, and
Western and Seller shall each grant to the other reasonable access to such books
and records retained by them during such period. In the event either Western or
Seller wishes to destroy such records after such period, 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 180 days after the date of its notice requesting the same. The
agreement between Western and Seller with respect to tax Records is set forth in
Exhibit N.
Section 1.076 Environmental Matters.
---------------------
(a) Buyers acknowledge receipt of copies of certain Environmental Site
Assessments dated January, 1997 and updated on December 3, 1997,
prepared by RMT, Inc., which assessments relate to environmental
matters associated with the Retail Operations (the "Environmental
22
<PAGE>
Reports"). Seller shall promptly, at its sole cost and expense,
perform, or cause to be performed, the remedial action described in
the "Summary of Recommendations" section of the Environmental Reports.
Such remedial action shall be performed in such a manner so that the
conditions being addressed by such remedial action will not materially
violate any applicable Environmental Laws.
(b) Buyers shall provide Seller and its agents and representatives
access to the Retail Operations and Real Property for purposes of
performing the remedial action described in Section 7.06(a).
(c) After such remedial work has been performed, Buyers agree to
accept the Retail Operations and the Real Property "AS IS, WHERE IS".
Seller shall have no further liability with respect to environmental
matters, except as may arise from the breach of its representations
and warranties contained in Section 4.08.
Section 1.077 Bulk Sales.
----------
Each party hereby waives compliance with the applicable provisions of the
Uniform Commercial Code, Article 6 (Bulk Sales or Bulk Transfers), as adopted in
the state(s) in which the Retail Operations are located as such provisions may
apply to the transactions contemplated by this Agreement.
Section 1.078 Risk of Loss.
------------
Buyers assume all risk of loss from all causes with respect to the Real
Property and Purchased Assets from and after the Closing.
Section 1.079 Case Parts Return and Case Parts Reorder.
----------------------------------------
(a) Western shall have a onetime right to return those Case Parts
purchased hereunder that are eligible for return under Seller's "Parts
Inventory Transfer" policy at the price originally paid by Western for
such Case Parts. Western shall receive a credit for the Case Parts
returned under this Section 7.09. Such credit shall be applied pro
rata first to the payments remaining under the promissory note
relating to Case Parts, then to any other indebtedness due hereunder
in respect of promissory notes of Western relating to Purchased Assets
purchased on the Closing Date other than New Case Equipment purchased
pursuant to Section 2.01(a).
(b) Seller also hereby agrees to permit Western to place an order for Case
parts for purposes of allowing Western to restock its Case parts
23
<PAGE>
inventory. The terms for Case parts so ordered shall be in accordance
with Seller's "New Dealer Initial Parts Order" policy.
Section 7.10 Certain Personnel Matters.
-------------------------
(c) 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, except for Seller's obligations for commissions to employees
of the Retail Operations, which shall be borne and paid for by Seller
through and including the Cutoff Date. Compensation of and any bonuses
for all employees hired by Western for all periods of employment
subsequent to the Closing Date shall be borne and paid for by Western.
All vacation, sick day and holiday pay of all employees of the Retail
Operations that have accrued or were earned prior to the Closing Date
shall be the sole responsibility of Seller and shall be paid in full
prior to the Closing Date or accrued on the books of Seller and
remitted to the employee at the time of his or her vacation or
holiday.
(d) Seller shall be solely liable and responsible for obligations under
any and 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, that have accrued through and including the Cutoff Date.
Western shall be solely liable and responsible for such obligations
from the Cutoff Date through the Closing Date, but shall not be
obligated to assume or adopt such obligations after the Closing Date.
Section 7.11 Liens; Encumbrances.
-------------------
So long as Western or LLC are indebted to Secured Parties pursuant to this
Agreement, neither Western nor LLC shall create, assume or permit to exist any
Lien in favor of any Person that is superior in priority to the security
interest of Secured Parties upon any of the Purchased Assets or the Real
Property without the prior written consent of Seller; provided, that Western may
permit to exist Liens in favor of one or more Persons that are superior in
priority to the security interest of Secured Parties upon Vehicles, and Manuals
(collectively, the "Permitted Liens").
Section 7.12 Business Cutoff.
---------------
Commencing as of the day following the Cutoff Date (i) all sales of new,
used and allied machinery and attachments, parts and service shall be deemed to
have been conducted for the account of Western and (ii) all obligations for the
following shall be
24
<PAGE>
deemed to have been for the account of Western: sales commissions, travel and
entertainment expenses, purchases of allied parts, allied machinery and
attachments and shop and office supplies, shipping costs and costs of outside
labor and materials incurred in connection with the Retail Operations.
Section 7.13 Conduct of Business Pending the Closing.
---------------------------------------
From the date hereof until the Closing, Seller covenants as follows:
(e) Seller will carry on the Retail Operations diligently and, except as
required in connection with the Closing, in the same manner as
heretofore, and
(f) Seller shall use and operate all property of Seller in connection with
the Retail Operations in a normal business manner.
ARTICLE 8.
CONDITIONS PRECEDENT TO BUYERS' OBLIGATIONS
-------------------------------------------
[Intentionally Left Blank]
ARTICLE 9.
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
--------------------------------------------
[Intentionally Left Blank]
ARTICLE 10.
TERMINATION
-----------
[Intentionally Left Blank]
ARTICLE 11.
INDEMNIFICATION AND LIMITATIONS ON LIABILITY
--------------------------------------------
Section 1.111 Definitions.
-----------
As used in this Article XI, the following terms shall have the meanings set
forth below:
25
<PAGE>
(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 11.05 hereof, any
legal or other expenses reasonably incurred in connection with
investigating or defending any Third-Party Claims, whether or not
resulting in any liability, and all amounts paid in respect of claims
or actions in accordance with Section 11.05 hereof; 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, further, however, that nothing in this Article XI
shall require an Indemnitee to proceed against its insurance carrier.
(b) Third-Party Claims. The term "Third-Party Claims" shall mean any
claims, actions or rights asserted against an Indemnitee by a party
that 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 that may be
entitled to seek indemnification pursuant to the provisions of Section
11.02 or Section 11.03 hereof.
(d) Indemnitor. The term "Indemnitor" shall mean any Person that may be
obligated to provide indemnification pursuant to Section 11.02 or
Section 11.03 hereof.
(e) Specified Officer. With respect to any particular matter, the term
"Specified Officer", as applied to any corporation, shall mean the
chairman, president, general counsel, any vice president, or secretary
of such corporation, or the manager of any plant or other facility of
such corporation, or any other employee or agent of such corporation
(who may report, directly or indirectly, to such person) having
responsibility for an operational or staff function who in the normal
course of such officer's, manager's or other person's responsibility
would reasonably be expected to have knowledge of such matter.
