AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1997
REGISTRATION NO. 333-13267
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
NORTH DAKOTA 5082/5083 45-0306084
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
|
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-7363
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RONALD D. OFFUTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RDO EQUIPMENT CO.
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-7363
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
GARY M. NELSON, ESQ. WENDELL H. ADAIR, JR., P.C.
OPPENHEIMER WOLFF & DONNELLY MCDERMOTT, WILL & EMERY
3400 PLAZA VII, 45 SOUTH SEVENTH STREET 227 WEST MONROE STREET
MINNEAPOLIS, MINNESOTA 55402 CHICAGO, ILLINOIS 60606
(612) 344-9291 (312) 372-2000
|
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
Class A Common Stock, $.01 par value........................................ $82,110,000 $24,882
|
(1) Estimated solely for the purpose of calculating the registration fee, of which $18,095 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.
4,200,000 SHARES
[LOGO]
CLASS A COMMON STOCK
($.01 par value)
All of the shares of Class A Common Stock, $.01 par value ("Class A Common Stock"), offered hereby (the "Offering") are being issued and sold by RDO Equipment Co. (the "Company"). Prior to this Offering, there has been no public market for the Class A Common Stock. It is anticipated that the initial public offering price will be between $14 and $17 per share. For information relating to the factors considered in determining the initial offering price to the public, see "Underwriting." The shares of Class A Common Stock have been approved for listing on the New York Stock Exchange ("NYSE") under the symbol "RDO."
The Company's authorized Common Stock consists of Class A Common Stock and Class B Common Stock, par value $.01 per share ("Class B Common Stock"). The economic rights of each class of Common Stock are the same, but the voting rights differ. Each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to four votes per share. The Class A Common Stock is freely transferable, but the Class B Common Stock is transferable only to certain transferees. Each share of Class B Common Stock is convertible into one share of Class A Common Stock. Upon con-summation of this Offering, the principal stockholder of the Company will own 100% of the outstanding Class B Common Stock, which will represent approximately 59.4% of the Common Stock of the Company (56.6% if the Underwriters' over-allotment option is exercised in full) and approximately 85.4% of the combined voting power of all classes of voting stock of the Company (83.9% if the Underwriters' over-allotment option is exercised in full). See "Principal Stockholders" and "Description of Capital Stock."
For a discussion of certain factors that should be considered in connection with an investment in the Class A Common Stock, see "Risk Factors" on page 9 herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
-------------- -------------- --------------
Per Share................................... $ $ $
Total(2).................................... $ $ $
|
(1) Before deduction of expenses payable by the Company estimated at $1,000,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase a maximum of 630,000 additional shares to cover over-allotments of shares. If the option is exercised in full, the total Price to the Public will be $ , Underwriting Discounts and Commissions will be $ , and Proceeds to Company will be $ .
The Shares are offered by the several Underwriters when, as and if issued by the Company, delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the Shares will be ready for delivery on or about , 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON DAIN BOSWORTH
INCORPORATED
Prospectus dated , 1997.
[Outside gatefold: Photos depicting various types of industrial and agricultural equipment]
[Inside gatefold: two maps, one depicting industrial store locations and Deere areas of responsibility and the other depicting agricultural store locations, and two inset photos depicting Company service technicians repairing industrial and agricultural equipment]
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6 AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND COMBINED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED OR CONTAINED IN THE COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION GRANTED BY THE COMPANY, AND (II) REFLECTS CHANGES TO THE COMPANY'S CAPITAL STRUCTURE EFFECTED PRIOR TO THE CONSUMMATION OF THIS OFFERING, INCLUDING THE 44.5-FOR-ONE STOCK SPLIT AND SHARE EXCHANGE IN CONNECTION WITH THE REINCORPORATION OF THE COMPANY IN DELAWARE, EFFECTIVE IN JANUARY 1997. IN ADDITION, (I) REFERENCES TO THE COMPANY ON A PRO FORMA BASIS REFLECT ADJUSTMENTS TO GIVE EFFECT TO THE COMPANY'S RECENT ACQUISITIONS OF INDUSTRIAL OPERATIONS IN CENTRAL TEXAS AND AGRICULTURAL OPERATIONS IN WASHINGTON, AS IF SUCH ACQUISITIONS HAD OCCURRED ON FEBRUARY 1, 1995 WITH RESPECT TO STATEMENTS OF OPERATIONS DATA, AND (II) REFERENCES TO THE COMPANY INCLUDE ITS WHOLLY-OWNED SUBSIDIARIES. SEE "REINCORPORATION" AND "BUSINESS--GROWTH STRATEGY." THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK ARE SOMETIMES COLLECTIVELY REFERRED TO AS THE "COMMON STOCK."
THE COMPANY
RDO Equipment Co. (the "Company") owns and operates the largest networks of John Deere industrial stores and agricultural stores in the United States. Through its 32 stores, the Company sells, services, and rents industrial and agricultural equipment, primarily supplied by Deere & Company and its subsidiaries ("Deere" or "John Deere"). The Company's revenues have grown at a compound annual rate of 33% over the past five fiscal years, from $71.2 million in fiscal 1992 to $223.6 million in fiscal 1996.
INDUSTRIAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new industrial equipment in its target product market in calendar 1995 totaled approximately $5.7 billion. Deere is one of the leading suppliers of industrial equipment in the United States for light to medium applications and offers a broad array of products. Currently, Deere has approximately 110 industrial dealers which operate approximately 355 stores in the United States. Each dealer within the Deere industrial system is assigned specific geographic areas of responsibility within which it has the right to sell new Deere products. Over the last five years, while the number of Deere industrial stores has remained constant, the number of Deere industrial dealers has declined by more than 30%. This dealer consolidation is being driven, in part, by an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation of its dealers. The Company expects to benefit from this consolidation trend by continuing its strategic acquisition of Deere industrial dealerships.
AGRICULTURAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new agricultural equipment in its target product market in calendar 1995 totaled approximately $10.1 billion. Deere is the leading supplier of agricultural equipment in the United States. Currently, Deere has approximately 1,275 agricultural dealers which operate approximately 1,545 stores in the United States. Deere agricultural dealers are not assigned exclusive territories, but have authorized store locations. The Company believes that Deere agricultural dealerships also face an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation and, as a result, that a consolidation of Deere agricultural dealerships will occur. The Company expects that it will have increasing opportunities to complete strategic acquisitions of Deere agricultural dealerships as this consolidation trend develops.
GROWTH STRATEGY. The Company's growth strategy is to continue to expand and
improve its operations through a combination of (i) increasing market share
within its existing Deere areas of responsibility, (ii) capitalizing on the
consolidation trends among Deere dealers by acquiring additional dealerships,
(iii) improving the operating performance of its store networks by implementing
its operating model, and (iv) continuing the business and geographic
diversification of its operations. Over the last five years, the Company has
acquired 13 stores from seven dealers, including five stores acquired in
calendar 1996. The acquisitions completed in calendar 1996 establish new
industrial operations in Texas and new agricultural
operations in Washington, which the Company believes will provide platforms for further growth. Approximately $34.4 million of the net proceeds of this Offering is expected to be used to finance future acquisitions, new stores, and internal growth. In addition to its acquisitions, the Company also has opened four stores in the last five years.
INDUSTRIAL DIVISION
The Company operates the largest network of Deere industrial stores, representing approximately 6% of Deere's United States industrial equipment sales in calendar 1995. The Industrial Division operates 21 stores located primarily in areas with significant construction activity within the Company's designated Deere areas of responsibility, including Dallas-Fort Worth, southern Los Angeles, Minneapolis-St. Paul, Phoenix, and San Diego. Customers of the Company's industrial stores include contractors, for both residential and commercial construction, utility companies, and federal, state, and local government agencies. Revenues of the Industrial Division increased from $30.5 million in fiscal 1992 to $139.0 million in fiscal 1996, representing a compound annual growth rate of 46%. The growth in the Industrial Division's revenues are due to same store sales increases and the acquisition of 11 stores over the last five years. The increases in same store sales are attributable to the continued implementation of the Company's operating model, particularly at acquired stores, as well as a favorable construction environment. Industrial acquisitions have been made in Arizona, California, and Texas due to the favorable construction economies and year-round construction seasons in these locations, as well as the Company's strategy to diversify geographically.
The Company's industrial stores offer a full range of new and used Deere equipment, replacement parts, and fully-equipped service and repair facilities. In addition, the Company sells industrial equipment supplied by other manufacturers which is complementary to the Deere lines, as well as used industrial equipment taken as trade-ins. The Company believes that product support, through its parts and service programs, has been and will be increasingly important to the profitability of its industrial equipment operations and its ability to attract and retain customers. In the Southwest region, the Industrial Division has established a rental fleet of industrial equipment, which the Company intends to continue to expand. See "Business--Recent and Contemplated Acquisitions."
AGRICULTURAL DIVISION
The Company operates the largest network of Deere agricultural stores, representing approximately 1% of Deere's U.S. agricultural equipment sales in calendar 1995. The Agricultural Division operates 11 stores located in Minnesota, North Dakota, South Dakota, and Washington. Revenues of the Agricultural Division increased from $40.7 million in fiscal 1992 to $84.6 million in fiscal 1996, representing a compound annual growth rate of 20%. The growth in the Agricultural Division's revenues is almost entirely due to same store sales increases. The increase in same store sales is attributable to the continued implementation of the Company's operating model, as well as a favorable agricultural economy.
As full-service suppliers to farmers, the Company's agricultural stores offer a broad range of farm equipment and related products, with sales of new Deere equipment the primary focus. The Company also sells agricultural equipment supplied by other manufacturers which is complementary to the Deere lines, as well as used agricultural equipment taken as trade-ins. In addition, the agricultural stores offer lawn and grounds care equipment, primarily supplied by Deere. As part of its strategy to provide a full complement of product support services to its agricultural customers, the Company offers a broad range of replacement parts and fully-equipped service and repair facilities at each store.
GROWTH STRATEGY
In order to capitalize on industry consolidation trends, expand its market leadership position, and further develop its industrial and agricultural equipment operations, the Company has developed its growth strategy, the key elements of which are:
- INCREASING MARKET SHARE. The Company seeks to increase its market share by enhancing customer service and generating customer loyalty. With a larger installed base of equipment, the Company has the opportunity to generate additional parts and service business, which currently accounts for approximately 26% of the Company's total revenues and which has higher profit margins than wholegoods sales.
- PURSUING ADDITIONAL ACQUISITIONS. Acquisitions have been and will continue to be an important element of the Company's growth strategy, particularly given the consolidation trends among industrial and agricultural equipment dealers. Over the past five years, the Company has acquired 11 industrial stores and two agricultural stores from seven dealers. Due to its leadership position in the industry and its track record in completing and integrating acquisitions, the Company believes that attractive acquisition candidates will continue to become available to the Company. Approximately $34.4 million of the net proceeds of this Offering is expected to be used to finance future acquisitions, new stores, and internal growth. Completion of any prospective acquisition of a Deere dealership, or the opening of a new Deere store, requires Deere's consent. See "Risk Factors-- Risks Associated with Expansion" and "Business--Recent and Contemplated Acquisitions."
- IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven
operating model designed to improve the performance and profitability of
each of its stores. Components of this operating model include (i)
pursuing aggressive marketing programs, (ii) allowing store employees to
focus on customers by managing administrative functions, training, and
purchasing at the corporate level, (iii) providing a full complement of
parts and state-of-the-art service functions, including a computerized
real-time inventory system and quick response, on-site repair service,
(iv) motivating store level management in accordance with corporate goals,
and (v) focusing on cost structures at the store level.
- CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the Company's strategy is to expand its networks of industrial and agricultural stores into geographic areas that have a large base of construction or agricultural activity and that provide the Company with opportunities to continue to develop its store networks. The Company believes that its business diversification into both industrial and agricultural store operations has significantly increased its customer base, while also mitigating the effects of industry-specific economic cycles. Similarly, the Company's geographic diversification into regions outside the Midwest helps to diminish the effects of seasonality, as well as local and regional economic fluctuations. Typically, other Deere dealers operate only industrial or agricultural dealerships, with a limited number of stores concentrated in a specific geographic region.
RECENT ACQUISITIONS
The Company recently acquired three industrial stores and two agricultural stores, thereby extending the Company's store networks into Texas and Washington, which the Company believes will provide platforms for future growth. The Company recently completed the purchase of a Deere industrial dealership in Central Texas, with three stores located in the Dallas-Fort Worth and Waco, Texas metropolitan areas with a Deere area of responsibility covering the 35 surrounding counties (the "Central Texas Acquisition"). The Company also recently completed the acquisition of a Deere agricultural dealership, with two stores located in Pasco and Sunnyside, Washington (the "Washington Acquisition"). Completion of any prospective acquisition of a Deere dealership requires Deere's consent. See "Risk Factors--Risks Associated with Expansion" and "Business--Recent and Contemplated Acquisitions."
The Company was incorporated in North Dakota on March 13, 1968 and will be reincorporated in Delaware in January 1997. The Company's executive offices are located at 2829 South University Drive, Fargo, North Dakota 58109. The Company's phone number is (701) 237-7363.
THE OFFERING
Class A Common Stock
offered...................... 4,200,000 shares of Class A Common Stock
Common Stock to be outstanding
after this Offering
Class A Common Stock........ 5,091,508 shares(1)
Class B Common Stock........ 7,458,492 shares
---------
Total..................... 12,550,000 shares
---------
---------
Use of Proceeds............... The net proceeds from this Offering will be used (i) to
repay indebtedness incurred to finance recent acquisitions
in the aggregate amount of approximately $10.1 million,
(ii) to make an S corporation distribution in the amount of
approximately $15.0 million to the Company's existing
stockholders in connection with termination of the
Company's S corporation status, and (iii) to finance future
acquisitions, new stores, internal growth, and working
capital needs. See "Use of Proceeds," "S Corporation
Distributions," and "Certain Relationships and Related
Transactions."
Voting Rights................. The Class A Common Stock and Class B Common Stock vote
together as a single class on all matters, except as
otherwise required by law, with each share of Class A
Common Stock entitling its holder to one vote and each
share of Class B Common Stock entitling its holder to four
votes. All of the outstanding Class B Common Stock is held
by Ronald D. Offutt, the Company's Chairman, Chief
Executive Officer, and principal stockholder. Under certain
circumstances, Class B Common Stock automatically converts
into Class A Common Stock. See "Description of Capital
Stock-- Common Stock."