(f) Notice Period--Third-Party Claims. The term "Notice Period", as
applied to any Third-Party Claim for which an Indemnitee seeks to be
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indemnified pursuant to this Article XI, shall mean the period ending
the earlier of the following:
(1) Three months after the time at which any Specified Officer of the
Indemnitee (or the Indemnitee, if the Indemnitee is an
individual) has received actual notice of such Third-Party Claim.
(2) With respect to any Third-Party Claim that has become the subject
of proceedings before any court or tribunal, such time as would
allow the Indemnitor sufficient time to contest, on the
assumption that there is an arguable defense to such Third-Party
Claim, such proceeding prior to any judgment or decision thereon.
(3) With respect to any Third-Party Claim that the Indemnitee
proposes to pay or settle, such time as would provide the
Indemnitor sufficient time prior to such payment or settlement to
determine whether to contest such claim and assume the defense
pursuant to Section 11.05.
(4) The time period under which a Claim Notice must be given as set
forth in Section 11.10.
(g) Claim Notice. The term "Claim Notice" shall have the meaning set forth
in Section 11.04.
Section 1.112 Indemnity by Seller.
-------------------
Subject to Section 11.10, Seller shall, to the fullest extent permitted by
law, defend and hold harmless Buyers and their Affiliates, including the
directors, officers, employees, agents and representatives of each of them (each
of whom may be an Indemnitee pursuant to this Section 11.02), from and against
the following:
(a) Bulk Sales or Transfers 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 failure to comply with the requirements
of any Bulk Sales or Transfers or similar legislation applicable to
the transaction provided for in this Agreement.
(b) Breach. All Losses arising from the breach by Seller in any material
respect of any of its covenants or representations set forth in this
Agreement other than those set forth in Exhibit N.
27
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(c) Liabilities. Other than Losses pertaining to Environmental Loss
(specifically sections 4.08, 7.06 and 11.10(a)) all Losses relating to
the ownership or operation of the Retail Operations prior to the
Closing Date.
Section 1.113 Indemnity by Buyer.
------------------
Buyers 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 11.03), from and against the
following:
(a) Liabilities. All Losses (other than Losses for which Seller is
obligated to indemnify Buyers pursuant to Section 11.02) relating to
or arising from the ownership, operation, occupancy, construction,
condition (including without limitation environmental conditions) or
use of the Purchased Assets or the Real Property or operation of a
dealership, 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 or gross negligence of Seller or any of its
Affiliates or otherwise.
(b) Breach. All Losses arising from the breach by Buyers in any material
respect of any of their covenants or representations set forth in this
Agreement other than those set forth in Exhibit N.
Section 1.114 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 XI.
Section 1.115 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 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
28
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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
after receipt of such notice. Failure to reject such settlement within such
30-day period shall be deemed an acceptance of such settlement. In the event the
Indemnitor rejects such settlement, the Indemnitee shall have the right to
settle the claim over the objection of the Indemnitor, unless the Indemnitor
assumes the defense from the Indemnitee upon rejecting the settlement.
Section 1.116 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 of such claim, specifying the
nature of and specific basis for such claim and the amount of such claim, with
reasonable promptness, but in no event later than when notice thereof is
required to be made pursuant to Section 11.10. 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.
Section 1.117 Access and Cooperation.
----------------------
After the Closing Date, Seller and Buyers 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 and Buyers also shall
each make available to the other, as reasonably requested, its personnel
(including 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.
Section 1.118 No Insurance.
------------
The indemnifications provided for in this Article XI shall not be construed
as a form of insurance and shall be binding upon and inure to the benefit of
Seller and Buyers and their respective Affiliates, successors and permitted
assigns. Seller and Buyers hereby waive for themselves, their Affiliates,
successors and permitted assigns, including without limitation any insurers, any
rights to subrogation for Losses arising from claims for which each of
29
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them is respectively liable or against which each respectively indemnifies the
other, and, if necessary, Seller and Buyers shall obtain waiver of such
subrogation from their respective insurers.
Section 1.119 Indemnification Matters Related to Taxes.
----------------------------------------
Notwithstanding any other provisions of Article XI to the contrary, the
agreement of the parties with respect to tax matters, the representations and
warranties of the parties with respect to tax matters, and indemnification
obligations, limitations and procedures related to Taxes (as defined in Exhibit
N) shall be governed by and are set forth in Exhibit N.
Section 11.10 Limitations on Liabilities.
--------------------------
(a) Limitation on Liability.
(1) No claim for indemnification under Section 11.02 (the
"Indemnifiable Claims") shall be made by either of the Buyers for
individual Losses of $15,000 or less (an Indemnifiable Claim in
excess of $15,000 is referred to as an "Indemnifiable Loss").
(2) No Indemnifiable Claim shall be made by either of the Buyers
unless and until the Indemnifiable Losses for which Buyers are
entitled to indemnification hereunder exceed $100,000 in the
aggregate, and thereafter may be made only to the extent the
Indemnifiable Losses exceed such amount in the aggregate.
(3) Seller's obligations for any claim relating to any Environmental
Law, Hazardous Materials or other environmental matter shall
arise only under Section 11.02(b) for breaches of (A) the
representations and warranties contained in Section 4.08 or (B)
Seller's obligations under Section 7.06.
(4) The Seller shall have no obligation for Losses with respect to
claims relating to any Environmental Law, Hazardous Materials or
other environmental matters (A) to the extent they exceed the
amount that would be expended with respect thereto by a
reasonable and prudent owner and operator for its own account
under the same or similar circumstances, or (B) that are
attributable to any change in land use unrelated to the Retail
Operations as currently conducted by Seller, which use is subject
to more stringent investigation, monitoring, remediation or
cleanup requirements under any Environmental Law.
30
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(5) Seller shall have no liability for any Indemnifiable Loss, and
Buyers shall have no liability for any claim for indemnification
under Section 11.03, unless a Claim Notice or other notice has
been delivered to the other as required by Section 11.04 or
Section 11.06. In addition, and anything herein to the contrary
notwithstanding, Seller shall have no liability for any
Indemnifiable Loss, and Buyers shall have no liability for any
claim for indemnification under Section 11.03, for any breaches
of covenants hereunder, unless a Claim Notice or other notice has
been delivered to the other within one year after performance of
the covenant giving rise to such Indemnifiable Loss or claim for
indemnification, as the case may be, is required under this
Agreement. In addition, and anything herein to the contrary
notwithstanding, Seller shall have no liability for any
Indemnifiable Loss for any breaches of representations hereunder
unless a Claim Notice or other notice has been delivered to it
within the period that the representation giving rise to such
Indemnifiable Loss survives as set forth in Section 12.02.