NYSE symbol................... RDO
|
(1) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance pursuant to the Company's stock incentive plan of which approximately 600,000 shares will be subject to options to be granted upon consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(in thousands, except store and per share data)
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
ACTUAL
------------------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996 (1)(2)
----------- ----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues..................................... $ 71,226 $ 105,378 $ 144,112 $ 183,910 $ 223,557 $ 265,478
Cost of sales................................ 56,422 83,548 116,369 148,111 180,839 212,824
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 14,804 21,830 27,743 35,799 42,718 52,654
Selling, general, and administrative
expense..................................... 11,929 16,737 20,577 24,893 31,655 38,858
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 2,875 5,093 7,166 10,906 11,063 13,796
Interest expense............................. (1,299) (1,284) (1,670) (1,895) (3,817) (1,584)
Interest income.............................. 173 376 336 802 823 1,031
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
Provision for income taxes(3)................ 700 1,674 2,332 3,925 3,228 5,297
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 7,946
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income per share ............................................................................................. $ .63
-----------
-----------
Weighted average shares outstanding .............................................................................. 12,570
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sales increase.......... -- 12% 32% 25% 11% --
Stores open at beginning of period........... 15 17 21 22 22 22
Stores opened.............................. 1 0 0 0 2 2
Stores acquired............................ 1 4 1 0 2 7
----------- ----------- ----------- ----------- ----------- -----------
Stores open at end of period................. 17 21 22 22 26 31
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures......................... $ 561 $ 681 $ 627 $ 1,208 $ 9,993 $ 10,131
Depreciation................................. 504 584 668 690 1,326 1,653
NINE MONTHS ENDED OCTOBER 31,
---------------------------------------
ACTUAL
------------------------- PRO FORMA
1995 1996 1996 (1)(2)
----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues..................................... $ 176,825 $ 229,260 $ 257,823
Cost of sales................................ 143,718 186,451 208,581
----------- ----------- -----------
Gross profit................................. 33,107 42,809 49,242
Selling, general, and administrative
expense..................................... 23,600 29,492 33,908
----------- ----------- -----------
Operating income............................. 9,507 13,317 15,334
Interest expense............................. (2,435) (4,116) (2,247)
Interest income.............................. 586 633 816
----------- ----------- -----------
Net income................................... $ 7,658 $ 9,834 $ 13,903
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 7,658 $ 9,834 $ 13,903
Provision for income taxes(3)................ 3,063 3,934 5,561
----------- ----------- -----------
Net income................................... $ 4,595 $ 5,900 $ 8,342
----------- ----------- -----------
----------- ----------- -----------
Net income per share ........................ $ .66
-----------
-----------
Weighted average shares outstanding ......... 12,555
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sales increase.......... 13% 23% --
Stores open at beginning of period........... 22 26 26
Stores opened.............................. 1 1 1
Stores acquired............................ 2 5 5
----------- ----------- -----------
Stores open at end of period................. 25 32 32
----------- ----------- -----------
----------- ----------- -----------
Capital expenditures......................... $ 9,674 $ 3,182 $ 3,328
Depreciation................................. 614 1,930 2,155
|
AS OF OCTOBER 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (2)(4)
--------- -------------- ------------------
BALANCE SHEET DATA:
Working capital................................... $ 20,778 $ 5,778 $ 65,278
Inventories....................................... 125,766 125,766 125,766
Total assets...................................... 176,712 177,562 177,562
Floor plan payables(5)............................ 100,612 100,612 66,212
Total debt........................................ 26,758 26,758 16,658
Stockholders' equity.............................. 34,284 20,134 79,634
|
(SEE FOOTNOTES ON FOLLOWING PAGE)
NOTES TO SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(1) Reflects adjustment to give effect to the Central Texas and the Washington Acquisitions as if such acquisitions had occurred February 1, 1995. The pro forma information is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of February 1, 1995, or that may be achieved in the future. See "Selected Combined and Pro Forma Financial and Operating Data" and Pro Forma Unaudited Financial Statements and the Notes thereto.
(2) Adjusted to give effect to the sale of 4,200,000 shares of Class A Common Stock offered hereby at an assumed initial offering price of $15.50 per share and the application of the net proceeds therefrom. See "Use of Proceeds," "S Corporation Distributions," "Capitalization," Pro Forma Unaudited Financial Statements and the Notes thereto, and the Combined Financial Statements and the Notes thereto.
(3) For all periods presented, the Company was an S corporation and was not generally subject to corporate income taxes. The pro forma income tax provision has been computed as if the Company were subject to corporate income taxes for all periods presented based on the tax laws in effect during the respective periods. See "S Corporation Distributions" and the Combined Financial Statements and the Notes thereto.
(4) Adjusted to give effect to (i) the deferred tax asset of approximately $850,000 resulting from the termination of the Company's status as an S corporation, and (ii) the $15.0 million S corporation distribution to existing stockholders which will be paid out of the net proceeds of this Offering.
(5) Includes interest bearing and non-interest bearing liabilities incurred in connection with inventory financing. See Note 5 to the Combined Financial Statements.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
DEPENDENCE UPON JOHN DEERE
The Company is an authorized dealer of John Deere industrial and
agricultural equipment and parts in its designated areas of responsibility and
at its store locations, and the Company's acquisition strategy contemplates the
acquisition of additional Deere areas of responsibility and store locations.
During fiscal 1996, approximately 72% of the Company's new equipment sales
represented sales of new equipment supplied by Deere and a majority of the
Company's sales from parts and service also were directly related to Deere
equipment. The Company depends on Deere for floor plan financing to finance a
substantial portion of its inventory. As of October 31, 1996, Deere and its
subsidiaries were financing approximately $89.1 million of the Company's
inventory of Deere equipment. See "Business--Floor Plan Financing." In addition,
Deere provides a significant percentage of the financing used by the Company's
customers to purchase Deere equipment from the Company. See "Business--Customer
Financing Options." Deere also provides incentive programs and discount programs
from time to time which enable the Company to price its products more
competitively. In addition, Deere conducts promotional and marketing activities
on national, regional, and local levels. Due to the Company's dependence on
Deere, the Company believes that its success depends, in significant part, on
(i) the overall success of Deere, (ii) the availability and terms of floor plan
financing and customer financing from Deere, (iii) the incentive and discount
programs provided by Deere and its promotional and marketing efforts for its
industrial and agricultural products, (iv) the goodwill associated with John
Deere trademarks, (v) the introduction of new and innovative products by Deere,
(vi) the manufacture and delivery of competitively-priced, high quality
equipment and parts by Deere in quantities sufficient to meet the requirements
of the Company's customers on a timely basis, and (vii) the quality,
consistency, and management of the overall Deere dealership system. If Deere
does not provide, maintain, or improve any of the foregoing, there could be a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Dealership Agreements."
DEERE TERMINATION RIGHTS
Under the Deere Agreement, Deere has the right to terminate the Company's
dealer appointments immediately if Ronald D. Offutt, the Company's Chairman,
Chief Executive Officer, and principal stockholder, ceases to (i) own or control
in excess of 50% of the outstanding voting power, or whatever greater percentage
is required to control corporate actions that require a stockholder vote, and
(ii) own at least 35% of the outstanding Common Stock. Upon consummation of this
Offering, Mr. Offutt will own or control approximately 85.4% (83.9% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
voting power of the Company and will own approximately 59.4% (56.6% if the
Underwriters' over-allotment option is exercised in full) of the Common Stock.
Deere also has a right to terminate the Company's dealer appointments in the
event of Mr. Offutt's death; however, Deere cannot exercise this right to
terminate if, at that time, (i) there is in place an ownership succession plan
approved by Deere, (ii) the Company and Deere have identified events which would
thereafter constitute changes of control of the Company entitling Deere to
terminate the dealer appointments, (iii) the Company and each of its stores are
under continuing management acceptable to Deere, (iv) there is no existing
breach and no grounds for termination exist with respect to any of the Company's
agreements with Deere, including the ownership requirements, and (v) Deere in
its sole discretion has determined that each of the Company's areas of
responsibility and store locations justifies the continuation of the Deere
appointment for such area or location. As of the date of this Prospectus, all of
these conditions would be met.
In addition, Deere is entitled to terminate the Company's dealer appointments on one year's notice if the equity-to-assets ratio of the Company's Deere dealer operations is below 25% as calculated by Deere based on the Company's fiscal year end audit, provided that the Company has not cured such deficiency within 180 days of such fiscal year end. Certain business operations and assets of the Company held in
wholly-owned subsidiaries, such as real estate and its irrigation and equipment rental businesses, are excluded from this calculation. In addition, without regard to any subsequent attempts to cure, upon one year's notice Deere may terminate dealer appointments for which the Company fails to meet certain performance criteria and market share objectives for each of its agricultural stores, including developing and achieving Deere-approved business plans. The Company's industrial operations also must maintain overall and core product market share and product support standards at a level greater than the level corresponding to the 50th percentile of all of Deere's United States industrial dealers and may be terminated upon one year's prior written notice without regard to any subsequent attempts to cure. Acquired operations that are performing below these levels at the time the acquisition is completed have a three-year grace period to meet these standards. As of the date of this Prospectus, Deere has advised the Company that, after excluding acquisitions that fall into such grace period, the Company's operations meet all of these performance criteria. In addition, Deere can terminate the Company's agricultural dealer appointments for cause or if Deere determines that there is not sufficient market potential to support a dealership in a particular location upon prior written notice to the Company of 180 days. The Company's dealer appointments terminate immediately upon the commencement of the dissolution or liquidation of the Company or a sale of a substantial part of the business, change in the location of a dealership without Deere's prior written consent, the withdrawal of a major stockholder or a substantial reduction in interest of a major stockholder, or a default under any security agreement with Deere. The appointments also may be terminated upon the revocation or discontinuance of any guaranty of Ronald D. Offutt or the Company to Deere, unless replaced by a letter of credit acceptable to Deere. See "Business--Personal Guaranty."
In the event of Mr. Offutt's death, Deere thereafter will have the right to
terminate the Company's dealer appointments upon the occurrence of a "change of
control." A "change of control" is defined for these purposes as (i) the sale,
lease, exchange, or other transfer of substantially all of the Company's assets,
(ii) a merger, consolidation, reorganization, or similar transaction in which
the Company's stockholders do not own more than 50% of the voting power of the
surviving entity (provided that if they own more than 50% but less than 80% of
the voting power, the merger must be approved by a majority of the directors who
were directors at the time of Mr. Offutt's death or subsequent directors whose
election has been approved by existing directors ("Continuity Directors")),
(iii) a vote by the stockholders to approve a transaction set forth in (i) or
(ii), (iv) the acquisition by a person other than Mr. Offutt or his heirs of 50%
or more of the voting power of the Company (20% if such acquisition has not been
approved by a majority of the Continuity Directors), (v) a change in the
corporate executive officers without Deere's approval, or (vi) if Continuity
Directors cease to constitute a majority of the Company's Board of Directors.
Termination of certain or all of the Company's Deere dealer appointments would have a material adverse effect on the results of operations and financial condition of the Company. See "Business-- Dealership Agreements."
DEERE DEALERSHIP AGREEMENTS--OTHER PROVISIONS
The Company operates its Deere industrial and agricultural stores pursuant to a master agreement with Deere (the "Deere Agreement") and pursuant to Deere's customary industrial or agricultural dealership agreements for each of the Company's industrial areas of responsibility and agricultural store locations. These agreements impose a number of restrictions and obligations on the Company with respect to its operations, including a prohibition on carrying industrial products which are competitive with Deere products, and an obligation to maintain suitable facilities, provide competent management, actively promote the sale of Deere equipment in the Company's designated areas of responsibility, fulfill the warranty obligations of Deere, provide service and maintain sufficient parts inventory to service the needs of its customers, maintain inventory in proportion to the sales potential in each of the Company's designated areas of responsibility, maintain adequate working capital, and maintain stores only in authorized locations. The Deere Agreement also provides that the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. In addition, Deere has the right to have input into the selection of the Company's management personnel, including store managers, and to have input with respect to the selection of
nominees to the Company's Board of Directors and the removal of directors. The prior consent of Deere is required for the opening of any store within the Company's designated areas of responsibility and for the acquisition of any other Deere dealership. There can be no assurance that any such consent will be given by Deere. See "Business--Dealership Agreements." In addition, the Company is prohibited from making acquisitions, initiating new business activity, paying dividends, repurchasing its capital stock, or making any other distributions to stockholders if the Company's equity to assets ratio is below 30%, as calculated by Deere under the Deere Agreement, or if such ratio would fall below 30% as a result of such action. The Company believes its equity-to-assets ratio as so calculated at the time of consummation of this Offering and at the end of fiscal 1997 will be at least 30%.
The Company's Deere dealer appointments are not exclusive. Deere could appoint other dealers in close proximity to the Company's existing stores. The areas of responsibility assigned to the Company's industrial dealerships can be reduced by Deere upon 120 days' prior written notice. In addition, the dealer agreements can be amended at any time without the Company's consent, so long as the same amendment is made to the dealer agreements of all other Deere dealers. Deere also has the right to sell directly to federal, state, and local governments, as well as national accounts. To the extent Deere appoints other dealers in the Company's markets, reduces the areas of responsibility relating to the Company's industrial stores, amends the dealer agreements, or sells substantial amounts of equipment directly to government entities and national accounts, the Company's results of operations and financial condition could be adversely affected.
EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS; CYCLICALITY, SEASONALITY, AND WEATHER
The Company's business, and particularly the sale of new equipment, is dependent on a number of factors relating to general economic conditions, including agricultural industry cycles, construction spending, federal, state, and local government spending on highways and other construction projects, new housing starts, interest rate fluctuations, economic recessions, customer business cycles, and customer confidence in the economy. Accordingly, the Company's financial condition and results of operations may be materially and adversely affected by any general downward economic pressures, or adverse cyclical trends. The ability to finance affordable purchases, of which the interest rate charged is a significant component, is an important part of a customer's decision to purchase equipment. Interest rate increases may make equipment purchases less affordable for customers and, as a result, the Company's revenues and profitability may decrease. To the extent the Company cannot pass on to its customers the increased costs of its own inventory financing resulting from increased interest rates, its net income also may decrease. As a result of all of the foregoing, the Company's results of operations have in the past and in the future are expected to continue to fluctuate from quarter to quarter and year to year.
The Company generally experiences lower levels of equipment sales during the period from November through April, impacting the first and fourth quarters of each fiscal year, due to the crop growing season and winter weather conditions in the Midwest. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during the Company's second and third fiscal quarters. As a result, sales of agricultural equipment generally are lower in the first and fourth fiscal quarters. Winter weather in the Midwest also limits construction to some degree and, therefore, also typically results in lower sales of industrial equipment in the first and fourth fiscal quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company's results of operations have been and are expected to be affected by weather. Severe weather can adversely impact agricultural and construction activity, resulting in decreased demand for the Company's products and services and lost revenues. For example, the winter of 1995/1996 was extremely cold, with numerous record low temperatures set in both December 1995 and January 1996. As a result, customers in the Midwest did not buy wholegoods and equipment was not able to be moved for normal servicing. To the extent severe weather occurs, the Company's results of operations and financial condition could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH EXPANSION
The Company believes a significant portion of its future growth will depend on its ability to acquire additional dealerships, and the Company intends to use up to approximately $34.4 million of the net proceeds of this Offering to finance future acquisitions, new stores, and internal growth. In pursuing its acquisition strategy, the Company will face risks commonly encountered with growth through acquisitions. These risks include incurring significantly higher than anticipated capital expenditures and operating expenses, failing to assimilate the operations and personnel of acquired dealerships, disrupting the Company's ongoing business, dissipating the Company's management resources, failing to maintain uniform standards, controls, and policies, and impairing relationships with employees and customers as a result of changes in management. Realization of the full benefit of the Company's strategies, operating model, and systems as to an acquired dealership may take several years. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered with acquisitions, including the Company's recent and future acquisitions. To the extent the Company does not successfully avoid or overcome the risks or problems related to acquisitions, the Company's results of operations and financial condition could be adversely affected. Future acquisitions also will have a significant impact on the Company's financial position and capital needs, and could cause substantial fluctuations in the Company's quarterly and yearly results of operations. Acquisitions could include significant goodwill and intangible assets, resulting in substantial amortization charges to the Company that would reduce stated earnings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Growth Strategy--Pursuing Additional Acquisitions."
Deere's consent is required for the acquisition of any Deere dealership or the opening of a new store, and, consequently, any prospective acquisition or new store opening will require Deere's consent. Deere typically evaluates management, performance, and capitalization of a prospective acquiror or existing Deere dealer, as the case may be, in determining whether to consent to the sale of a Deere dealership or approve the opening of a new store. While the Company believes that its management, operational history, acquisition history, and capitalization allow it to compete effectively for the acquisition of additional areas of responsibility and stores and to grow by opening new stores, there can be no assurance that Deere will allow ownership concentration of Deere dealerships beyond a certain level. Although the Company believes that Deere wants fewer, better capitalized dealers to achieve higher sales and better customer service, there can be no assurance that Deere will approve any or all future acquisitions or the opening of new stores proposed by the Company. See "Business--Dealership Agreements."
MANAGEMENT OF GROWTH
The Company has grown significantly in recent years and is expected to continue to grow through acquisitions, opening new stores, and internal growth. Management has expended, and expects to continue to expend, significant time and effort in evaluating, completing, and integrating acquisitions, opening new stores, and supporting internal growth. There can be no assurance that the Company's systems, procedures, and controls will be adequate to support the Company's operations as they expand. Any future growth also will impose significant added responsibilities on members of senior management, including the need to identify, recruit, and integrate new senior level managers and executives. There can be no assurance that such additional management will be identified and retained by the Company. If the Company is unable to manage its growth efficiently and effectively, or is unable to attract and retain additional qualified management, there could be a material adverse effect on the Company's financial condition and results of operations.
AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL
The Company's ability to continue to grow through the acquisition of additional Deere areas of responsibility and store locations or other businesses will be dependent upon (i) the availability of suitable acquisition candidates at an acceptable cost, (ii) receiving Deere approval of acquisitions as required or appropriate, (iii) the Company's ability to compete effectively for available acquisition candidates, and (iv) the availability of capital to complete the acquisitions. Expansion of the Company through new store
openings and internal growth also will require significant capital expenditures. The Company intends to use up to $34.4 million of the net proceeds of this Offering to finance acquisitions, new stores, and internal growth. If additional financing for those purposes is necessary, the Company intends to finance growth with cash generated from operations, through the incurrence or assumption of indebtedness, and through issuances of Class A Common Stock, Preferred Stock, other forms of equity, or debt securities. Using cash to finance acquisitions, new stores, and internal growth could substantially limit the Company's financial flexibility, using debt could result in financial covenants that limit the Company's operating and financial flexibility, and using equity may result in significant dilution of the interest in the Company of the stockholders at that time. The use of cash, debt, or equity to finance acquisitions, new stores, and internal growth also could be limited by provisions in the Deere Agreement, which gives Deere the right to terminate the Company's dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50% of the outstanding voting power, or whatever greater percentage is required to control corporate actions requiring a stockholder vote, and (ii) own at least 35% of the outstanding Common Stock, and which requires that the Company meet the required equity-to-asset ratio upon completion of each acquisition. The Deere Agreement also provides that the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. See "Business--Dealership Agreements." In addition, there can be no assurance that the Company will be able to obtain additional capital on acceptable terms. If the Company is unable to obtain additional capital on acceptable terms, the Company's acquisition activities, new store openings, and internal growth may be limited. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-- Liquidity and Capital Resources." In addition, there can be no assurance that Deere will consent to any future acquisition. To the extent the Company is limited in its ability to make acquisitions, open new stores, or to grow internally for any reason, the Company's growth, financial condition, and results of operations could be adversely affected.
SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS
The sale of industrial and agricultural equipment requires substantial inventories of equipment and parts to be maintained at each store in order to facilitate sales to customers on a timely basis. The Company generally purchases its inventories of Deere equipment with the assistance of floor plan financing programs through Deere. Inventories of products from other suppliers generally are financed through a line of credit with Ag Capital Company ("Ag Capital"), a cooperative lending institution which is controlled by Ronald D. Offutt, the Company's Chairman, Chief Executive Officer, and principal stockholder, or through floor financing programs offered by such suppliers. As the Company grows, whether through acquisitions, opening new stores, or internal growth, its inventory requirements will increase and, as a result, the Company's financing requirements also will increase. In the event that the Company's available financing sources are not sufficient to satisfy its future requirements, the Company would be required to obtain additional financing from other sources. While the Company believes that it could obtain additional financing or alternative financing if required, there can be no assurance that such financing could be obtained on commercially reasonable terms. To the extent such additional financing cannot be obtained on commercially reasonable terms, the Company's growth and results of operations could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Business--Floor Plan Financing," and "Certain Relationships and Related Transactions."
COMPETITION
The Company anticipates that both its industrial and agricultural operations will continue to face strong, and perhaps increasing, competition. The Company's industrial stores compete with distributors of industrial equipment from suppliers other than Deere such as Case Corporation ("Case"), Caterpillar Inc. ("Caterpillar"), and Komatsu Corporation ("Komatsu"). The Company's agricultural stores compete with distributors of agricultural equipment from suppliers such as Agco Corporation ("Agco"), Case, and New Holland, N.V., a subsidiary of Fiat ("New Holland"). Some of these competitors may be larger and have substantially greater capital resources than the Company. The Company's stores also compete to a degree
with other Deere dealerships. Competition among distributors of equipment can be intense and is primarily based on the price, value, reputation, quality, and design of the products offered by the dealer, the customer service and equipment servicing provided by the dealer, and the accessibility of stores. Although the Company believes that it is competitive in all of these categories, there can be no assurance that the Company will remain competitive in general or in any particular area in which the Company has operations. To the extent Deere's competitors provide their distributors with more innovative and/or higher quality products, better pricing, or more favorable customer financing, or have more effective marketing efforts, the Company's ability to compete and financial condition and results of operations could be adversely affected. In addition, to the extent Deere's products are not as competitive or in demand as those of suppliers not used by the Company, the Company's results of operations could be adversely affected. With respect to industrial equipment rental operations, there are a number of significant competitors, including Deere, which participates in a rental joint venture with operations in Arizona and California. See "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company believes its success depends, in large part, upon the continued services of Ronald D. Offutt, Chairman and Chief Executive Officer, Paul T. Horn, President and Chief Operating Officer, and Allan F. Knoll, Chief Financial Officer. The loss of any of these individuals could materially and adversely affect the Company. Since October 1, 1996, Mr. Horn has been devoting his full-time to the Company. Messrs. Offutt and Knoll will continue to spend approximately 25% of their time on Company-related activities, with the balance of their time spent on activities for R. D. Offutt Company ("Offutt Co.") and other entities wholly or substantially owned, controlled, and/or managed by Mr. Offutt (collectively, the "Offutt Entities"). Messrs. Horn and Knoll also are stockholders and serve as officers and directors of Offutt Co. and many of the Offutt Entities. See "Management" and "Certain Relationships and Related Transactions."
CERTAIN TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS OF INTEREST
The Company has engaged in, and expects to continue to engage in, business transactions with various Offutt Entities, including, among others, sales of agricultural equipment and parts, leasing of real estate, corporate support services, floor plan financing, and customer financing. The Company had sales of equipment and related parts and services to the Offutt Entities in the aggregate amounts of $1.9 million, $3.5 million, $5.5 million, and $4.9 million in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. Ag Capital and another Offutt Entity provide the Company with financing for a portion of its working capital needs, primarily inventory financing for non-Deere equipment. Interest on such financings typically is at the prime rate as it varies from time to time. Interest paid to Offutt Entities for inventory financing totalled $771,000, $627,000, $849,000, and $829,000 in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. The total amount outstanding under these inventory financing arrangements at October 31, 1996 was $9.4 million. In addition, the amount of customer financing provided by Offutt Entities as of January 31, 1994, 1995, and 1996, and as of October 31, 1996 was $12.2 million, $24.3 million, $32.8 million, and $43.8 million, respectively. The Offutt Entities will continue to purchase equipment, parts, and services from the Company and provide financing to the Company and its customers following this Offering. The Company receives certain corporate support services from various Offutt Entities, including office space for its executive offices, use of conference and meeting facilities, use of an aircraft for Company business, administration of the Company's 401(k) plan and other employee benefits, and certain real estate management services. The Company has historically paid for such services based on its pro rata usage compared to the usage of other Offutt Entities or at a fixed charge. Charges for such services totalled $48,000, $56,000, $77,000, and $94,000, in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. Upon consummation of this Offering, all such services will be provided to the Company pursuant to a three-year Corporate Services Agreement and the cost of such services to the Company will be on the same basis as in prior years. The Company believes that all of these transactions were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. All future transactions
between the Company and any of the Offutt Entities or the Company's officers, directors, principal stockholder, or their affiliates will be approved both by a majority of all members of the Company's Board of Directors and by a majority of the independent and disinterested outside directors, and will continue to be on terms believed to be no less favorable to the Company than could be obtained from unaffiliated third parties. Messrs. Offutt, Horn, and Knoll also are stockholders and serve as officers and directors of various Offutt Entities, which may present a conflict of interest when the Company enters into transactions with an Offutt Entity. See "Certain Relationships and Related Transactions."
CONTROL BY RONALD D. OFFUTT
The Company's outstanding voting capital stock consists of Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to four votes per share. Upon consummation of this Offering, Ronald D. Offutt, the Company's Chairman, Chief Executive Officer, and principal stockholder, will own 100% of the outstanding Class B Common Stock representing approximately 85.4% of the outstanding voting power of the Common Stock (approximately 83.9% if the Underwriters' over-allotment option is exercised in full). Under the Deere Agreement, Deere has the right to terminate the Company's dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50% of the outstanding voting power, or whatever greater percentage is required to control corporate actions that require a stockholder vote, and (ii) own at least 35% of the outstanding Common Stock. As a result of such voting control, Mr. Offutt will have the power to control the Company, including the election of all of the directors of the Company, the determination of matters requiring stockholder approval, and other matters pertaining to corporate governance. Such voting concentration may have the effect of discouraging, delaying, or preventing a change of control, including transactions in which the holders of Class A Common Stock might otherwise receive a premium for their shares over the then-current market price. Mr. Offutt will also have sufficient voting power to take stockholder action by written consent, without a stockholder meeting. See "Principal Stockholders" and "Description of Capital Stock."
PRODUCT LIABILITY RISK
Products sold or serviced by the Company may expose it to potential liabilities for personal injury or property damage claims relating to the use of such products. Although product liability claims historically have not had a material adverse effect upon the Company, there can be no assurance that the Company will not be subject to or incur any liability for such claims in the future. While the Company maintains third-party product liability insurance which it believes to be adequate, there can be no assurance that the Company will not experience claims in excess of its insurance coverage, or claims which are ultimately not covered by insurance or for which manufacturers do not provide indemnity. There also can be no assurance that such insurance will continue to be available on economically reasonable terms. An uninsured or partially insured claim for which indemnification is not provided could have a material adverse effect on the financial condition of the Company. Furthermore, if any significant claims are made against the Company or against Deere or any of the Company's other suppliers, the Company's business may be adversely affected by any resulting negative publicity. See "Business--Product Liability and Legal Proceedings."
GOVERNMENT REGULATION
The Company is subject to numerous federal, state, and local rules and regulations, including regulations promulgated by the Environmental Protection Agency and similar state agencies with respect to storing, shipping, disposing, discharging, and manufacturing hazardous materials and hazardous and non-hazardous waste. These activities are associated with the repair and maintenance of equipment at the Company's facilities. Currently, none of the Company's stores or operations exceeds small quantity generation status. Although the Company believes that its operations are in material compliance with current laws and regulations, including environmental laws and regulations, there can be no assurance that current regulatory requirements will not change, that unforeseen environmental incidents will not occur, or
that past contamination or non-compliance with environmental laws will not be discovered on properties on which the Company is or has been located. See "Business--Environmental Standards and Government Regulations."
S CORPORATION STATUS; USE OF PROCEEDS
Beginning November 1, 1989 and continuing until the consummation of this Offering, the Company has elected to be treated as an S corporation under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a result, the Company's stockholders have been directly subject to tax on the income of the Company for federal, state, and certain local income tax purposes. The Company will use approximately $15.0 million of the net proceeds of this Offering to make a distribution to its existing stockholders of substantially all of the previously undistributed accumulated net income of the Company as of January 31, 1996 with respect to which such stockholders have previously paid taxes. Upon consummation of this Offering, the Company will be taxed as a C corporation and similar distributions will not be made to the purchasers of Class A Common Stock in this Offering. Additionally, while the Company believes that it has met the S corporation requirements and, as of the date of this Prospectus, the Internal Revenue Service (the "IRS") has not challenged the Company's S corporation status, if, for any reason, the Company were subsequently determined by the IRS not to have met S corporation requirements, the Company could be liable to pay federal corporate taxes on its income at the effective federal corporate tax rate for all or a part of the period from November 1, 1989 through the consummation of this Offering, plus interest and possibly penalties. See "S Corporation Distributions" and "Certain Relationships and Related Transactions."
ANTI-TAKEOVER MEASURES; POSSIBLE ISSUANCES OF PREFERRED STOCK
Under the Deere Agreement, Deere has the right to terminate the Company's
dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50%
of the outstanding voting power, or whatever greater percentage is required to
control corporate actions that require a stockholder vote, and (ii) own at least
35% of the outstanding Common Stock. Further, in the event of Ronald D. Offutt's
death, Deere also will have the power to terminate the Company's dealer
appointments upon the occurrence of a "change of control." See "--Deere
Termination Rights." These restrictions may effectively prevent a third party
from acquiring a substantial portion or a majority of the Company's outstanding
capital stock without Deere's consent. In addition, pursuant to the Company's
Certificate of Incorporation, the Board of Directors is authorized to issue up
to 500,000 shares of Preferred Stock and fix the rights, preferences,
privileges, and restrictions, including voting rights, of such shares without
any further vote or action by the stockholders. See "Description of Capital
Stock--Preferred Stock." The rights of the holders of Class A Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of any shares
of Preferred Stock may result in significant dilution of the interest in the
Company of the holders of Common Stock at that time. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could
make it more difficult for a third party to acquire a majority of the
outstanding voting power of the Company. Stockholders also do not have the right
of cumulative voting for the election of directors. The ownership interest and
voting control by Mr. Offutt, the requirements in the Deere Agreement, the
ability of the Board of Directors to issue shares of Preferred Stock without
further vote or action by the stockholders, and other provisions in the
Company's Certificate of Incorporation may discourage, delay, or prevent a
change of control of the Company without further action by the stockholders,
and, consequently, also could adversely affect the market price of the Class A
Common Stock. The Company also is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which could
have the effect of delaying or preventing a change of control of the Company.
See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Class A Common Stock (including shares issued upon the exercise of stock options) in the public market after consummation of this Offering, or the perception that such sales could occur,
could materially and adversely affect the market price of the Class A Common Stock. Such sales also might make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that the Company would deem appropriate. Upon the consummation of this Offering, the Company will have 12,550,000 shares of Class A Common Stock outstanding, or issuable upon conversion of the 7,458,492 outstanding shares of Class B Common Stock, of which the shares offered hereby will be tradeable without restriction unless they are purchased by an affiliate of the Company. Shares of Common Stock outstanding prior to consummation of this Offering will be "restricted securities" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). These "restricted securities" and any shares purchased by affiliates of the Company in this Offering may be sold only if they are registered under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act, including Rule 144. The Company and the holders of approximately 8,350,000 shares of Common Stock have agreed not to sell, otherwise dispose of, or pledge such shares for 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation. After expiration of the lock-up agreements, an aggregate of 7,924,716 shares of Class A Common Stock will be available for sale in the public market, including 7,033,208 shares of Class A Common Stock into which shares of Class B Common Stock are convertible on a one-for-one basis, subject in certain cases to volume and manner of sale limitations. The remaining 425,284 shares of Common Stock held by existing stockholders will become eligible for public resale at various times over a period of less than two years following the consummation of this Offering, subject to volume and manner of sale limitations pursuant to Rule 144. In addition, the Company intends to file a registration statement under the Securities Act to register an aggregate of 1,250,000 shares of Class A Common Stock reserved for issuance under the Company's 1996 Stock Incentive Plan (the "Incentive Plan"). The Company intends to grant options to purchase approximately 600,000 shares of Class A Common Stock prior to consummation of this Offering at an exercise price equal to the initial public offering price. The issuance of such shares could result in the dilution of the voting power of the shares of Class A Common Stock purchased in this Offering and could have a dilutive effect on earnings per share. See "Management--1996 Stock Incentive Plan," "Description of Capital Stock," "Shares Eligible for Future Sale," and "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock existed. Although the Class A Common Stock has been approved for listing on the NYSE, there can be no assurance that an active trading market will develop or be sustained following this Offering. The initial public offering price of the Class A Common Stock offered hereby will be determined through negotiations between the Company and the representatives of the Underwriters. See "Underwriting." The market price for the Class A Common Stock may be volatile and subject to fluctuations resulting from news announcements concerning the Company, quarterly operating results, the markets for industrial or agricultural equipment, announcements by Deere or other suppliers of equipment to the Company or by competitive manufacturers, analyst recommendations, general securities market conditions, and other factors. The stock market in general, and the market for shares of small capitalization stocks in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the market price of the Class A Common Stock and the negotiated initial public offering price may not be indicative of future market prices of the Class A Common Stock.
DILUTION
Purchasers of shares of the Class A Common Stock offered hereby (at an assumed initial public offering price of $15.50 per share) will experience immediate and substantial dilution of the net tangible book value of the Class A Common Stock in the amount of $9.67 per share from the initial public offering price. The net tangible book value per share of the Class A Common Stock represents the amount of the Company's tangible assets less liabilities divided by the number of shares of Common Stock outstanding. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,200,000 shares of Class A Common Stock offered hereby (at an assumed initial public offering price of $15.50 per share and after deducting estimated underwriting discounts and commissions and offering expenses) are estimated to be approximately $59.5 million ($68.6 million if the Underwriters' over-allotment option is exercised in full).