(b) No Incidental or Consequential Damages. Neither Buyers nor Seller
shall be entitled to recover from the other for any Losses any amount
in excess of the actual damages suffered by such party. Buyers and
Seller waive any right to recover punitive, special, exemplary,
incidental and consequential damages.
(c) Maximum Liability. Neither Seller nor any of its Affiliates shall be
liable for aggregate Losses (i) in excess of the Purchase Price, or
(ii) for any Losses pertaining to the Real Property arising from its
obligations under Sections 4.08 and 7.06 in excess of $450,000.
(d) Exclusive Remedy. Seller and Buyers each hereby acknowledges and
agrees that its sole and exclusive remedy with respect to any and all
claims relating to the representations, warranties, covenants and
agreements contained in this Agreement or other claims pursuant to or
in connection with this Agreement shall be pursuant to the
indemnification provisions set forth in this Article XI or, with
respect to tax matters set forth in Exhibit N, pursuant to Exhibit N,
and, in furtherance of the foregoing, Seller and Buyers each hereby
waives, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action it may have against the other
arising under or based upon any federal, state or local statute, law,
ordinance, rule or regulation (including, without limitation, any such
rights, claims or
31
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causes of action arising under or based upon common law or otherwise).
(e) No Rescission. Anything herein to the contrary notwithstanding, no
breach of any representation, warranty, covenant or agreement
contained herein shall give rise to any right on the part of Buyers or
Seller, as the case may be, after the consummation of the purchase and
sale contemplated hereby, to rescind this Agreement or any of the
transactions contemplated hereby.
(f) Mitigation. Buyers and Seller shall take all reasonable steps to
mitigate all Losses upon and after becoming aware of any event that
could reasonably be expected to give rise to any Losses that are
indemnifiable hereunder.
ARTICLE 12.
EXTENT AND SURVIVAL OF REPRESENTATIONS,
---------------------------------------
WARRANTIES, COVENANTS AND AGREEMENTS
------------------------------------
Section 1.121 Scope of Representations.
------------------------
Except as and to the extent expressly set forth in this Agreement, Seller
disclaims all liability and responsibility for any other representation,
warranty, statement or information made or communicated (orally or in writing)
to Buyers (including, but not limited to, any opinion, information or advice
that may have been provided to Buyers by any officer, stockholder, director,
employee, agent, consultant or representative of Seller or any of its
Affiliates, including Seller, or any other agent, consultant or representative).
Buyers acknowledge and affirm that (i) they have had access to the officers,
professional advisors, employees, assets and operations of Seller; and (ii) in
making the decision to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyers have relied solely on the basis of
their own independent investigation of the Purchased Assets, the Real Property
and the Retail Operations and on the express representations, warranties and
covenants in this Agreement. Buyers also acknowledge that neither Seller nor any
of its agents, consultants or representatives makes any warranties, express or
implied, with respect to the quality, design, physical condition or fitness for
a particular purpose of any of the property, equipment and fixtures included in
the Purchased Assets, the Real Property or the Retail Operations and that all
such property, equipment and fixtures are being transferred to the Buyers "AS
IS" AND "WITH ALL FAULTS" IN THE CONDITION EXISTING ON THE CLOSING DATE, EXCEPT
FOR (i) REPRESENTATIONS AND WARRANTIES MADE BY SELLER REGARDING TITLE AND
OWNERSHIP OF THE PURCHASED ASSETS OR THE REAL PROPERTY IN THIS AGREEMENT AND
(ii) THOSE WARRANTIES SET FORTH IN SELLER'S CURRENTLY APPLICABLE PUBLISHED
WARRANTY POLICIES AND PROCEDURES, AND SELLER EXPRESSLY DISCLAIMS
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AND NEGATES TO BUYERS AND ALL THIRD PARTIES ANY AND ALL WARRANTIES CONCERNING
THE CONDITION OF THE PURCHASED ASSETS OR THE REAL PROPERTY, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION (A) ANY IMPLIED OR EXPRESS WARRANTY OF QUALITY,
CONDITION OR MERCHANTABILITY, AND (B) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
Section 1.122 Survival.
--------
The representations and warranties of Seller set forth in this Agreement
and in any certificate or instrument delivered in connection herewith shall
survive for a period of one year following the Closing Date.
ARTICLE 13.
BROKERS
-------
Each of the Buyers and Seller represent to the other that, neither of the
Buyers nor Seller has, directly or indirectly, employed any broker, finder or
intermediary in connection with this Agreement or the transactions contemplated
hereby who might be entitled to a fee or commission upon the execution of this
Agreement or consummation of the transactions contemplated hereby.
ARTICLE 14.
EXPENSES
--------
Except as otherwise specifically provided herein, each party will bear all
legal and other costs and expenses incurred by it.
ARTICLE 15.
NOTICES; MISCELLANEOUS
----------------------
Section 1.151 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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(a) To Seller, as follows:
By Mail By Hand Delivery
- ------- ----------------
Case Corporation Case Corporation
700 State Street 700 State Street
Racine, WI 53404 Racine, WI 53404
Attn: Jon Carlson Attn: Jon Carlson
Facsimile: (414) 636-6826 Facsimile: (414) 636-6826
with a copy to: with a copy to:
Case Law Department Case Law Department
700 State Street 700 State Street
Racine, WI 53404 Racine, WI 53404
Attn: Clement L. Budny, Jr. Attn: Clement L. Budny, Jr.
Facsimile: (414) 636-6826 Facsimile: (414) 636-6826
(b) 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: President Attn: President
Facsimile: (360) 253-4830 Facsimile: (360) 253-4830
(c) To LLC, as follows:
By Mail By Hand Delivery
- ------- ----------------
C. Dean McLain C. Dean McLain
38207 N.E. Gerber Road 38207 N.E. Gerber Road
Yacolt, WA 98675 Yacolt, WA 98675
Facsimile: (360) 247-6751 Facsimile: (360) 247-6751
Section 1.152 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.
34
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(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to
the principles of conflicts of laws of such state.
(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. Buyers may not transfer, assign or encumber any of
their rights, duties or obligations under this Agreement or any part
hereof without the prior written consent of Seller. Seller may, at any
time, transfer, assign or encumber any of its rights, duties or
obligations under this Agreement, without the consent of Buyers.
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 otherwise expressly provided
herein, nothing in this Agreement shall entitle any Person (other than
Seller, Buyers 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 that is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability,
but this shall not affect the validity or enforceability of any of the
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. 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.
35
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
CASE CORPORATION ("Seller")
By /s/ ROBERT E. BOWERS
--------------------
Name: Robert E. Bowers
Title: Authorized Agent
WESTERN POWER & EQUIPMENT CORP.
("Buyer")
By /s/ C. DEAN McLAIN
------------------
Name: C. Dean McLain
Title: President and CEO
McLAIN-RUBIN REALTY COMPANY III,
L.L.C.
("Buyer")
By /s/ C. DEAN McLAIN
------------------
C. Dean McLain, Manager
36
<PAGE>
(Exhibits omitted)
37
EXHIBIT 10.12
COMMERCIAL LEASE
Dated: as of December 11, 1997
Between: McLAIN-RUBIN REALTY COMPANY III, L.L.C.,
a Delaware limited liability company ("Landlord")
38207 Northeast Gerber Road
Yacolt, WA 98675
And: WESTERN POWER & EQUIPMENT CORP., an
Oregon corporation ("Western Power" or "Tenant")
4601 N.E. 77th Avenue
Vancouver, Washington 98662
Subject to the terms and conditions of this Lease, Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, the real property described
on Exhibit A hereto (which by this reference is made a part hereof), together
with all improvements now and hereafter situated on said land (said land,
together with such improvements, being hereinafter referred to as the
"Premises"). The Premises are located at 3199 East Onstott Road, Yuba City,
California.
The parties hereto, for themselves, their heirs, administrators, executors,
successors and assigns, hereby covenant and agree as follows:
Section 1. Occupancy.
1.1 Term. The term of this Lease (hereinafter referred to as the "Term")
shall commence on the date (the "Commencement Date") on which Landlord acquires
fee title to the Premises, and continue through, and expire on, December 31,
2017 (the "Expiration Date"), unless sooner terminated as hereinafter provided.
1.2 Possession. Tenant's right to possession of the Premises, and its
obligations under this Lease, shall commence on the Commencement Date. If the
Commencement Date does not fall on the first day of the month, Rent (as
hereinafter defined) for the first month under this Lease shall be prorated
accordingly, and shall be due on the Commencement Date.
Commercial Lease - 1
<PAGE>
Section 2. Rent.
2.1 Base Rent. Tenant covenants and agrees to pay to Landlord an annual
base rent (the "Base Rent"), in equal monthly installments, 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 Term of this Lease, as follows:
(a) For the period commencing on the Commencement Date and ending on
December 31, 2002, both dates inclusive, $54,000.00 per year ($4,500.00 per
month);
(b) For the period commencing on January 1, 2003 and ending on
December 31, 2007, both dates inclusive, $59,400.00 per year ($4,950.00 per
month);
(c) For the period commencing on January 1, 2008 and ending on
December 31, 2012, both dates inclusive, $66,000.00 per year ($5,500.00 per
month); and
(d) For the period commencing on January 1, 2013 and continuing
thereafter throughout the remainder of the Term, $76,800.00 per year ($6,400.00
per month).
2.2 Additional Rent. All taxes, insurance costs, utility charges,
maintenance costs, repair charges and other sums that Tenant is required to pay
pursuant to this Lease to Landlord or third parties, shall be "additional rent."
For the purposes of this Lease, Base Rent and additional rent are sometimes
collectively referred to as "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 incidental office use, and for any other lawful purpose, subject
to the applicable provisions of this Lease.
3.2 Restrictions on Use. In connection with the use of the Premises, Tenant
shall:
(a) Comply with all applicable laws and regulations of any public
authority having jurisdiction over the Premises and the use thereof, and
correct, at Tenant's own expense, any failure of compliance created through
Tenant's fault or by reason of Tenant's use;
(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
Commercial Lease - 2
<PAGE>
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 reasonably selected
by Landlord; and
(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 or delayed.
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, which approval shall not be
unreasonably withheld or delayed. 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 laws, 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, sublessees 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 use or
otherwise handle on the Premises only those Hazardous Substances (hereinafter
referred to as "Ordinary 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
Commercial Lease - 3
<PAGE>
Landlord harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities, or losses which arise during or after the 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 Term as a
result of contamination by Hazardous Substances that exist on or before the date
of this Lease or 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 (other than Ordinary Hazardous Substances);
(2) a release, discharge or emission of a Hazardous Substance has
occurred on or about the Premises;
(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.
Commercial Lease - 4
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(1) If during the Term 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) Phase I Report. Within thirty (30) days prior to after the
expiration or sooner termination of the Term, Tenant, at its expense, shall
cause a so-called "Phase I" environmental inspection to be performed and a
report in respect thereof to be prepared and delivered to both Landlord and
Tenant to determine whether any Cleanup Activity is required, Landlord and
Tenant agreeing that the responsibility for the Cleanup Activity shall be
determined by the preceding provisions of this Section.
(h) Survival. The parties obligations under this Section 3.4 shall
survive the expiration or earlier termination of this Lease.
Section 4. Repairs and Maintenance.
4.1 Tenant's Obligations. Tenant shall repair and maintain the entire
Premises to the extent necessary to preserve the Premises in good working order
and condition, including but not limited to providing regularly scheduled
maintenance and replacement (if necessary) of the heating and air conditioning
system, and making structural repairs. Tenant's repair obligation shall include,
but not be limited to, the repair of any damage to exterior building siding and
internal walls of the Premises caused by moving furniture, fixtures and
equipment in and out of the Premises.
4.2 Repairs to Comply with Laws. All repairs, alterations and other
improvements on or to the Premises that are required by any governmental
authority having jurisdiction over the Premises or the use thereof shall be
performed by Tenant at its sole cost and expense.
4.3 Reimbursement for Repairs Assumed. If Tenant fails or refuses to make
the
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repairs that are required by this Section in a timely manner, Landlord may (but
shall not be obligated to) make the repairs and charge the actual costs of
repairs to Tenant. Such expenditures by Landlord shall be charged to Tenant as
additional rent and shall be reimbursed by Tenant within ten (10) days after
Landlord's demand therefor. Except in an emergency creating an immediate risk of
personal injury or property damage, Landlord may not perform repairs which are
the obligation of Tenant and charge Tenant for the resulting expense, unless at
least ten (10) days before work is commenced Tenant is given notice in writing
outlining with reasonable particularity the repairs required, and Tenant fails
within that time to initiate such repairs in good faith.
4.4 Inspection of Premises. Landlord shall have the right to inspect the
Premises at any reasonable time or times, and upon reasonable prior (written or
oral) notice, to determine the necessity of repair.
Section 5. Alterations.
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 or delayed. 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,
within fifteen (15) days after Landlord's demand therefor, at Tenant's expense,
either cause such lien to be removed from the record or furnish a bond in form
and amount and issued by a surety reasonably satisfactory to Landlord,
indemnifying the Landlord 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 Tenant during the Term, 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 requires.
Section 6. Insurance; Indemnification; Subrogation.
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6.1 Liability Insurance. Tenant shall procure, and thereafter maintain
during the Term, 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, $2,000,000 for injury to two
or more persons in one 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.