The Company plans to use a portion of the net proceeds of this Offering to pay the purchase price and repay indebtedness incurred in connection with recently completed acquisitions, in the aggregate amount of approximately $10.1 million, including (i) a promissory note in the amount of $8.4 million, payable by the Company to Ag Capital, which bears interest at the prime rate (8.25% as of December 31, 1996) and matures on February 28, 1997, incurred in connection with the Central Texas Acquisition, and (ii) a promissory note in the amount of $1.7 million, payable by the Company to Ag Capital, which bears interest at the prime rate and matures February 28, 1997, incurred in connection with the Washington Acquisition. See "Certain Relationships and Related Transactions." The Company also plans to use a portion of the net proceeds of this Offering to pay an aggregate distribution of approximately $15.0 million to the existing stockholders of the Company of substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996. See "S Corporation Distributions."
The Company plans to use the balance of the net proceeds of approximately $34.4 million ($43.5 million if the Underwriters' over-allotment option is exercised in full) to finance future acquisitions, new stores, and internal growth and for other general corporate purposes, including working capital. The Company intends to continue to evaluate acquisition opportunities as they arise and expects that future acquisitions primarily will consist of existing Deere agricultural and industrial dealers. The Company also may consider acquisitions of complementary businesses, such as equipment rental operations. The Company has entered into a letter of intent to acquire certain assets of an industrial equipment rental company with five locations in Arizona. If this contemplated acquisition is completed, the Company would expect to use approximately $2.4 million of the net proceeds of this Offering and assume certain liabilities. See "Business--Recent and Contemplated Acquisitions." This contemplated acquisition is subject to a number of conditions, including the negotiation and execution of a definitive agreement and the completion of due diligence. There can be no assurance that such conditions will be fulfilled or that the contemplated acquisition will be consumated.
The Company currently is not a party to any other agreement or understanding with respect to other possible acquisitions.
Pending such uses, the net proceeds of this Offering will be used to reduce borrowings under the Company's lines of credit, including its floor plan financing with Deere or indebtedness to Ag Capital, each of which bears interest at the prime rate (8.25% as of December 31, 1996).
S CORPORATION DISTRIBUTIONS
The Company has elected to be taxed as an S corporation since November 1, 1989 and its S corporation election will continue until the consummation of this Offering. Consequently, the stockholders of the Company have been paying the federal and state income taxes on the Company's taxable income directly for all periods during which the Company has been an S corporation and will continue paying or accruing such tax liability while the Company remains an S corporation. Prior to fiscal 1997, a portion of the net income of the Company was distributed to the stockholders, primarily to enable them to pay the tax liability incurred by them in connection with the Company's taxable income. Distributions declared to date in fiscal 1997 approximate the net income of the Company for that period. Dividends declared and paid for the fiscal years ended January 31, 1994, 1995, 1996, and during the nine-month period ended October 31, 1996 aggregated approximately $2.3 million, $3.8 million, $4.3 million, and $7.5 million, respectively, and dividends declared but unpaid as of October 31, 1996 were $2.2 million. This amount, plus net income before taxes for the fourth quarter of fiscal 1997, which is estimated to be approximately $900,000, is
expected to be distributed to the existing stockholders prior to the consummation of this Offering. Purchasers of Class A Common Stock in this Offering will not receive any of these distributions.
Simultaneously with the consummation of this Offering, the Company will pay to its existing stockholders from the net proceeds of this Offering an additional aggregate distribution of approximately $15.0 million, which represents a distribution to such stockholders of substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996 with respect to which such stockholders have previously paid taxes. This distribution, which will coincide with the termination of the Company's S corporation election, will allow the existing stockholders of the Company to receive this accumulated net income without having to pay additional taxes on such amounts. Purchasers of Class A Common Stock in this Offering will not receive any of these distributions. The Company will enter into a tax agreement with its existing stockholders prior to the consummation of this Offering which will provide that, to the extent undistributed taxable income of the Company, as subsequently established in connection with the filing of the Company's tax return for the Company's last S corporation tax year, is less than these distributions, such stockholders will make a payment equal to such difference to the Company, and if such undistributed taxable income is greater than these dividends, the Company will make an additional distribution equal to such difference to such stockholders. This agreement will also provide that the Company will indemnify its existing stockholders against additional income taxes resulting from adjustments made (as a result of a final determination made by a competent tax authority) to the taxable income reported by the Company as an S corporation for periods prior to termination of the S corporation status, but only to the extent those adjustments provide a tax benefit to the Company.
Because the Company has used a fiscal year rather than a calendar year for its taxable year during its existence as an S corporation, the Company has made required payments to the IRS under Section 444 of the Internal Revenue Code. As of October 31, 1996, the payments held on deposit totalled approximately $570,000, which amount will be refunded to the Company.
The Company has elected to allocate its taxable income on the basis of closing its books effective the end of business on the day before the termination of its S corporation status. Upon termination of its S corporation status, the Company will become subject to income taxation and, in connection therewith, the Company will record an asset of approximately $850,000 for deferred income taxes on its balance sheet. See Note 8 to the Combined Financial Statements.
REINCORPORATION
The Company, originally incorporated in North Dakota in 1968, was reincorporated in Delaware effective in January 1997. Concurrently with the reincorporation, the Company also completed a 44.5-for-one stock split and share exchange so that each existing stockholder other than Mr. Offutt received 44.5 shares (a total of 891,508 shares) of Class A Common Stock, and Mr. Offutt received 44.5 shares (a total of 7,458,492 shares) of Class B Common Stock, of the new Delaware corporation for each share of the North Dakota corporation.
DIVIDEND POLICY
Following the consummation of this Offering, the Company's Board of Directors intends to retain the earnings of the Company, if any, to support the Company's operations and to finance expansion, and it does not intend to pay cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends will be at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, dividend restrictions under its agreements with Deere or with any other credit provider, and such other factors as the Board of Directors may deem relevant. No dividends may be declared or paid on any share of either class of Common Stock, unless such dividend, at the same rate per share, is simultaneously declared or paid on each share of the other class of Common Stock.
Under the Deere Agreement, the Company is prohibited from paying any dividends, effecting any capital stock repurchase, or making any other distributions to stockholders if the equity-to-assets ratio of the Company's Deere dealer operations is below 30% as calculated by Deere or would be below such percentage as a result of such dividend, repurchase, or distribution. For purposes of making this calculation, certain business operations and assets of the Company held in wholly-owned subsidiaries, such as its real estate and its irrigation and rental businesses, are excluded.
Because the Company has been and will be an S corporation until the consummation of this Offering, a portion of the net income of the Company has been distributed from time to time to its existing stockholders as a dividend primarily to cover the taxes payable by such stockholders with respect to the Company's taxable income. In addition, dividends declared but unpaid as of October 31, 1996 were $2.2 million. This amount, plus net income before taxes for the fourth quarter of fiscal 1997, which is estimated to be approximately $900,000, is expected to be distributed to the existing stockholders prior to consummation of this Offering. An additional distribution of approximately $15.0 million will be paid to the existing stockholders from the net proceeds of this Offering simultaneously with the consummation of this Offering, representing substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996 with respect to which stockholders have already paid taxes. Purchasers of shares of Class A Common Stock in this Offering will not receive any of these distributions. See "S Corporation Distributions."
DILUTION
The pro forma net tangible book value of the Common Stock as of October 31, 1996 was $13.6 million or $1.63 per share, after giving pro forma effect to the Central Texas and the Washington Acquisitions, the 44.5-for-one stock split in connection with the reincorporation of the Company, and the $15.0 million S corporation distribution to the existing stockholders. See Pro Forma Unaudited Financial Statements and the Notes thereto.
Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of Class A Common Stock in this Offering and the pro forma net tangible book value per share of the Common Stock (both Class A and Class B) immediately after consummation of this Offering. After giving effect to the sale of 4,200,000 shares of Class A Common Stock in this Offering at an assumed initial public offering price of $15.50 per share and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of October 31, 1996 would have been $73.1 million, or $5.83 per share. See "Use of Proceeds" and "S Corporation Distributions." This represents an immediate increase in net tangible book value of $4.20 per share to existing stockholders of the Company and an immediate dilution in net tangible book value of $9.67 per share to purchasers of Class A Common Stock in this Offering, as illustrated in the following table:
Initial public offering price per share of Class A Common
Stock....................................................... $ 15.50
Pro forma net tangible book value per share before this
Offering................................................. $ 1.63
Increase per share attributable to new investors........... 4.20
---------
Pro forma net tangible book value per share after this
Offering.................................................... 5.83
---------
Dilution per share to new investors(1)....................... $ 9.67
---------
---------
|
(1) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance under the Incentive Plan, of which approximately 600,000 shares will be subject to options to be granted prior to consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
The following table summarizes, on a pro forma basis as of October 31, 1996, the difference between the existing stockholders and the purchasers of shares of Class A Common Stock in this Offering (at an assumed offering price of $15.50 per share) with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid therefor to the Company, and the average price per share paid by the existing stockholders and by purchasers of shares of Class A Common Stock in this Offering:
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
Existing stockholders(1)....... 8,350,000 66.5% $ 16,300,000 20.0% $ 1.95
New investors.................. 4,200,000 33.5 65,100,000 80.0 15.50
------------ ----- ------------- -----
Total(2)................... 12,550,000 100.0% $ 81,400,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
|
(1) Includes both Class A and Class B Common Stock purchased by existing stockholders. See "Principal Stockholders" for information on ownership by the existing stockholders, directors, and executive officers.
(2) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance under the Incentive Plan, of which approximately 600,000 shares will be subject to options to be granted prior to consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of the Company as of October 31, 1996, and as adjusted to give effect to the sale of shares of Class A Common Stock offered hereby and the application of the net proceeds therefrom as described under "Use of Proceeds," which includes an S corporation distribution to the existing stockholders. See "S Corporation Distributions." The capitalization table excludes $100.6 million ($66.2 million on a pro forma as adjusted basis) of floor plan payables, a portion of which is interest bearing. Such payables are used to finance the Company's inventory purchases. See Note 5 to the Combined Financial Statements.
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED
----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Notes payable and long-term debt(1):
Banks and others.......................................... $ 11,020 $ 11,020 $ 11,020
Affiliates................................................ 15,738(3) 15,738 5,638
----------- ------------- -------------
Total debt.............................................. 26,758 26,758 16,658
----------- ------------- -------------
Less short-term notes and current maturities of long-term
debt....................................................... (15,928) (15,928) (5,828)
----------- ------------- -------------
Net long-term debt...................................... 10,830 10,830 10,830
----------- ------------- -------------
Stockholders' equity:
Preferred stock, no par value, 500,000 shares authorized;
none outstanding........................................ -- -- --
Class A Common Stock, $.01 par value, 20,000,000 shares
authorized; 891,508 shares issued and outstanding,
actual and pro forma; 5,091,508 shares issued and
outstanding, as adjusted................................ 9 9 51
Class B Common Stock, $.01 par value, 7,500,000 shares
authorized; 7,458,492 shares issued and outstanding,
actual, pro forma, and as adjusted...................... 75 75 75
Additional paid-in capital................................ 16,216 16,216 75,674
Retained earnings......................................... 17,984 3,834 3,834
----------- ------------- -------------
Total stockholders' equity............................ 34,284 20,134 79,634
----------- ------------- -------------
Total capitalization.................................. $ 45,114 $ 30,964 $ 90,464
----------- ------------- -------------
----------- ------------- -------------
|
(1) See Note 6 to the Combined Financial Statements for information regarding outstanding notes payable and long-term debt.
(2) Adjusted to give effect to (i) the deferred tax asset of approximately $850,000 resulting from the termination of the Company's status as an S corporation, and (ii) the $15.0 million S corporation distribution to existing stockholders which will be paid out of the net proceeds of this Offering.
(3) Includes $10.1 million of notes issued to Ag Capital in connection with the consummation of the Central Texas and Washington Acquisitions, which notes will be repaid from the net proceeds of this Offering.
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
The following Selected Combined and Pro Forma Financial and Operating Data relating to the Company have been taken or derived from the Combined Financial Statements and other records of the Company. The selected financial data for the fiscal year ended January 31, 1996 have been derived from combined financial statements which have been audited by Arthur Andersen LLP, independent public accountants. The selected financial data for each of the four years in the period ended January 31, 1995 have been derived from combined financial statements which have been audited by Eide Helmeke PLLP, independent public accountants. The selected financial data for the nine months ended October 31, 1995 and 1996 have been derived from unaudited interim financial statements, for those periods, which have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments which are necessary for a fair statement of the results of the interim period, and all such adjustments are of a normal recurring nature. The financial and operating data presented below may not be comparable between periods in all material respects or indicative of the Company's future financial position or results of operations due primarily to acquisitions which occurred during the periods presented, or subsequent thereto, including the Central Texas and the Washington Acquisitions. The selected financial and operating data for the nine months ended October 31, 1996 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 1997. The pro forma financial statements are provided for informational purposes only and should not be construed to be indicative of the Company's results of operations had the acquisitions been consummated on the dates assumed and do not project the Company's results of operations for any future period. The Selected Combined and Pro Forma Financial and Operating Data should be read in conjunction with the Company's Combined Financial Statements and the Notes thereto and Pro Forma Unaudited Financial Statements and the Notes thereto and other financial information included elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
ACTUAL
------------------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996(1)(2)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales........................... $ 49,097 $ 73,516 $ 106,600 $ 135,704 $ 164,054 $ 192,760
Parts and service.......................... 22,129 31,862 37,512 48,206 58,998 72,213
Rental..................................... -- -- -- -- 505 505
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 71,226 105,378 144,112 183,910 223,557 265,478
Cost of sales................................ 56,422 83,548 116,369 148,111 180,839 212,824
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 14,804 21,830 27,743 35,799 42,718 52,654
Selling, general, and administrative
expense..................................... 11,929 16,737 20,577 24,893 31,655 38,858
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 2,875 5,093 7,166 10,906 11,063 13,796
Interest expense............................. (1,299) (1,284) (1,670) (1,895) (3,817) (1,584)
Interest income.............................. 173 376 336 802 823 1,031
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
Provision for income taxes(3)................ 700 1,674 2,332 3,925 3,228 5,297
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 7,946
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income per share..............................................................................................
$ .63
-----------
-----------
Weighted average shares outstanding............................................................................... 12,570
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sale increase........... -- 12% 32% 25% 11% --
Stores open at beginning of period........... 15 17 21 22 22 22
Stores opened.............................. 1 0 0 0 2 2
Stores acquired............................ 1 4 1 0 2 7
----------- ----------- ----------- ----------- ----------- -----------
Stores open at end of period................. 17 21 22 22 26 31
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures......................... $ 561 $ 681 $ 627 $ 1,208 $ 9,993 $ 10,131
Depreciation................................. 504 584 668 690 1,326 1,653
NINE MONTHS ENDED OCTOBER 31,
---------------------------------------
ACTUAL
------------------------- PRO FORMA
1995 1996 1996(1)(2)
----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales........................... $ 131,211 $ 170,036 $ 191,044
Parts and service.......................... 45,614 57,322 64,877
Rental..................................... -- 1,902 1,902
----------- ----------- -----------
Total revenues........................... 176,825 229,260 257,823
Cost of sales................................ 143,718 186,451 208,581
----------- ----------- -----------
Gross profit................................. 33,107 42,809 49,242
Selling, general, and administrative
expense..................................... 23,600 29,492 33,908
----------- ----------- -----------
Operating income............................. 9,507 13,317 15,334
Interest expense............................. (2,435) (4,116) (2,247)
Interest income.............................. 586 633 816
----------- ----------- -----------
Net income................................... $ 7,658 $ 9,834 $ 13,903
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 7,658 $ 9,834 $ 13,903
Provision for income taxes(3)................ 3,063 3,934 5,561
----------- ----------- -----------
Net income................................... $ 4,595 $ 5,900 $ 8,342
----------- ----------- -----------
----------- ----------- -----------
Net income per share.........................