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 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 (Landlord and Tenant agreeing that the preceding clause shall not
apply, however, to any damages causes by
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intentionally wrongful actions or omissions of such party); 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 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
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services and utilities incurred in connection with the use, occupancy,
operation, and maintenance of the Premises, including, but not limited to,
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, Tenant shall immediately proceed to restore the
Premises using the proceeds of insurance carried pursuant to Section 6 of this
Lease and any insurance proceeds available from Landlord's insurance.
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 or delayed.
8.2 Damage or Destruction Late in Term. If within two 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 destruction or
damage, Tenant may elect to terminate this 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 destruction or 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 what would have otherwise been the unexpired 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
other matters beyond Tenant's reasonable control.
8.3 Rent Abatement. To the extent that the Premises are rendered
untenantable as a result of a fire or other casualty, the Rent shall not be
abated or reduced in any way.
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
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, this Lease shall continue on the following terms:
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(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 Date.
(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 Base 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 Base 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, this 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.
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 Interest Rate (as hereinafter defined) 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 Tenant's default. For the purposes of this Lease "Interest Rate"
shall mean two (2%) percent per annum over the then prime rate of interest
established by Citibank, N.A. (or any successor thereto), adjusted daily, but in
no event in excess of the maximum lawful rate of interest permitted by
applicable law.
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 interest in
the Premises will not
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be foreclosed for nonpayment. 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
reasonably 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, except for
the encumbrances (the "Permitted Encumbrances") set forth on Exhibit B hereto
(which by this reference is made a part hereof) and except as expressly set
forth in Section 11.2 below. Landlord will defend Tenant's right to quiet
enjoyment of the Premises from the lawful claims of all persons during the Term.
Tenant hereby acknowledges and agrees that this Lease, and the leasehold estate
created hereby, are subject and subordinate to all of the Permitted
Encumbrances.
11.2 Mortgage Priority. This lease is and shall be prior to all mortgages
or deeds of trust (collectively, "Fee Mortgages") recorded after the date of
this lease and affecting Landlord's interest in the Premises. However, if any
lender holding a Fee Mortgage requires that this Lease be subordinate to the Fee
Mortgage in question, then Tenant agrees that this Lease shall be subordinate to
such Fee Mortgage 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 such Fee
Mortgage, or other steps or procedures taken under such Fee Mortgage 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 such Fee Mortgage to accomplish the purposes of this paragraph. If
the Premises are sold as a result of foreclosure of any Fee Mortgage 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
Base Rent and any other Rent payments have been 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 this 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
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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 or delayed.
(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
this 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 or sublease.
(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, limited
liability company or other business entity where Tenant or any affiliate of
Tenant is the managing or general partner, manager or the equivalent, as the
case may be, or in connection with a merger, acquisition, reorganization or
consolidation of Tenant, or in connection with the sale or transfer of all or
substantially all of Tenant's (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 fifty percent (50%) 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,
partnership, limited liability company or other business entity.
Section 13. Default. The following shall be events of default:
13.1 Default in Rent. Failure of Tenant to pay any installment of Rent
within ten
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(10) days after written notice by Landlord specifying the nature of the default
with reasonable particularity.
13.2 Default in other covenants. Failure of Tenant to comply with any other
term or condition or fulfill any other obligation of this Lease 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, an event of default shall not have
occurred 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; or the filing of any involuntary petition
of bankruptcy and failure of Tenant to secure a dismissal of the petition within
90 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 this 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 this 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.
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 this 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
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Lease, either party shall have all rights and remedies available to them under
law or equity in the State of California and/or Yuba City.
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 Interest
Rate 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 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. Improvements and
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 improvement or alteration so require.
15.2 Fixtures.
(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 walls and
overhead bridge cranes and hoists attached to the shop ceiling or otherwise
attached to the walls or floors of the shop area), and those additional trade
fixtures placed on the Premises during the Term. 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 Interest Rate from the date of
expenditure.
(b) Prior to expiration or other termination of the Term, Tenant shall
remove all furnishings, furniture, and trade fixtures that remain its property
and repair any damage to the Premises caused by such removal. 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 Interest Rate
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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 $15,000.00 per month, 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.
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 to 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. Except as otherwise expressly permitted in this Lease, all
notices, demands, approvals, consents, requests and other communications which
under the terms of this Lease, or under any statute, must or may be given or
made by the parties hereto, must be in writing, and must be made either (i) by
depositing such notice in registered or certified mail of the United States of
America, return receipt requested, or (ii) by delivering such notice by a
commercial courier, which courier provides for delivery with receipt guaranteed,
addressed to each party at the addresses set forth on the first page of this
Lease. All notices, demands, approvals, consents, requests and other
communications shall be deemed to have been delivered (i) if mailed as provided
for in this Paragraph, on the date which is three (3) business days after
mailing or (ii) if sent by commercial courier, on the date which is one (1)
business day after dispatching. Either party may designate by notice in writing
given in the manner herein specified a new or other address to which such
notice, demand, approval, consent, request and other communication shall
thereafter be so given or made. Notwithstanding the foregoing all Rent
statements, bills and invoices may be given by regular mail.
Commercial Lease - 15
<PAGE>
16.4 Exculpation. Tenant shall look solely to the estate and property of
Landlord in the Premises (including Landlord's rights to the rents, profits,
insurance proceeds and condemnation awards related thereto), for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and
conditions of this Lease to be observed and/or performed by Landlord, and no
other property or assets of Landlord (or of any direct or indirect, disclosed or
undisclosed, partner, member, shareholder, officer, director, employee or
principal in or of Landlord) shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder, or
Tenant's use and occupancy of the Premises.
16.5 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, heirs, executors and
administrators.
16.6 Recordation. Landlord shall execute and acknowledge a memorandum of
this lease in a form suitable for recording, and Tenant may record the
memorandum.
16.7 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 repairs to the Premises which it expressly has the right to
make under this Lease, 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.
16.8 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 Interest Rate 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 shall 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 default, and collection
of a late charge shall not waive the breach caused by the late payment.
16.9 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.
16.10 Time of Essence. Time is of the essence of the performance of each of
Tenant's and Landlord's obligations under this Lease.
Commercial Lease - 16
<PAGE>
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
the American Arbitration Association in Portland, Oregon ("AAA") for final and
binding arbitration pursuant to AAA's 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
AAA. The arbitrator shall conduct an arbitration hearing within ninety (90) days
after the arbitration demand is received by the AAA. 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.