$ .66
-----------
-----------
Weighted average shares outstanding.......... 12,555
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sale increase........... 13% 23% --
Stores open at beginning of period........... 22 26 26
Stores opened.............................. 1 1 1
Stores acquired............................ 2 5 5
----------- ----------- -----------
Stores open at end of period................. 25 32 32
----------- ----------- -----------
----------- ----------- -----------
Capital expenditures......................... $ 9,674 $ 3,182 $ 3,328
Depreciation................................. 614 1,930 2,155
|
AS OF OCTOBER 31, 1996
----------------------------------------
AS OF JANUARY 31, PRO FORMA
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(4) ADJUSTED(2)(4)
--------- --------- --------- --------- --------- --------- ------------- --------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital......... $ 9,846 $ 15,284 $ 22,019 $ 26,700 $ 26,596 $ 20,778 $ 5,778 $ 65,278
Inventories............. 40,175 55,582 64,768 77,204 115,616 125,766 125,766 125,766
Total assets............ 46,129 68,660 83,341 98,315 148,093 176,712 177,562 177,562
Floor plan
payables(5)............ 28,067 45,149 46,644 53,581 91,614 100,612 100,612 66,212
Total debt.............. 6,283 7,105 2,946 3,277 10,638 26,758 26,758 16,658
Stockholders' equity.... 7,006 10,699 24,503 30,467 34,284 34,284 20,134 79,634
|
(SEE FOOTNOTES ON FOLLOWING PAGE)
NOTES TO SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(1) Reflects adjustment to give effect to the Central Texas and the Washington Acquisitions as if such acquisitions had occurred February 1, 1995. The pro forma information is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of February 1, 1995 or that may be achieved in the future. See Pro Forma Unaudited Financial Statements and the Notes thereto.
(2) Adjusted to give effect to the sale of 4,200,000 shares of Class A Common Stock offered hereby at an assumed initial offering price of $15.50 per share and the application of the net proceeds therefrom. See "Use of Proceeds," "S Corporation Distributions," "Capitalization," Pro Forma Unaudited Financial Statements and the Notes thereto, and Combined Financial Statements and the Notes thereto.
(3) For all periods presented, the Company was an S corporation and generally was not subject to corporate income taxes. The pro forma income tax provision has been computed as if the Company were subject to corporate income taxes for all periods presented based on the tax laws in effect during the respective periods. See "S Corporation Distributions" and Combined Financial Statements and the Notes thereto.
(4) Adjusted to give effect to (i) the deferred tax asset of approximately $850,000 resulting from the termination of the Company's status as an S corporation, and (ii) the $15.0 million S corporation distribution to existing stockholders which will be paid out of the net proceeds of this Offering.
(5) Includes interest bearing and non-interest bearing liabilities incurred in connection with inventory financing. See Note 5 to the Combined Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company owns and operates industrial and agricultural equipment stores located in Arizona, California, Minnesota, North Dakota, South Dakota, Texas, and Washington. The Company sells, services, and rents industrial and agricultural equipment to customers primarily operating in the construction and agricultural industries, as well as to units of state, local, and federal government and utility companies. The Company's major supplier of new equipment and parts is Deere.
A significant portion of the Company's growth in recent years has been due to the acquisition of several industrial and agricultural dealerships. The results of operations of the following acquisitions have been included with the Company's results of operations only for the periods specified:
- In February 1995, the Company purchased the assets and assumed certain liabilities of a Deere industrial dealership in Southern California which consisted of two full-service industrial stores located in San Diego and Riverside, California with a Deere area of responsibility contiguous with the Company's area of responsibility in Arizona, resulting in operating efficiencies. The results of operations of the acquired business are included in the Company's results of operations beginning in February 1995.
- Effective July 1, 1996, the Company completed the Central Texas Acquisition, and acquired certain assets and assumed certain liabilities of a Deere industrial dealership which consisted of three full-service Deere industrial stores located in the Dallas-Fort Worth and Waco, Texas metropolitan areas with a related Deere area of responsibility. The purchase price was approximately $8.4 million, which was financed through a note payable to Ag Capital, with an interest rate at the prime rate (which was 8.25% as of December 31, 1996) due February 28, 1997, which note will be repaid out of the net proceeds of this Offering. See "Certain Relationships and Related Transactions." The acquisition was accounted for under the purchase method of accounting and the results of operations of the Central Texas stores are included in the Company's results of operations beginning July 1, 1996.
- Effective October 1, 1996, the Company completed the Washington Acquisition, and acquired certain assets and assumed certain liabilities of a Deere agricultural dealership which consisted of two Deere agricultural stores in Pasco and Sunnyside, Washington. The purchase price for the net assets was approximately $2.7 million, and was financed in part by a $1.0 million note payable to the seller, with the remainder financed by a note payable to Ag Capital with an interest rate at the prime rate (which was 8.25% as of December 31, 1996) due February 28, 1997, which note will be repaid out of the net proceeds of this Offering. See "Certain Relationships and Related Transactions." This acquisition was accounted for under the purchase method of accounting and the results of operations of the Washington stores are included in the Company's results of operations beginning October 1, 1996.
For pro forma financial information regarding the potential effects of these acquisitions, see the Pro Forma Unaudited Financial Statements and the Notes thereto included elsewhere in this Prospectus.
The Company generates its revenues from sales of new and used equipment (wholegoods), sales of parts and service, and the rental of equipment. In addition to sales of new and used equipment, wholegoods sales include equipment purchased under rent-to-purchase agreements. Generally under such agreements, the customer is given a period of up to six months to exercise the option to purchase the rented equipment and is allowed to apply a portion of the rental payments to the purchase price. This equipment is included in the Company's inventory until the option is exercised and the equipment is purchased. Rental includes only rental income derived from the Company's dedicated rental fleet and does not include rental payments made on rent-to-purchase equipment.
The Company's highest gross margins have historically been generated from its parts and service revenues. One of the Company's operating strategies is to increase the demand for parts and service by establishing, and then increasing, the base of wholegoods held by its customers. Due to product warranty time frames and usage patterns by customers, there generally is a time lag between wholegoods sales and the generation of significant parts and service revenues from such sales. As a result of this time lag, increases in parts and service revenues do not necessarily coincide with increases in wholegoods sales. In addition, due to differences in gross margins between wholegoods sales and parts and service revenues, gross margin percentages may decline as the Company builds wholegoods market share.
The Company generally experiences lower levels of equipment sales during the period from November through April, impacting the first and fourth fiscal quarters, due to the crop growing season and winter weather conditions in the Midwest. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during the Company's second and third fiscal quarters. As a result, sales of agricultural equipment generally are lower in the Company's first and fourth fiscal quarters. Winter weather in the Midwest also limits construction activity and, therefore, also typically results in lower sales of industrial equipment in the first and fourth fiscal quarters.
The Company requires cash primarily for financing its inventory of wholegoods and replacement parts, acquisitions of additional dealerships, and capital expenditures. Historically, the Company has met these liquidity requirements primarily through cash flow generated from operating activities, floor plan financing, and borrowings under credit agreements with Deere, Deere Credit Services, Inc. ("Deere Credit"), Ag Capital, and commercial banks. Floor plan financing from Deere and Deere Credit represents the primary source of financing for wholegoods inventories, particularly for equipment supplied by Deere. All lenders receive a security interest in the inventory financed. Deere and Deere Credit offer floor plan financing to Deere dealers for extended periods and with varying interest-free periods, depending on the type of equipment, to enable dealers to carry representative inventories of equipment and to encourage the purchase of goods by dealers in advance of seasonal retail demand. Down payments are not required and interest may not be charged for a substantial part of the period for which inventories are financed. Variable market rates of interest based on the prime rate are charged on balances outstanding after any interest-free periods, which are currently six to eight months for agricultural equipment and one to five months for industrial equipment. Deere also provides financing to dealers on used equipment accepted in trade and approved equipment from other suppliers. See "Business--Floor Plan Financing" and "Certain Relationships and Related Transactions."
The Company believes that it has benefitted from generally favorable economic conditions during recent years, including, with respect to its Agricultural Division, favorable grain prices which have resulted in a strong farming economy and, with respect to its Industrial Division, favorable construction markets. Price increases by suppliers of the Company's products have not historically had a significant impact on the Company's results of operations.
Prior to consummation of this Offering, the Company has been an S corporation and not subject to tax on its net income. The Company's S election will terminate upon consummation of this Offering. The pro forma provision for taxes and net income reflect the impact of the tax provision as if the Company were subject to income taxes (at an assumed rate of 40%) for the periods presented.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's historical results of operations for fiscal 1994, 1995, 1996, and the nine months ended October 31, 1995 and 1996, without giving effect to pro forma results of operations for the California operations acquired in February 1995, the Central Texas Acquisition, or the Washington Acquisition, except as expressly indicated.
The following table sets forth, for the periods indicated, certain financial data as a percentage of total revenues:
NINE MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, OCTOBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
Revenues:
Wholegoods sales.................................... 74.0% 73.8% 73.4% 74.2% 74.2%
Parts and service................................... 26.0 26.2 26.4 25.8 25.0
Rental.............................................. -- -- 0.2 -- 0.8
--------- --------- --------- --------- ---------
Total revenues........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross profit.......................................... 19.2% 19.5% 19.1% 18.7% 18.7%
Selling, general, and administrative expense.......... 14.2 13.4 14.0 13.3 12.9
--------- --------- --------- --------- ---------
Operating income...................................... 5.0 6.1 5.1 5.4 5.8
Interest expense, net................................. 1.0 0.7 1.4 1.0 1.5
Pro forma provision for taxes(1)...................... 1.5 2.2 1.5 1.8 1.7
--------- --------- --------- --------- ---------
Pro forma net income(1)............................... 2.5% 3.2% 2.2% 2.6% 2.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
|
(1) Pro forma provision for taxes and pro forma net income reflect the impact of the tax provision as if the Company were a C corporation subject to income taxes (at an assumed rate of 40%) during these periods.
NINE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO NINE MONTHS ENDED
OCTOBER 31, 1995
REVENUES
Revenues increased approximately $52.5 million, or 29.7%, from $176.8 million for the first nine months of fiscal 1996 to $229.3 million for the first nine months of fiscal 1997. Industrial operations contributed approximately $38.3 million of this increase, with revenues increasing 36.3% to $144.1 million. The increase in industrial revenues was due in part to a change in the discount program offered by Deere on governmental sales. During fiscal 1996, Deere significantly reduced the discounts it offered for sales to the government sector. As a result, the Company's pricing on governmental sales was less competitive and it lost market share and sales in fiscal 1996. In fiscal 1997, Deere reversed the adjustments it had made to the discounts, resulting in the Company being able to be more competitive and increase sales. Also adding to the increase in industrial revenues was a substantial increase in market share and an increase in product support, resulting from the continued implementation of the Company's operating model. In addition, $9.1 million of the increase in revenues from industrial operations resulted from the inclusion of four months of operations of the Central Texas operations, the acquisition of which was effective July 1, 1996. The May 1995 opening of an industrial store in Prescott, Arizona, the addition of an undercarriage service facility at the Company's industrial store in Riverside, California, and the November 1995 addition of a dedicated industrial equipment rental fleet in the Southwest region also contributed to the increase in total revenues.
Agricultural operations contributed the remaining increase in revenues of approximately $14.3 million, with revenues increasing 19.8% to $85.2 million. Of this increase in agricultural revenues, $646,000 was due to the Company's October 1, 1996 acquisition of the Washington operations. In general, the increase in total revenues was the result of some shift in business from the fourth quarter of the previous fiscal year due to the cold weather and farmer uncertainty about the U.S. farm program. In addition, the highly positive outlook of farmers for the agricultural economy generated increased activity in all aspects of the Company's agricultural operations.
Wholegoods sales increased approximately $38.8 million, or 29.6%, from $131.2 million for the first nine months of fiscal 1996 to $170.0 million for the first nine months of fiscal 1997. Industrial operations contributed approximately $28.1 million of this increase, with sales increasing 36.7% to $104.6 million. Of this increase, $6.6 million was due to the acquisition of the Central Texas operations. Agricultural operations contributed the remaining increase of approximately $10.7 million, with sales increasing 19.6% to $65.4 million. The increase in wholegoods sales for both the Industrial and Agricultural Divisions was due to the factors discussed in the preceding paragraphs. Wholegoods sales also increased as a result of the Company's marketing strategy, which focuses on increased market share, customer relationship training of its sales force, and utilization of software to track and manage sales calls. See "Business--Sales and Marketing." Management also focused on increasing inventory to provide stores with a wider selection of wholegoods inventory and to build the base of equipment.
Parts and service revenue increased approximately $11.7 million, or 25.7%, from $45.6 million for the first nine months of fiscal 1996 to $57.3 million for the first nine months of fiscal 1997. Of this increase, $3.1 million was due to the acquisitions of the Central Texas and Washington operations and the majority of the remaining portion of the increase was due to the increase in the base of wholegoods owned by the Company's customers. Parts and service revenue did not grow at the same rate as wholegoods sales, partially due to the time lag factor discussed above and partially due to service capacity constraints, both in facilities and personnel. The Company has added, and continues to add, service bay facilities and personnel to its stores to expand its service capacity. The May 1995 opening of the undercarriage service facility at the industrial store in Riverside, California contributed approximately $774,000 of parts and service revenue in the first nine months of fiscal 1996 compared to $1.8 million in the first nine months of fiscal 1997.
Rental revenue of $1.9 million was generated in the first nine months of fiscal 1997 as the result of the commencement of industrial equipment rental operations in the Southwest region in November 1995.
GROSS PROFIT
Gross profit increased approximately $9.7 million, or 29.3%, from $33.1 million for the first nine months of fiscal 1996 to $42.8 million for the first nine months of fiscal 1997. Gross profit as a percentage of the total revenues for the first nine months of both fiscal 1996 and 1997 was 18.7%. As noted above, the Company's highest gross margins are derived from its parts and service revenues. For these periods, there was a small, but not significant, change in the revenue mix between wholegoods sales and parts and service revenues.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expense as a percentage of total revenues decreased from 13.3% for the first nine months of fiscal 1996 to 12.9% for the first nine months of fiscal 1997, due primarily to relatively stable fixed costs compared to a larger base of total revenues. Total selling, general, and administrative expense increased approximately $5.9 million, from $23.6 million for the first nine months of fiscal 1996 to $29.5 million for the first nine months of fiscal 1997. Approximately $1.5 million of the increase was due to the operations of the recent acquisitions. The remaining portion of the increase was primarily due to increases in variable expenses, such as commissions and bonus incentives, incurred in connection with generating higher total revenues and net income.
INTEREST EXPENSE
Interest expense increased approximately $1.7 million, or 69.0%, from $2.4 million for the first nine months of fiscal 1996 to $4.1 million for the first nine months of fiscal 1997. The increase was due primarily to the increased levels of floor plan payables associated with higher inventory levels, the financing of the industrial equipment rental fleet discussed above, and the acquisition debt associated with the acquisitions of the Central Texas and Washington operations. An increase in the prime rate and a change in Deere floor
plan payment terms for the industrial operations, which shortened the interest-free period on certain purchases of industrial equipment, also contributed to the increase.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income increased approximately $1.3 million, or 28.3%, from $4.6 million for the first nine months of fiscal 1996 to $5.9 million for the first nine months of fiscal 1997.
FISCAL YEAR ENDED JANUARY 31, 1996 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1995
REVENUES
Revenues increased approximately $39.7 million, or 21.6%, from $183.9 million for fiscal 1995 to $223.6 million for fiscal 1996. Industrial operations contributed approximately $28.3 million of this increase with revenues increasing 25.7% to $139.0 million. Approximately $16.9 million of the increase in industrial revenues was due to the Company's February 1995 acquisition of the California operations. Approximately $2.0 million of the industrial revenue increase was due to the Prescott, Arizona store, which opened in May 1995. Excluding the California and Prescott operations, same store industrial revenues increased approximately $9.4 million, or 8.5%, from $110.6 million in fiscal 1995 to $120.0 million in fiscal 1996. The same store industrial revenues increased at a lower rate than in prior fiscal years due in part to a change in the discount program offered by Deere on sales to the government sector. During fiscal 1996, Deere significantly reduced the discounts it offered on such sales. As a result, the Company's pricing on governmental sales was less competitive and it experienced reductions in market share and sales to the government sector. The Company was able to replace a portion of these governmental sales with other sales, but not to the extent necessary to achieve its expected growth rate in same store sales. It should be noted that in fiscal 1997, Deere reversed the adjustments it had made to the governmental program and increased the discounts back to their previous levels. Also impacting total revenues in fiscal 1996 were weather factors in the Midwest. The winter of 1995/1996 was extremely cold, with numerous record low temperatures set in both December 1995 and January 1996. As a result, customers in the Midwest did not buy wholegoods and equipment was not able to be moved for normal servicing.