17.4 If AAA 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 as of the day and year first herein written.
Landlord: McLAIN-RUBIN REALTY COMPANY III, L.L.C.,
a Delaware limited liability company
/s/ C. DEAN McLAIN
By: C. Dean McLain
--------------
Its: Manager
-------
Tenant: WESTERN POWER & EQUIPMENT CORP.,
an Oregon corporation
/s/ MARK J. WRIGHT
By: Mark J. Wright
--------------
Its: Vice President of Finance
and Chief Financial Officer
---------------------------
Commercial Lease - 17
<PAGE>
STATE OF WASHINGTON )
) ss.
County of Clark )
I certify that I know or have satisfactory evidence that C. Dean McLain 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 Manager of McLain-Rubin
Realty Company III, L.L.C., a Delaware limited liability company, to be the free
and voluntary act of such company for the uses and purposes mentioned in the
instrument.
Dated this 7th day of May, 1998.
----------------------------------------
(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 Clark )
I certify that I know or have satisfactory evidence that Mark J. Wright 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 Vice President of Finance and
Chief Financial Officer of Western Power & Equipment Corp., an Oregon
corporation, to be the free and voluntary act of such company for the uses and
purposes mentioned in the instrument.
Dated this 7th day of May, 1998.
----------------------------------------
(Signature of Notary)
----------------------------------------
Commercial Lease - 18
<PAGE>
(Legibly print or Stamp Name of Notary)
Notary Public in and for the state of
Washington, residing at ________________
My Appointment Expires _________________
Commercial Lease - 19
<PAGE>
EXHIBIT A
Description of Real Property
----------------------------
Parcels 1 and 2, as shown on that certain map entitled, "Parcel Map
No. 690", filed in the office of the County Recorder of the County of
Sutter, State of California, on September 21, 1993 in Book 4 of Parcel
Maps, page 40.
AP#10-260-065
AP#10-260-066
Commonly known as 3199 East Onstott Road, Yuba City, California.
Commercial Lease - 20
<PAGE>
EXHIBIT B
Permitted Encumbrances
----------------------
Commercial Lease - 21
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
BETWEEN: Western Power & Equipment Corp.
an Oregon corporation
AND: Charles Dean McLain
EFFECTIVE DATE: January 1, 1998
RECITALS
The Company is an Oregon corporation engaged in the construction and
agricultural equipment industry.
Employee is currently employed as the Company's President and Chief
Executive Officer.
The Company desires to continue employing Employee and Employee wishes to
continue employment on the following terms and conditions.
This employment agreement supersedes all previous employment contracts
between the parties.
AGREEMENT
1. Employment Term: The term of employment under this agreement shall begin
January 1, 1998 and continue until December 31, 2007 unless earlier
terminated as provided below.
2. Employment Duties: During the term of this agreement Employee will, to the
best Employee's ability.
2.1. Capacity: Serve as the Company's full-time President and Chief
Executive officer and devote Employee's full and entire business time,
attention, knowledge and skills to faithfully, diligently, and to the
best of the Employees abilities, perform all duties required of the
Employee by the Company. For purposes of this paragraph, the Company
shall include any direct or indirect subsidiaries of the Company.
2.2. Duties: Employee shall render services customarily performed in the
capacity of President and Chief Executive Officer of a corporation
including, but not limited to, management and responsibility of
general
<PAGE>
policies and planning for the Company, financial planning,
acquisitions, new product development, strategic planning, opening of
additional outlets, and product line expansion. Employee's duties
shall be directed by, and all times be subject to the discretion of,
the Company's Board of Directors.
2.3. Member of the Board of Directors: Throughout the period of his
employment hereunder, the Employee shall have the right (but not the
obligation), if elected by the requisite majority of the
stockholder(s) to serve, without any further or additional
compensation or remuneration (other than as set forth herein), as
member of the Board of Directors of the Company or any subsidiary of
the Company.
3. Base Compensation:
3.1. Base Compensation: Company shall pay Employee a base salary of
$280,000 per year until July 31, 1998. Starting August 1, 1998 through
December 31, 1998 the Base Salary would be increased to $290,000 per
year. On each January 1 beginning January 1, 1999, Employee's base
salary shall increase by the average percentage increase for all
employees over the prior 12 months. The Employee shall be paid in the
same time and manner as all other employees.
3.2. Bonus Compensation: Employee shall be entitled to an annual
performance bonus as follows:
3.2.1. For each of fiscal years 1998 through and including 2002,
Employees' yearly bonus shall be 5% of the amount by which the
Company's Pre-Tax Income exceeds $1,750,000 for that fiscal
year. The maximum bonus payable in any one fiscal year under
this paragraph shall be $150,000.
3.2.2. For each of fiscal years 2003 through and including 2007,
Employee's yearly bonus shall be 5% of the amount by which the
company's Pre-Tax Income Exceeds 1,750,000 for that fiscal
year. The maximum bonus payable in any one fiscal year under
this paragraph shall be $200,000.
3.3. For the purposes of paragraph 3.2, Pre-Tax Income shall be the total
fiscal year consolidated net income for the Company and its
subsidiaries as determined in accordance with generally accepted
accounting principle by independent accountants then engaged by the
company to audit its financial statements after deduction of all items
customary dedicated from income but before deduction of taxed on
<PAGE>
income of the Company, gains or losses from dispositions or purchases
of assets or other extraordinary items (including any deferred
financing expenses incurred by the Company in connection with the
issuance of shares of stock of the Company, and any Employee's bonus.
Yearly bonus payments due Employee shall be paid within 120 following
the end of the fiscal year on which the bonus is based.
3.4. Stock Options: In any year that Employee earns the maximum bonus under
paragraph 3.3, Employee shall receive an option to purchase 25,000
shares of common stock to be priced at the closing market price on the
date of issue, such option to vest one year later. The number of
options to which Employee shall be entitled shall be adjusted for any
stock dividends, stock splits or other similar changes in the capital
structure of the Company. If earned, such yearly options shall be
issued within 120 days of the end of the fiscal year for which they
were earned. The options will be granted under the Company's existing
Employee Stock Option Plan or any supplemental plan adopted by the
Board of Directors and, to the extent eligible, shall be Incentive
Stock Options. The options will have a term of 10- years provided,
however, should Employee terminate his employment pursuant to
paragraph 9.2.2. Or the Company terminates this employment pursuant to
paragraph 9.1.3 or 9.1.4, such options will expire 90-days after such
termination; if the company terminate his employment pursuant to
paragraph 9.1.5 or Employee terminate his employment pursuant to
paragraph 9.2.1, such options expire three years after the date of
such termination (but no later than 10 years after the date of grant)
and if his employment is terminated for cause pursuant to paragraph
9.1.1 or 9.1.2, such options will terminate immediately. Upon
exercise, the shares issued will be registered for resale by the
Company at its expense.
3.5. Status of Compensation: All payments to Employee shall be subject to
customary withholding taxes and other employment taxes and deductions
as required with respect to compensation paid by Company to an
employee.