Agricultural operations contributed the remaining increase in revenues of approximately $11.3 million, with agricultural revenues increasing 15.4% to $84.6 million. All of the increase in agricultural revenues was due to same store sales increases, primarily as a result of the successful implementation of the Company's strategy to increase its market share. The rate of increase in same store sales for the Agricultural Division was not as high as prior years due to the same weather factors that impacted industrial sales and farmer uncertainty about the United States farm program. During fiscal 1995 and 1996, all of the Company's agricultural stores were located in the Midwest. Through the first three quarters of fiscal 1996, total agricultural revenues had increased 22.0% over the same period of fiscal 1995. The cold weather in the fourth quarter of fiscal 1996 was the primary factor for a 10.5% decrease in revenues from the same quarter in fiscal 1995.
Wholegoods sales increased approximately $28.3 million, or 20.9%, from $135.7 million in fiscal 1995 to $164.0 million in fiscal 1996. Industrial operations contributed approximately $17.8 million of this increase, with sales increasing 21.8% to $99.4 million. Of this increase, $9.2 million was due to the acquisition of the California operations, and $1.7 million was due to the opening of the Prescott store. Excluding the California and Prescott operations, same store sales of industrial wholegoods increased approximately $6.9 million, or 8.5%, to $88.5 million. Agricultural operations contributed the remaining increase in wholegoods sales of approximately $10.5 million, with sales increasing 19.4% to $64.6 million. All of the increase in agricultural wholegoods sales was due to same store sales increases. The Industrial
Division was affected by the Deere discount program change and the weather factors discussed above, which slowed the rate of same store sales increases, while the reduction in the rate of same store sales increases for the Agricultural Division was due to the weather factors discussed above. Wholegoods sales also increased as a result of the Company's marketing strategy, which focuses on increased market share, customer relationship training of its sales force, and utilization of software to track and manage sales calls. See "Business--Sales and Marketing."
Parts and service revenue increased approximately $10.7 million, or 22.4%, from $48.2 million in fiscal 1995 to $59.0 million in fiscal 1996. Approximately $7.6 million of the increase was due to the acquisition of the California operations and $292,000 was due to the newly-opened Prescott store. Excluding the California and Prescott operations, same store parts and service revenue increased approximately $2.9 million, or 6.0%, to $51.1 million in fiscal 1996. Parts and service growth did not keep pace with the rates of increase in prior years due in part to the weather factors discussed above. In addition, parts and service revenue growth did not keep pace with the growth in wholegoods sales due to service capacity constraints, both in facilities and personnel. The Company has added, and continues to add, service bay facilities and personnel to its stores to expand its service capacity.
The Company commenced industrial equipment rental operations in the fourth quarter of fiscal 1996 by implementing a rental fleet of industrial equipment in the Southwest region. Rental revenue was $505,000 in fiscal 1996.
GROSS PROFIT
Gross profit increased approximately $6.9 million, or 19.3%, from $35.8 million in fiscal 1995 to $42.7 million in fiscal 1996. Gross profit as a percentage of total revenues decreased slightly from 19.5% in fiscal 1995 to 19.1% in fiscal 1996. Lower gross margins resulted in large part from reduced Deere governmental discounts on industrial equipment. In an effort to offset the reduction in the volume of sales to the governmental sector, the Company pursued an aggressive pricing policy with respect to other wholegoods sales. In addition, the Company had a marketing strategy designed to increase market share at newly-acquired industrial stores by competing more aggressively on price for selected wholegoods in those markets.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
As a percentage of total revenues, selling, general, and administrative expense increased from 13.4% in fiscal 1995 to 14.0% in fiscal 1996. Total selling, general, and administrative expense increased by approximately $6.7 million, or 27.2%, from fiscal 1995 to fiscal 1996. This increase was primarily due to expenses incurred by the newly-acquired industrial stores in California, which have higher compensation and occupancy costs relative to the Company's other industrial stores. Approximately $4.1 million of the increase was due to expenses associated with the California and Prescott operations. Excluding these operations, selling, general, and administrative expense increased approximately $2.6 million, or 10.4%, primarily due to increases in variable expenses such as commissions and incentive bonuses incurred in connection with generating higher total revenues.
INTEREST EXPENSE
Interest expense increased approximately $1.9 million, or 100.0%, from $1.9 million in fiscal 1995 to $3.8 million in fiscal 1996. Approximately $400,000 of the increase was associated with inventory financing for the California and Prescott operations. Approximately $75,000 of the increase was associated with the financing of the Company's industrial equipment rental fleet. The remaining $1.4 million increase was a result of increased levels of floor plan payables incurred as a result of higher inventory levels, a change in Deere floor plan payment terms, which shortened the interest-free period on certain purchases of industrial equipment, and an increase in the weighted average interest rate on interest bearing floor plan financing from 7.25% in fiscal 1995 to 8.83% in fiscal 1996.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income decreased by approximately $1.1 million, or 18.6%, from $5.9 million in fiscal 1995 to $4.8 million in fiscal 1996.
FISCAL YEAR ENDED JANUARY 31, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1994
REVENUES
The results for fiscal 1995 exceeded management's expectations based on the Company's historical trends. Revenues increased approximately $39.8 million, or 27.6%, from $144.1 million in fiscal 1994 to $183.9 million in fiscal 1995. Industrial operations contributed approximately $23.8 million of this increase, with total revenues increasing 27.5% to $110.5 million. Approximately $4.1 million of the increase in industrial revenues was due to a full year of revenue from the industrial store located in Rapid City, South Dakota, which was acquired in September 1993. Excluding the impact of the Rapid City location, same store industrial sales increased 23.2% to $105.3 million. Sales increased at virtually all industrial stores, resulting from a generally favorable construction market. Also contributing to the increase was a significant multiple unit equipment sale.
Agricultural operations contributed the remaining increase of approximately $16.0 million, with revenues increasing 27.9% to $73.4 million. All of the agricultural revenue increase was due to same store sales increases. The increase in same store agricultural revenues was largely due to extremely favorable market and crop conditions. These conditions, combined with an interest waiver program from Deere on used combines, generated significant sales. In addition, two of the Company's agricultural stores had multiple unit combine sales. The increase was also caused, to a lesser extent, by a significant increase in sales of irrigation equipment and supplies in response to an increase in the market demand for processed potatoes.
Wholegoods sales increased approximately $29.1 million, or 27.3%, from $106.6 million in fiscal 1994 to $135.7 million in fiscal 1995. Industrial operations contributed approximately $18.3 million of this increase, with sales increasing 28.9% to $81.6 million. Approximately $2.8 million of the increase was the result of a full year of wholegoods sales from the Rapid City acquisition. The remaining increase of $15.5 million was due to same store sales increases. Agricultural operations contributed the remaining increase of approximately $10.8 million, with sales increasing 24.9% to $54.1 million. In general, the increase in same store sales was due to the factors discussed above. In addition, wholegoods sales increased as a result of a revised marketing strategy initiated in March 1994, which focuses on increased market share, customer relationship training of the Company's sales force, and utilization of software to track and manage sales calls. See "Business--Sales and Marketing."
Parts and service revenue increased approximately $10.7 million, or 28.5%, from $37.5 million in fiscal 1994 to $48.2 million in fiscal 1995. This increase was primarily due to the factors discussed above. An addition to the undercarriage repair shop in Minneapolis, a new facility in St. Cloud, and the acquisition of the Rapid City store also contributed to increased parts and service revenue.
GROSS PROFIT
Gross profit increased approximately $8.1 million, or 29.3%, from $27.7 million in fiscal 1994 to $35.8 million in fiscal 1995, primarily due to the increase in total revenues discussed above. Gross profit as a percentage of total revenues increased slightly from 19.2% to 19.5% from fiscal 1994 to fiscal 1995. This increase was due largely to a shift in the mix of revenues in the Industrial Division which experienced a higher growth rate in higher margin parts and service revenue.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
As a percentage of total revenues, selling, general, and administrative expense decreased from 14.2% in fiscal 1994 to 13.4% in fiscal 1995. This decrease was a result of relatively stable fixed costs compared to a larger base of total revenues. Total selling, general, and administrative expense increased approximately $4.3 million, or 20.9%, from $20.6 million in fiscal 1994 to $24.9 million in fiscal 1995, primarily due to increases in variable expenses such as commissions and bonus incentives incurred in connection with higher total revenues and net income.
INTEREST EXPENSE
Interest expense increased approximately $225,000, or 13.5%, from $1.7 million in fiscal 1994 to $1.9 million in fiscal 1995. Higher interest expense was the result of increased levels of floor plan financing incurred in connection with higher inventory levels to support wholegoods sales growth.
PRO FORMA PROVISION FOR TAXES
Pro forma provision for taxes as a percentage of pretax income was consistent between these two periods at an assumed rate of 40%.
PRO FORMA NET INCOME
Pro forma net income increased by approximately $2.4 million, or 68.6%, from $3.5 million in fiscal 1994 to $5.9 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of wholegoods and replacement parts, acquisitions of additional dealerships, and capital expenditures. Historically, the Company has met these liquidity requirements primarily through cash flow generated from operating activities, floor plan financing, and borrowings under credit agreements with Deere, Deere Credit, Ag Capital, and commercial banks. Floor plan financing from Deere and Deere Credit represents the primary source of financing for wholegoods inventories, particularly for equipment supplied by Deere. All lenders receive a security interest in the inventory financed. Deere and Deere Credit offer floor plan financing to Deere dealers for extended periods and with varying interest-free periods, depending on the type of equipment, to enable dealers to carry representative inventories of equipment and to encourage the purchase of wholegoods by dealers in advance of seasonal retail demand. Down payments are not required and interest may not be charged for a substantial part of the period for which inventories are financed. Variable market rates of interest based on the prime rate are charged on balances outstanding after any interest-free periods, which are currently six to eight months for agricultural equipment and one to five months for industrial equipment. Deere also provides financing to dealers on used equipment accepted in trade and approved equipment from other manufacturers. See "Business--Floor Plan Financing" and "Certain Relationships and Related Transactions."
The Company annually reviews the terms of its financing with its lenders, including the interest rate. In fiscal 1994, 1995, and 1996, the average interest rate under interest bearing floor plan financing was approximately 7.0%, 7.25%, and 8.85%, respectively. As of October 31, 1996, the Company had outstanding floor plan payables of approximately $100.6 million, of which $61.6 million was then interest bearing, at an average annual rate of 8.25%.
During the first nine months of fiscal 1997, operating activities provided net cash of $6.0 million versus $8.9 million in the first nine months of fiscal 1996. Net cash provided by operating activities in fiscal 1994, 1995, and 1996 was $2.8 million, $3.2 million, and $12.1 million, respectively. The increase in fiscal 1996 was primarily attributable to increased levels of floor plan payables.
Cash used for investing activities was approximately $14.1 million for the first nine months of fiscal 1997 versus $11.6 million in the first nine months of fiscal 1996. The increase was primarily due to the net assets acquired in the Central Texas and Washington Acquisitions. Cash used for investing activities in fiscal 1994, 1995, and 1996 was $600,000, $1.3 million, and $11.8 million, respectively. The increase in fiscal 1996 was primarily related to the purchase of industrial equipment for its rental operations in the Southwest and for the acquisition of dealerships. Capital expenditures for these years were primarily attributable to purchases of property and equipment.
Cash provided by financing activities amounted to $7.4 million for the first nine months of fiscal 1997 versus $2.3 million for the first nine months of fiscal 1996 and was primarily attributable to net proceeds from debt incurred by the Company to acquire dealership assets. See "Certain Relationships and Related Transactions." In fiscal 1994, 1995, and 1996, the Company utilized net cash from financing activities of $2.2 million, $1.5 million, and $200,000, respectively. The decrease in net cash utilized in fiscal 1996 reflects cash provided by an increase in long-term debt of $5.9 million primarily to fund the purchase of the fleet of industrial rental equipment for the Southwest.
The Company's capital expenditures for the last three months of fiscal 1997 are expected to approximate $600,000, relating primarily to construction of additional service bays. The Company anticipates that cash from operations and borrowing capacity will be sufficient to fund its planned capital expenditures for the remainder of fiscal 1997 and fiscal 1998.
INCOME TAXES
The Company has historically elected to be taxed as an S corporation for income tax purposes, and the Company's existing stockholders have paid the income taxes on the Company's taxable income directly. The Company made distributions to its stockholders of $2.3 million, $3.8 million, and $4.3 million during fiscal 1994, 1995, and 1996, respectively, primarily in order to provide the funds to the stockholders to pay such taxes, and $7.5 million during the first nine months of fiscal 1997. Dividends declared in excess of taxes for the first nine months of fiscal 1997 were approximately $5.9 million, of which $2.2 million was unpaid as of October 31, 1996.
As a result of the termination of the S corporation election, which will occur simultaneously with the consummation of this Offering, the Company will be required to record a net deferred income tax asset of approximately $850,000, which relates primarily to the timing differences between financial and income tax reporting of certain items attributable to the periods in which the Company has elected to be treated as an S corporation.
EFFECTS OF INFLATION
Inflation has not had a material impact upon operating results and the Company does not expect it to have such an impact in the future. To date, in those instances in which the Company has experienced cost increases, it has been able to increase selling prices to offset such increases in cost. There can be no assurance, however, that the Company's business will not be affected by inflation or that it can continue to increase its selling prices to offset increased costs and remain competitive.
SEASONALITY
The Company generally experiences a higher volume of wholegoods sales in the second and third fiscal quarters of each fiscal year due to the crop growing season and winter weather conditions in the Midwest. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during the Company's second and third fiscal quarters. As a result, sales of agricultural equipment generally are lower in the first and fourth fiscal quarters. Winter weather in the Midwest also limits construction to some degree and, therefore, also typically results in lower sales of industrial equipment in the first and fourth fiscal quarters. If the Company acquires operations in geographical areas other than where it currently has operations, it may be affected by other seasonal or equipment buying
trends. See "Risk Factors--Effects of Downturn in General Economic Conditions; Cyclicality, Seasonality, and Weather."
QUARTERLY FINANCIAL INFORMATION
The following table sets forth certain unaudited financial information for each quarter during fiscal 1994, 1995, 1996, and the first three quarters of fiscal 1997. The amounts shown are not necessarily comparable or indicative of actual trends, since these amounts reflect the addition of stores during these periods.
GROSS PRO FORMA NET
QUARTERS ENDED TOTAL REVENUES PROFIT OPERATING INCOME INCOME AFTER TAXES(1)
- ------------------------------------------- -------------- ----------- ----------------- ---------------------
(IN THOUSANDS)
Fiscal 1994:
April 30, 1993........................... $ 35,224 $ 6,546 $ 1,880 $ 970
July 31, 1993............................ 38,331 7,204 2,659 1,232
October 31, 1993......................... 40,774 7,550 1,754 953
January 31, 1994......................... 29,783 6,443 873 345
Fiscal 1995:
April 30, 1994........................... 45,472 8,806 3,017 1,540
July 31, 1994............................ 49,732 9,768 3,632 2,026
October 31, 1994......................... 48,713 9,822 2,694 1,477
January 31, 1995......................... 39,993 7,403 1,563 845
Fiscal 1996:
April 30, 1995........................... 52,029 9,765 2,646 1,130
July 31, 1995............................ 57,718 10,863 3,122 1,619
October 31, 1995......................... 67,078 12,480 3,739 1,847
January 31, 1996......................... 46,732 9,610 1,556 245
Fiscal 1997:
April 30, 1996........................... 70,886 12,168 3,573 1,597
July 31, 1996............................ 82,887 14,936 5,008 2,262
October 31, 1996......................... 75,487 15,705 4,736 2,041
|
(1) Assumes the Company was taxed as a C corporation for all periods presented.