3.6. Exemption: Employee shall be exempt and/or excluded for purpose of
Oregon employment statutes and the Fair Labor Practice and is exempt
from statutory requirements covering overtime.
4. Fringe Benefits: The Company shall furnish and make available to Employee
such benefits as are from time to time provided to other executive officers
including, but not limited to, life insurance, disability insurance, health
and accident insurance, and pension or retirement plan.
<PAGE>
The Company shall maintain for the benefit of employee, the life insurance
policy in the amount of $500,000 which death benefits shall be payable to
the beneficiary of the Employee upon his death.
5. Expenses: The Company shall pay all dues to professional societies and
organizations, premiums for supplemental life and disability insurance,
accident and health insurance in accordance with Company policy, group term
life insurance, and all other expenses paid for by the Company in
accordance with Company policy. The Company shall also pay all reasonable
business expenses, including air and other travel expenses, incurred by
Employee in connection with performance of Employee's duties upon proper
receipts and other documentation.
6. Automobile Expense: The Company shall provide Employee an automobile of
Employee's reasonable choice for Employee's use throughout the term of this
agreement. The Company shall bear all the expenses of such automobile,
including all purchase, lease, or other acquisition related costs, gas,
insurance, maintenance, and repairs for such automobile.
7. Vacation and Holidays: Employee shall be entitled vacation and holiday time
as follows:
7.1. A maximum of four weeks of vacation time per fiscal year in each of
fiscal years 1998 through 2002, inclusive;
7.2. A maximum of five weeks of vacations time per fiscal year in each of
fiscal years 2003 through 2007 inclusive;
7.3. All vacation time shall be paid in accordance with the then current
policy of the Company.
7.4. Employee shall be further entitled to take the legal holidays observed
by Company.
8. Change in Fiscal year: If the Company's fiscal year changes during the term
of this agreement, all compensation and benefits to be received by Employee
shall be appropriately and equitably pro-rated and adjusted to reflect such
change.
9. Termination:
9.1. Termination: At the discretion of the Board of Directors, this
agreement may be terminated by written notice to Employee upon the
occurrence of any of the following events:
<PAGE>
9.1.1. Any material act committed by Employee against the Company, or
its subsidiaries constituting fraud, breach of fiduciary duty,
or embezzlement of funds, or a felony conviction for conduct
involving moral turpitude.
9.1.2. Breach or default by Employee in the performance of any
material provision of this agreement after 10-days prior
written notice is given within which time such breach or
default may be remedied. If the Company does not believe
Employee has remedied such breach or default, the Employee
shall be given an opportunity to present his case before the
Board of Directors for their reconsideration.
9.1.3. Physical or mental disability or impairment of employee that
prevents Employee from continuing the normal and proper
performance of Employee's duties and responsibilities under
this agreement for a period of 12 consecutive months. The
initial determination as to whether the Employee is disabled or
impaired shall be made by the physician regularly treating
Employee. The Company shall have the right to determine whether
the Employee is disabled or impaired. If such physician's
opinion differs from that of the physician treading Employee,
the two physicians shall select a third physician who shall
examine employee and, after such examination and a review of
all available information from the other two physician,
determined whether Employee is disabled or impaired and this
decision shall be final and binding upon all the parties. The
starting date for the 12 month period shall be after the third
physician has made his determination or;
9.1.4. Employee's death.
9.1.5. At the discretion of the Board of Directors.
9.2. Payment Upon Termination: Employee may terminate his employment;
9.2.1. For good reason if the Company shall be in material breach of
this agreement and has failed to remedy such breach within 10-
days following written notice of such breach, or
9.2.2. Upon sixty (60) days prior written notice without cause.
9.3. Payment Upon Termination:
<PAGE>
9.3.1. Upon termination for any of the causes in paragraph 9.1.1,
9.1.2, 9.1.3, 9.1.4 or 9.2.2, Employee or Employee's spouse or
estate in the event of Employee's death) shall be entitled to
receive all compensation and benefits through the date of
termination. Upon termination due to Employee's death or
disability, all options then granted to Employee which are
unvested at the date of termination shall become immediately
vested as of the date of termination and registered for public
sale.
9.3.2. If Employee's employment is terminated pursuant to paragraph
9.1.5, 9.2.1, the Company shall pay Employee all compensation,
bonuses, and benefits which Employee is entitled through the
date of termination, plus the base compensation provided in
paragraph 3.1 over the remainder of the term of this Agreement.
Further, all stock options granted shall immediately vest and
be registered for public sale. All options then held by
Employee would be extended to a date three years from the date
of termination.
10. Confidentiality: During the term of this agreement and after termination of
employment, Employee shall keep secret and retain in strictest confidence
all confidential matters of the Company along with the Company's know-how,
trade secrets, confidential client lists, details of client, subcontractor,
and consultant contracts, pricing policies, operational methods, marketing
plans and strategies, product development plans, acquisition or bidding
techniques and plans, technical processes, inventions and research project,
business acquisition plans, personnel acquisition plans, and other similar
information unless (I) such information is generally available to the
public without restriction; (ii) Employee is requested by the Company's
Board of Directors or a committee thereof to disclose such confidential
information; (iii) such information is being provided to a customer,
vendor, or consultant of the Company in the ordinary course of business; or
(iv) Employee is compelled to disclose such confidential information by
order, inquiry, or request by a court of law, governmental agency, or other
source of authority and prompt notice of such order is given to the Company
which may challenge such order.
11. Property of the Company: All lists, records, and other non-personal
documents or papers (including all copies thereof), including such items
stored in computer memories, on microfiche, or any other media made or
compiled by or on behalf of the Employee or made available to Employee
relating to the Company are and shall be the property of the Company and
shall be delivered to the Company upon termination of this agreement. All
inventions, including any procedures, formulas, methods, processes, uses,
<PAGE>
apparatuses, patterns, designs, drawings, devises, or configurations of any
kind, and all improvements to them which are developed, discovered, made,
or produced, trade secrets or information used by any or all of the Company
shall be the exclusive property of the Company and shall be delivered to
the Company upon termination of this Agreement.
12. Employees of the Company: If Employee's employment is terminated for any
reason other than 9.1.5 or 9.2.1, Employee shall not, directly or
indirectly, solicit any employee of the Company, other than Employee's
personal secretary, or encourage any such employee to leave employment with
the Company.
13. Non-Competition: For a period equal to the latest to occur of (i) such
period as the Employee is employed by the Company; (ii) one year following
the date of termination of this Agreement and; (iii) such period as the
Employee shall continue to receive the base salary under this agreement -
Employee shall not, directly or indirectly, whether individually or as an
employee, stockholder, partner, joint venturer, agent or other
representative of any other person, firm, corporation, or other business
entity engage in any business which is competitive with the business of the
Company. As used herein, the term "business which is competitive with the
businesses of the Company" shall only mean any person, firm, corporation,
or other business entity doing business in the territories serviced by the
Company under it dealership agreements with its suppliers if 10% or more of
the net revenues of such business are derived from the sale, rental, parts,
servicing, or other distribution of small, medium, or heavy construction
equipment of the nature then being sold by the Company including, without
limitation, any such equipment manufactured by Case Corporation or any
other corporation manufacturing equipment in competition with the equipment
then manufactured by Case Corporation.
14. Arbitration: Any controversy or claim arising out of, or relating to, this
agreement or breach thereof, shall be settled by arbitration in accordance
with the rules then applying of the American Arbitration Association, and
any judgment upon the award rendered may be entered in any court having
jurisdiction thereof. Arbitration shall be held in Vancouver, Washington.
The cost of arbitration shall be paid equally by the parties.
15. Notice: Any notices permitted or required under this agreement shall be
given in writing and may be delivered and served personally upon employee
or upon an officer of the Company, or alternatively, may be
<PAGE>
deposited in the United States mail, postage prepaid by certified or
registered mail, addressed to the company at its head office or the
Employee at his current address as shown in his personnel file with the
Company. Such notice, if mailed with the State of Washington, shall be
deemed delivered upon the second day following the date post marked, If
mailed out side the State of Washington but within the United States, the
notice shall be deemed delivered upon the third day following the date post
marked.
16. Waiver of Breach: The waiver by either Company or Employee of a breach of
any provision of this Agreement shall not operate or be construed as a
waive of any other provision of any subsequent breach of the same provision
by either Company or Employee.
17. Binding Effect and Assignment: This agreement shall be binding upon and
shall ensure to the benefit of both Company and Employee and their
respective successors, heirs and legal representatives, but neither this
Agreement nor any right hereunder may be assigned by either Company or
Employee without the prior written consent of the other party.
18. Amendment: No amendment or variation of the terms and conditions of these
Agreement shall be valid unless the same is in writing and signed by both
Company and Employee.
19. Partial Invalidity: Invalidation of any term or provision herein by
judgment or court order, or otherwise, shall not affect any other
provisions, which shall remain in full force and effect.
20. Integration: This Agreement embodies the entire agreement of the parties.
There are no promises; terms, conditions or obligations other than those
contained herein. This Agreement shall supersede all prior communications,
representations or Agreements, either verbal or written, between the
parties with regard to Employee's terms of employment. Neither party to
this Agreement has made any representation or warranty relating to this
Agreement or the subject matter of this Agreement except those specifically
contained in writing in this Agreement.
21. Governing Law: This Agreement and all matters of dispute or interpretation
thereof shall be governed a construed in accordance with the laws of the
State of Washington without reference to the provisions of conflict of
laws.
22. Paragraph Headings: The paragraph headings appearing in these Agreement are
not to be construed as interpretations of the text, but are
<PAGE>
inserted for convenience of and reference by the reader only.
Western Power & Equipment Corp.,
An Oregon corporation
By: __________________________
- ------------------------------
Harold Chapman, Director C. Dean McLain
By: _____________________________
James Penland, Director
By: _____________________________
Robert Rubin, Chairman
EXHIBIT 10.16
CONSULTING AGREEMENT
BETWEEN: Robert M. Rubin (Consultant)
AND: Western Power & Equipment Corp.,
an Oregon corporation (Western)
EFFECTIVE
DATE: August 1, 1998
RECITALS
--------
Consultant assists companies in acquisition and capital markets related
activities.
Western desires to retain the services of consultant for its acquisition and
capital raising activities.
Consultant and Western are willing to have Consultant provide services to
Western all under the terms and conditions below.
AGREEMENT
---------
1. Services. Consultant shall assist Western in acquisitions, raising capital,
and other services as Western shall direct.
Term. Consultant shall provide services under this agreement to Western for a
period of 2 years from the effective date.
Compensation; Expenses. Consultant shall be paid a semi-monthly salary of
$6,250.00 for Consultant's services to Western. The time and manner of payments
to Consultant shall be as determined by Western from time to time and shall be
subject to customary withholding taxes and other employment taxes and deductions
as required with respect to compensation paid by Western to an employee.
Consultant shall be exempt and/or excluded for purpose of Federal and Oregon
employment statutes and the Fair Labor Practice Acts and is exempt from
statutory requirements covering overtime. Consultant shall not be entitled to
any benefits offered or available to Western's employees. Western shall also pay
all authorized business expenses, including air and other travel expenses,
incurred by Consultant in connection with the performance of Consultant's duties
upon proper receipts and other documentation.
Consulting Agreement - Page 1
<PAGE>
Waiver. The waiver of any party of a breach of any provision of this agreement
shall not operate or be construed as a waiver of any subsequent breach by any of
the parties hereto.
Governing Law. This agreement shall be governed and interpreted according to
Oregon law. If any action is brought to enforce or interpret this agreement,
such action shall be brought in a federal district court of Oregon, or any
Oregon state court.
Entire Agreement. This agreement represents and expresses the entire agreement
between and among the respective parties and may not be changed orally.
Legal Counsel. Consultant acknowledges that the agreement has been drafted on
Western's behalf and that the drafter of the agreement is representing Western's
interests. Consultant acknowledges that he has been advised to seek and has had
the opportunity to seek the advice of legal counsel of his choosing prior to
signing this agreement.
Consultant Western Power & Equipment Corp.,
an Oregon corporation
By:
- ----------------------------- ----------------------------------
Robert M. Rubin C. Dean McLain, President & C.E.O.
Consulting Agreement - Page 2
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
1. Western Power & Equipment Corp., an Oregon corporation (100% owned by the
Company).
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of our report dated September 30, 1998 appearing on page
F-16 of Western Power & Equipment Corp.'s Annual Report on Form 10-K for the
year ended July 31, 1998. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears in Item 14(a)(2)
of such Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
October 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 2,555
<SECURITIES> 0
<RECEIVABLES> 23,626
<ALLOWANCES> 670
<INVENTORY> 73,491
<CURRENT-ASSETS> 101,142
<PP&E> 12,955
<DEPRECIATION> 4,341
<TOTAL-ASSETS> 138,766
<CURRENT-LIABILITIES> 107,481
<BONDS> 1,156
0
0
<COMMON> 4
<OTHER-SE> 23,134
<TOTAL-LIABILITY-AND-EQUITY> 138,766
<SALES> 163,478
<TOTAL-REVENUES> 163,478
<CGS> 144,302
<TOTAL-COSTS> 156,394
<OTHER-EXPENSES> (796)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,687
<INCOME-PRETAX> 3,193
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 1,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,839
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.49
</TABLE>