BUSINESS
GENERAL
Through its 32 stores, the Company owns and operates the largest networks of Deere industrial stores and agricultural stores in the United States. The 21 industrial stores and 11 agricultural stores sell, service, and rent industrial and agricultural equipment primarily supplied by Deere. The Company's revenues have grown at a compound annual rate of 33% over the past five fiscal years, from $71.2 million in fiscal 1992 to $223.6 million in fiscal 1996.
The Company's stores are located in Arizona, California, Minnesota, North Dakota, South Dakota, Texas, and Washington. The Company expects to continue to expand its networks through future acquisitions as the consolidation of Deere equipment dealers continues to develop. The Company has acquired 13 stores in the past five years, including 11 industrial stores and two agricultural stores. The Company believes that its networks of industrial and agricultural stores enable it to achieve benefits from increasing operational synergies.
The equipment and parts sold by the Company primarily are supplied by Deere, which is a leading manufacturer and supplier of industrial and agricultural equipment in the United States. Sales of new Deere equipment by the Company accounted for approximately 72% of the Company's new equipment sales in fiscal 1996. No other supplier accounted for more than 7% of the Company's new equipment sales in fiscal 1996. The Company expects that Deere products will continue to account for the majority of its industrial and agricultural equipment sales. The Company's stores also offer complementary equipment from other suppliers, used equipment, new and used parts, equipment servicing, equipment rental, and other related products and services.
For the fiscal year ended January 31, 1996, the Company's revenues were generated from the following areas of business:
New equipment sales.................................................. 51% Used equipment sales................................................. 22% Product support, parts, service...................................... 26% Equipment rental income.............................................. 1% |
INDUSTRY OVERVIEW
INDUSTRIAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new industrial equipment in its target product market in calendar 1995 totaled approximately $5.7 billion. Deere is one of the leading suppliers of industrial equipment in the United States for light to medium applications and offers a broad array of products. Currently, Deere has approximately 110 industrial dealers which operate approximately 355 stores in the United States. Each dealer within the Deere industrial system is assigned specific geographic areas of responsibility within which it has the right to sell new Deere industrial products. Over the last five years, while the number of Deere industrial stores has remained constant, the number of Deere industrial dealers has declined by more than 30%. This dealer consolidation is being driven, in part, by an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation of its dealers. The Company expects to benefit from this consolidation trend by continuing its strategic acquisition of Deere industrial dealerships.
AGRICULTURAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new agricultural equipment in its target product market in calendar 1995 totaled approximately $10.1 billion. Deere is the leading supplier of agricultural equipment in the United States. Within the Deere agricultural system, dealers are not assigned exclusive territories, but are given authorized store locations. Currently, Deere has approximately 1,275 agricultural dealers which operate approximately 1,545 stores in the United States. The Company believes that Deere agricultural dealerships also face an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation and, as a result, that a
consolidation of Deere agricultural dealers will occur. The Company expects that it will have increasing opportunities to complete strategic acquisitions of Deere agricultural dealerships as this consolidation trend develops.
GROWTH STRATEGY
In order to capitalize on industry consolidation trends, expand its market leadership position, and further develop its industrial and agricultural equipment operations, the Company has developed its growth strategy, the key elements of which are:
INCREASING MARKET SHARE. The Company seeks to increase its market share by enhancing customer service and generating customer loyalty. To accomplish this, the Company offers a broad range of products, utilizes aggressive marketing programs, trains its employees to have a strong customer orientation, employs state-of-the-art service equipment, and maintains a computerized real-time inventory system. Each industrial and agricultural store offers a broad array of its respective Deere equipment lines, and also sells complementary products from other suppliers, based on the nature of each store's customer base.
As the installed base of equipment expands with the Company's increasing market share, the Company has the opportunity to generate additional parts and service business. The Company believes that each customer's experience with the Company's parts and service departments and other value-added services can positively influence such customer's overall satisfaction. Parts and service currently account for approximately 26% of the Company's total revenues but have higher profit margins than wholegoods sales.
The Company also has diversified its business into complementary fields to serve its customers' needs, expand its customer base, and enhance its revenues by developing its industrial equipment rental fleet, offering undercarriage service at strategic locations, and selling irrigation equipment at one store.
PURSUING ADDITIONAL ACQUISITIONS. Acquisitions have been and will continue to be an important element of the Company's growth strategy, particularly given the consolidation trends among industrial and agricultural equipment dealers. Over the past five years, the Company has acquired 11 industrial stores and two agricultural stores from seven dealers. Due to the Company's leadership position in the industry and its track record in completing and integrating acquisitions, the Company believes that attractive acquisition candidates will continue to become available to the Company.
The Company believes that its management team has substantial experience in evaluating potential acquisition candidates and determining whether a particular dealership can be successfully integrated into the Company's existing operations, i.e., whether the operations of dealerships to be acquired can be enhanced by utilizing the Company's operating model and being part of the Company's network of stores. Upon consummation of each acquisition, the Company integrates the dealership into its industrial or agricultural operations by implementing the Company's operating model and seeks to enhance the acquired dealership's performance within its target market. Integration of an acquisition is completed generally within the first six to 12 months, although it can take several years before the benefits of the Company's operating model, store networks, strategies, and systems are fully realized. The consent of Deere is required for the acquisition of any Deere dealership. Accordingly, the Company must obtain Deere's consent before completing any future acquisitions it may negotiate. See "Risk Factors--Risks Associated With Expansion."
IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven operating model designed to improve the performance and profitability of each of its stores. Components of this operating model include (i) pursuing aggressive marketing programs, (ii) allowing store employees to focus on customers by managing administrative functions, training, and purchasing at the corporate level, (iii) providing a full complement of parts and state-of-the-art service functions, including a computerized real-time inventory system and quick response, on-site repair service, (iv) motivating store level management in accordance with corporate goals, and (v) focusing on cost structures at the store level.
The Company implements its operating model in a variety of areas. For example, the Company is proactive in attracting new customers by sending targeted direct mailings, hosting open houses and service clinics, and participating in trade shows. Additionally, the Company centralizes certain functions such as accounting, purchasing, and employee recruitment, allowing its store managers and personnel more time to focus on making sales and providing product support to customers.
CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the Company's strategy has been to expand its networks of industrial and agricultural stores into geographic areas that have a large base of construction or agricultural activity and that provide the Company with opportunities to continue to develop its store networks. The Company believes that its business diversification into both industrial and agricultural store operations has significantly increased its customer base, while also mitigating the effects of industry-specific economic cycles. Similarly, the Company's geographic diversification into regions outside the Midwest helps to diminish the effects of seasonality, as well as local and regional economic fluctuations. Typically, other Deere dealers operate only industrial or agricultural dealerships, with a limited number of stores concentrated in a specific geographic region. Based on information published by Deere, the Company believes the average United States Deere industrial dealer has less than four stores, as compared to the Company's 21 industrial stores, and the average United States Deere agricultural dealer operates a single store as compared to the Company's 11 agricultural stores.
RECENT AND CONTEMPLATED ACQUISITIONS
The Company has acquired three industrial stores and two agricultural stores in calendar 1996. These recent acquisitions extend the Company's networks into Texas and Washington, which the Company believes will provide platforms for future growth.
Effective as of July 1, 1996, the Company completed the Central Texas Acquisition, pursuant to which it acquired a Deere industrial dealership with three industrial stores located in the Dallas-Fort Worth and Waco, Texas metropolitan areas. This acquisition gives the Company a market presence in Texas and a Deere area of responsibility covering 35 counties. The purchase price for the net assets acquired was approximately $8.4 million, which was financed by a short-term note payable to Ag Capital, which will be repaid using a portion of the net proceeds of this Offering. See "Use of Proceeds," "Certain Relationships and Related Transactions," and Note 13 to the Combined Financial Statements.
Effective as of October 1, 1996, the Company completed the Washington Acquisition, pursuant to which it acquired a Deere agricultural dealership with two stores located in Pasco and Sunnyside, Washington. The purchase price for the net assets was approximately $2.7 million, net of $6.0 million of liabilities assumed. Approximately $1.0 million of the purchase price was financed by a note payable to the seller, with the balance of $1.7 million financed by a short-term note payable to Ag Capital, which will be repaid using a portion of the net proceeds of this Offering. The Company also may be obligated to pay additional consideration of up to $750,000 in the event certain performance criteria are met over a three-year period following completion of the acquisition. See "Use of Proceeds," "Certain Relationships and Related Transactions," and Note 13 to the Combined Financial Statements.
The Company has entered into a letter of intent to acquire certain assets of an industrial equipment rental company with five locations in Arizona, which had unaudited total revenues of approximately $6.7 million and $6.0 million in calendar year 1995 and the nine months ended September 30, 1996, respectively. If this contemplated acquisition is completed, the Company would expect to use approximately $2.4 million of the net proceeds of this Offering and assume certain liabilities currently estimated to approximate $10.0 million. The transaction would likely be structured such that the rental operation acquired would be owned 80% by the Company and 20% by the current owner, with the Company having a right to purchase the minority interest. This contemplated acquisition is subject to a number of conditions, including the negotiation and execution of a definitive agreement and the completion of due diligence. There can be no assurance that such conditions will be fulfilled or that this contemplated acquisition will be consummated.
The Company currently is not a party to any other agreement or understanding with respect to other possible acquisitions.
INDUSTRIAL DIVISION
The Company is the largest Deere industrial dealer in the United States both in number of stores and total revenues and accounted for approximately 6% of Deere's United States industrial equipment sales in calendar 1995. The Company owns and operates 21 industrial stores located in metropolitan areas in Arizona, Southern California, Minnesota, North Dakota, South Dakota, and Texas. The revenues of the Industrial Division have increased from $30.5 million in fiscal 1992 to $139.0 million in fiscal 1996, representing a compound annual growth rate of 46%. The historic growth of the Industrial Division is the result of same store sales increases, which have averaged 21% per year from fiscal 1992 through fiscal 1996, and the acquisition of 11 stores over the same period. The Company began its industrial operations in 1989 by acquiring a Deere industrial dealership with stores located in Bismarck, Fargo, Grand Forks, and Minot, North Dakota.
Customers of the Company include contractors, for both residential and commercial construction, utility companies, and federal, state, and local government agencies. The Industrial Division has a diverse customer base and no customer represented more than 5% of the Division's sales. The Industrial Division provides a full line of equipment for light to medium size applications and related product support to its customers. Its primary products include John Deere backhoe loaders, hydraulic excavators, crawler dozers, and four-wheel drive loaders. While the sale of new Deere industrial equipment is the main focus, the Company's industrial stores also offer complementary equipment from other suppliers, as well as used equipment taken as trade-ins.
The industrial stores are located in areas with significant construction activity, including Dallas-Fort Worth, southern Los Angeles, Minneapolis-St. Paul, Phoenix, and San Diego. Each industrial store displays a broad array of new and used equipment and has a series of fully-equipped service bays to provide on-site service and maintenance of industrial equipment. The Company believes it has a competitive advantage over other industrial dealers given its ability to draw on its network of industrial stores for equipment and parts and the economies of scale inherent in its centralized administrative, purchasing, and inventory management functions. The Company attributes the success of its Industrial Division to its continuing implementation of its operating model.
Deere has established an Industrial Mark of Excellence Program to recognize its industrial dealers which meet certain criteria, including targeted sales growth, financial performance, customer satisfaction, and product support. In calendar 1995, approximately 32% of the Deere United States industrial dealers achieved Mark of Excellence status. The Industrial Division achieved Mark of Excellence status for calendar 1995 for both its Midwest and Southwest areas of responsibility, and has achieved such status for its operations each year since 1989.
The Company's industrial stores are located and were acquired or opened as described below:
CALENDAR YEAR
LOCATION ACQUIRED/OPENED
- ----------------------------------------------------------------------- -----------------------
MIDWEST:
*Bismarck, ND.......................................................... 1989 Acquired
Minot, ND............................................................. 1989 Acquired
Fargo, ND............................................................. 1989 Acquired
Grand Forks, ND....................................................... 1989 Acquired
Minneapolis, MN....................................................... 1990 Acquired
Rochester, MN......................................................... 1990 Acquired
St. Cloud, MN......................................................... 1990 Acquired
Mankato, MN........................................................... 1992 Acquired
|
CALENDAR YEAR
LOCATION ACQUIRED/OPENED
- ----------------------------------------------------------------------- -----------------------
Sioux Falls, SD....................................................... 1992 Acquired
*Rapid City, SD........................................................ 1993 Acquired
Marshall, MN.......................................................... 1996 Opened
SOUTHWEST:
Flagstaff, AZ......................................................... 1992 Acquired
Phoenix, AZ........................................................... 1992 Acquired
Tucson, AZ............................................................ 1992 Acquired
Prescott, AZ.......................................................... 1995 Opened
Riverside, CA......................................................... 1995 Acquired
San Diego, CA......................................................... 1995 Acquired
Brawley, CA........................................................... 1996 Opened
SOUTH CENTRAL:
Fort Worth, TX........................................................ 1996 Acquired
Irving, TX............................................................ 1996 Acquired
Waco, TX.............................................................. 1996 Acquired
|
* Agricultural equipment also sold at this location.
AGRICULTURAL DIVISION
The Company is the largest Deere agricultural dealer in the United States both in number of stores and total revenues and accounted for approximately 1% of Deere's United States agricultural equipment sales in calendar 1995. The revenues of the Agricultural Division increased from $40.7 million in fiscal 1992 to $84.6 million in fiscal 1996, representing a compound annual growth rate of 20%. The historic growth of the Agricultural Division is primarily due to same store sales growth resulting from the Company's continued implementation of its operating model, including aggressive sales programs to build market share, as well as a favorable agricultural economy. The Company began its agricultural operations in 1968 by acquiring a Deere agricultural store located in Casselton, North Dakota. The Company owns and operates 11 agricultural stores located in Minnesota, North Dakota, South Dakota, and Washington.
The Company's agricultural stores are full-service suppliers to farmers, offering a broad range of farm equipment and related products. The Agricultural Division sold equipment, parts, or service to over 32,000 customers in fiscal 1996 and no customer represented more than 7% of the Division's sales. The Company's customers primarily farm corn, soybeans, wheat, sugar beets, and potatoes. As a result of the customer mix and Deere's product offering, the core products of the Agricultural Division include combines, tractors, planting equipment, and tillage equipment. The Company's agricultural stores also carry other harvesting and crop handling machinery, as well as lawn and grounds care equipment. The sale of new Deere agricultural equipment is the primary focus of the Company's agricultural equipment sales and accounts for a majority of the Division's new equipment sales. A wide variety of additional agricultural equipment lines, which complement the Deere products, are also offered according to local market demand. The agricultural stores also sell used equipment, generally acquired as trade-ins. The Company's store in Wadena, Minnesota sells irrigation equipment supplied by Valmont Industries Inc. and vegetable storage ventilation equipment.
The agricultural stores are located in areas with significant concentrations of farmers and typically serve customers within a 25 to 50 mile radius. Each store displays a broad array of new and used equipment and has fully-equipped service bays to provide on-site service and maintenance of agricultural equipment. The Company believes it has a competitive advantage over other agricultural dealers given its ability to draw on its network of agricultural stores for equipment and parts and the economies of scale inherent in its centralized administrative, purchasing, and inventory management functions.
Deere has established the John Deere Signature Award Program to recognize its agricultural dealers which meet certain criteria, including targeted sales growth, customer satisfaction, and dealer image. For calendar year 1995, approximately 36% of the Deere United States agricultural dealers were awarded Signature status in at least one category, and 17% achieved Signature status in all categories. Eight of the Company's Deere agricultural equipment stores were awarded Signature status in calendar year 1995, including four stores that achieved Signature status in all categories.
The Company's agricultural stores are located and were acquired or opened as described below:
LOCATION CALENDAR YEAR ACQUIRED/OPENED - ------------------------------------------------------------ ------------------------------- MIDWEST: Casselton, ND.............................................. 1968 Acquired Lisbon, ND................................................. 1976 Opened Breckenridge, MN........................................... 1983 Acquired Kindred, ND................................................ 1986 Opened Barnesville, MN............................................ 1987 Acquired Fargo, ND.................................................. 1987 Acquired Washburn, ND............................................... 1989 Acquired *Aberdeen, SD............................................... 1990 Acquired Wadena, MN................................................. 1992 Opened NORTHWEST: Pasco, WA.................................................. 1996 Acquired Sunnyside, WA.............................................. 1996 Acquired |
* Industrial equipment also sold at this location.
PARTS AND SERVICE
The Company's industrial and agricultural stores offer a broad range of replacement parts and fully-equipped service and repair facilities for their respective product lines. The Company believes that product support through parts and service will be increasingly important to its ability to attract and retain customers for both its industrial and agricultural equipment operations. As of October 31, 1996, 121 of the Company's employees were employed in its parts business and 394 were employed in its service business.
Each industrial and agricultural equipment store includes service bays staffed by highly trained service technicians. Technicians are also available to make on-site repairs of equipment that cannot be brought in for service. The Company's service technicians receive training from Deere and certain other suppliers, as well as additional on-site training conducted by the Company. The industrial stores located in Minneapolis, Minnesota and Riverside, California also operate full-service undercarriage shops for all makes and sizes of crawler equipment. The Company recently opened an undercarriage shop at one of its Dallas-Fort Worth industrial stores.
As part of its product support efforts, the Company provides proactive and comprehensive customer service by maintaining service histories for each piece of equipment owned by its customers, having longer service hours in times of peak service usage, providing on-site repair service at customer locations, scheduling off-season maintenance activities with customers, notifying customers of periodic service requirements, and providing training programs to customers to better educate them as to maintenance requirements, as well as teaching preventive maintenance that customers can perform themselves. At the time equipment is purchased, the Company also offers customers the option of purchasing guaranteed maintenance contracts. The Company believes that these product support services help attract customers, develop and strengthen existing customer relationships, and promote customer loyalty.
RENTAL FLEET OPERATIONS
The Company maintains a rental fleet of industrial equipment, primarily in its Arizona and Southern California operations. The Company rents the industrial equipment to customers on a short-term basis, generally for a specified number of days or weeks, at competitive rates. The Company believes that its rental operations will continue to benefit from the trend among businesses to outsource operations, including equipment ownership, in order to minimize their capital investment in equipment as well as reducing or eliminating the down-time, maintenance, repair, and storage costs associated with equipment ownership. Used rental equipment is then sold by the Company, generally after 18 to 24 months of service. The Company believes that the rental business will be an area of growth as it expands its operations in Arizona and California, as well as in its recently acquired Dallas-Fort Worth operations. The Company's network of industrial stores support the sale of the used equipment retired from the rental fleet through the ability to move used equipment to various geographic regions based on market demand, the access to an expanded customer base, and the availability of trained personnel to service the used equipment to enhance its resale value.
The Company has entered into a letter of intent to acquire certain assets of an industrial equipment rental company with five locations in Arizona. See "--Recent and Contemplated Acquisitions." This contemplated acquisition is subject to a number of conditions, and there can be no assurance that such conditions will be fulfilled or that this contemplated acquisition will be consummated.
INVENTORY AND ASSET MANAGEMENT
The Company maintains substantial inventories of equipment and parts at its stores in order to facilitate sales to customers on a timely basis. The Company also is required to build up its inventory in advance of its second and third fiscal quarters, which historically have higher sales, to ensure that it will have sufficient inventory available to meet its customer needs and to avoid shortages or delays. Deere recently has developed an inventory warehouse that its dealers may access to obtain equipment to facilitate inventory management.
In addition, to maximize asset productivity, the Company maintains a complete database on sales and inventory of parts and equipment. The Company has a sophisticated, centralized real-time inventory control system. This system enables each store to access the available inventory of the Company's other stores before ordering additional parts or equipment from the supplier. As a result, the Company minimizes its investment in inventory while still effectively and promptly satisfying its customers' parts needs. Using this system, the Company also monitors inventory levels and mix at each store and makes adjustments as needed in accordance with its operating plan. The Company's management information system and database also are used to monitor market conditions, sales information, and customer demand, as well as to assess product merchandising strategies. The Company has begun to use the Internet for direct sales of parts to a small but growing number of its retail customers. The Company's parts business is also supported by a network established by Deere which connects each industrial and agricultural store to Deere's warehouses. The Company does not accept returns of equipment, but does accept returns of parts. The level of parts returns historically has not been material.
STORE OPERATIONS
The Company believes that management of its stores at the individual store level is crucial to the success of its overall operations. Each store has its own manager, who reports directly to one of the four Senior Vice Presidents of Operations. The Company's store managers on average have more than ten years of experience in industrial or agricultural sales and more than five years of experience as a store manager. Each store also typically is staffed by a parts manager and service manager. The Company has a bonus plan for its store managers which rewards managers who demonstrate strong performance based on sales growth, net income, and return on assets. See "Management--Cash Bonus Incentives." Sales personnel
are compensated and evaluated on their success rate in obtaining sales, their systematic contacting of potential customers, and their advance awareness of potential sales in their area of responsibility. The Company also has recently adopted the Incentive Plan, which will be used to provide stock-based incentive compensation to store managers and others. See "Management--1996 Stock Incentive Plan." Under the Company's operating model, decision-making for customer-related issues is decentralized, with each store manager responsible for such matters as the type of equipment to stock, equipment pricing, customer credit approvals, staffing levels, and customer satisfaction.
MANAGEMENT STRUCTURE
Management of the day-to-day operations of the Company's industrial and agricultural networks is coordinated by the Company's four Senior Vice Presidents of Operations, including monitoring the Company's effectiveness and actual day-to-day performance in areas such as annual budgets, inventory forecasting, and marketing efforts. Historically, each Division had one Senior Vice President. As the Company has expanded through its recent acquisitions, the Company has appointed two Senior Vice Presidents for its Industrial Division and two Senior Vice Presidents for its Agricultural Division. Responsibility for stores and operations within each Division is assigned based on the geographical locations of stores. The Company works to maintain open communication systems among the stores to identify and pursue potential areas of growth.
The Company maintains a small corporate staff at its headquarters in Fargo and in Minneapolis. The corporate staff handles corporate planning, financial reporting and analysis, execution of the Company's business strategy, and other centralized functions for the Company's overall operations. The corporate staff focuses on functions that are not directly related to interactions with customers such as accounting systems, training, purchasing, internal communication systems, facilities management, employee recruitment, benefit plan management, and Company-wide standard policies and procedures.
SALES AND MARKETING
The Company has developed and implemented a comprehensive marketing program. Action plans are developed for each store and monitored on a regular basis. Centralized marketing efforts include setting forecasts, developing marketing strategies, establishing market share goals, initiating public relations, and choosing advertising mediums to be used. Each individual store is responsible for its own targeted marketing program for its particular customer base.
The Company is highly proactive with existing and potential customers in both its industrial and agricultural operations. The Company attempts to increase customer awareness of its products and services through its targeted direct mailings, advertisements in trade journals, and participation in trade shows. Open houses, service clinics, and seminars on a variety of topics such as agri-business, servicing of equipment, and preventive maintenance are used to build and maintain the Company's customer base. In addition to its own marketing efforts, the Company actively participates in the advertising and promotional programs of Deere and other suppliers. The Company also participates in cooperatively funded programs with suppliers, including advertising in trade journals, participating in trade shows sponsored by such suppliers, and developing point-of-purchase in-store displays of various equipment and parts.
Building strong name recognition throughout its target markets is an important part of the Company's marketing program. Accordingly, the Company has implemented programs to continually enhance recognition of the Company's corporate name and logomark through consistent design elements in its signage, facilities, vehicle identification program, merchandising and point-of-purchase programs, and employee uniform and clothing standards.
Product support also is an important part of the Company's marketing program. The Company believes that product support plays a key role in establishing and maintaining solid customer relationships. For both its industrial and agricultural operations, the Company promotes its ability to support both the
products it sells and products sold by others. The parts and service departments are coordinated and operated as one function, providing a cooperative effort in providing solutions for the customer. To increase its knowledge of its existing and potential customers, the Company uses a sophisticated computerized database to track each customer, identify in advance potential purchases of industrial and agricultural equipment, and maintain a comprehensive record as to equipment purchases, anticipated equipment needs, and individual customer preferences. The Company also conducts training programs for its store managers and sales personnel on sales techniques and methods for building stronger customer relationships.
DEALERSHIP AGREEMENTS
DEERE INDUSTRIAL DEALER AGREEMENTS. The Company has entered into agreements with Deere which authorize the Company to act as a dealer of Deere construction, utility, and forestry equipment (the "Industrial Dealer Agreements"). The Company's areas of responsibility for the sale of Deere industrial equipment are: (i) in the Midwest: almost all of Minnesota, North Dakota, and South Dakota, and small portions of Iowa and Wyoming; (ii) in the Southwest: Arizona and part of Southern California; and (iii) in the South Central: North Central Texas, including the Dallas-Fort Worth and Waco metropolitan areas.
Pursuant to the Industrial Dealer Agreements, the Company is required, among other things, to maintain suitable facilities, provide competent management, actively promote the sale of the equipment covered by the agreements in the designated areas of responsibility, fulfill the warranty obligations of Deere, maintain inventory in proportion to the sales potential in each area of responsibility, provide service and maintain sufficient parts inventory to service the needs of its customers, maintain adequate working capital, and maintain stores only in authorized locations. Deere is obligated to make available to the Company any finance plans, lease plans, floor plans, parts return programs, sales or incentive programs or similar plans or programs it offers to other dealers. Deere also provides the Company with promotional items and marketing materials prepared by Deere for its dealers. The Industrial Dealer Agreements also entitle the Company to use John Deere trademarks and tradenames, with certain restrictions. For a description of the rights of Deere to terminate its dealer agreements with the Company, see "Risk Factors--Deere Termination Rights."
DEERE AGRICULTURAL DEALER AGREEMENTS. The Company has entered into non-exclusive dealership agreements with Deere for each of its agricultural stores, which authorize the Company to act as a dealer in Deere agricultural equipment (the "Agricultural Dealer Agreements"). The Agricultural Dealer Agreements establish the Company's specific authorized store locations. The terms of the Agricultural Dealer Agreements are substantially the same as the Industrial Dealer Agreements. All of the agricultural stores also offer John Deere lawn and grounds equipment, for which the Company has entered into non-exclusive Lawn and Garden Dealer Agreements containing substantially the same terms as the Agricultural Dealer Agreements. For a description of the rights of Deere to terminate its dealer agreements with the Company, see "Risk Factors--Deere Termination Rights."
DEERE DEALERSHIP AGREEMENTS--OTHER PROVISIONS. The Deere Agreement also provides that the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. In addition, Deere has the right to have input into the selection of Company's management personnel, including store managers, and to have input with respect to the selection of nominees to the Company's Board of Directors and the removal of directors. The prior consent of Deere is required for the opening of any store within the Company's designated areas of responsibility and for the acquisition of any other Deere dealership. There can be no assurance that any such consent will be given by Deere. In addition, the Company is prohibited from making acquisitions, initiating new business activity, paying dividends, repurchasing its capital stock, or making any other distributions to stockholders if the Company's equity to assets ratio is below 30%, as calculated by Deere under the Deere Agreement, or if such ratio would fall below 30% as a result of such action. The Company
believes its equity-to-assets ratio at the time of consummation of this Offering and at the end of fiscal 1997 will be at least 30%. In the event of Mr. Offutt's death, Deere has the right to terminate the Company's dealer appointments upon the occurrence of a "change of control." See "Risk Factors--Deere Termination Rights."
The Company's Deere dealer appointments are not exclusive. Deere could appoint other dealers in close proximity to the Company's existing stores. The areas of responsibility assigned to the Company's industrial dealerships can be reduced by Deere upon 120 days prior written notice. In addition, the dealer agreements can be amended at any time without the Company's consent, so long as the same amendment is made to the dealer agreements of all other Deere dealers. Deere also has the right to sell directly to federal, state, or local governments, as well as national accounts. To the extent Deere appoints other dealers in the Company's markets, reduces the areas of responsibility relating to the Company's industrial stores, or amends the dealer agreements or sells substantial amounts of equipment to government entities and national accounts, the Company's results of operations and financial condition could be adversely affected.
OTHER SUPPLIERS. In addition to Deere, the Company is an authorized dealer at various stores for suppliers of other equipment. The terms of such arrangements vary, but most of the dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period (usually 180 days), upon a change of control, and in the event of Ronald D. Offutt's death.
FLOOR PLAN FINANCING
Having adequate wholegoods and parts inventories at each of the Company's industrial and agricultural equipment stores is important to meeting its customer needs and to its sales. Accordingly, the Company attempts to maintain at each store, or have readily available at other stores in its industrial and agricultural store networks, sufficient inventory to satisfy anticipated customer needs. Inventory levels fluctuate throughout the year and tend to increase before the primary sales seasons for agricultural equipment. The cost of financing its inventory also is an important factor affecting the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
DEERE. Deere and Deere Credit offer floor plan financing to Deere dealers for extended periods, to enable dealers to carry representative inventories of equipment and to encourage the purchase of goods by dealers in advance of seasonal retail demand.
Deere charges variable market rates of interest at or over the prime rate on balances outstanding after any interest-free periods and retains a security interest in the inventories, which it inspects periodically. The interest-free periods, which Deere changes periodically, are currently six to eight months for agricultural equipment and one to five months for industrial equipment. Deere also provides financing for used equipment accepted in trade, repossessed equipment, and approved equipment from other suppliers, and receives a security interest in such equipment.
The Company has a line of credit for $50.0 million with Deere Credit. After the interest-free period, the Company generally shifts its financing to Deere Credit to obtain a lower interest rate. The rate charged by Deere Credit is at the prime rate, which as of December 31, 1996 was 8.25%.
OTHER SUPPLIERS. For equipment from suppliers other than Deere, the Company primarily finances its inventory through its line of credit at Ag Capital. Financing also may be available through floor plan financing programs provided by the suppliers, which may be financed by such suppliers themselves or through third party lenders, depending on which option provides the Company with the most favorable terms. The interest rate on the Ag Capital line of credit is the prime rate, which as of December 31, 1996 was 8.25%. See "Certain Relationships and Related Transactions."
CUSTOMER FINANCING OPTIONS
Financing options for customer purchases support the sales activities of the Company. The primary financing for purchases by the Company's customers are through programs offered by Deere and Ag Capital. The Company does not grant extended payment terms to its customers.
DEERE. Deere's credit subsidiaries provide and administer financing for retail purchases and leases of new and used equipment, primarily through Deere Credit. Deere Credit retains a security interest in the equipment financed. A portion of the customer financing provided by Deere is recourse to the Company. Deere retains a reserve for amounts that the Company may be obligated to pay Deere, by retaining 1% of the face amount of each contract financed until the reserve reaches 3% of the total dollar amount of contracts outstanding. In the event a customer defaults in paying Deere and there is a deficiency in the amount owed to Deere, the Company has the option of paying the amount due under its recourse obligations or using a portion of its reserve. The Company's liability is capped at the amount of the reserve, which, as of October 31, 1996, was $847,000. See Note 9 of the Combined Financial Statements. The Company's historical losses in connection with this contingent recourse liability have not been material.
AG CAPITAL AND OTHERS. Ag Capital, a cooperative lending institution, also provides financing to the Company's customers. Some of the financing provided by Ag Capital to its customers also is recourse to the Company. This contingent liability is capped at an amount equal to 10% of the amount of the aggregate outstanding contracts, which contingent liability was approximately $3.4 million as of October 31, 1996. Another Offutt Entity, Farmers Equipment Rental, also has provided financing to customers for which the Company has some contingent recourse liability, which contingent liability was approximately $900,000 as of October 31, 1996. This contingent liability also is capped at an amount equal to 10% of the amount of the aggregate outstanding contracts. See "Certain Relationships and Related Transactions" and Note 9 to the Combined Financial Statements.
REPURCHASE CONTRACTS. The Company enters into repurchase contracts with certain of its customers, primarily its governmental customers, pursuant to which the Company, at the request of the customer, may be required to repurchase the equipment at a price fixed in the contract after a specified period of time, typically five years, subject to certain conditions. The repurchased equipment is then sold by the Company as used equipment. Although there can be no assurance that the proceeds to the Company upon sale of such equipment will be equal to or exceed the repurchase price paid to the customer for such equipment, the Company believes its multiple stores facilitate the sale of repurchased equipment. See Note 9 to the Combined Financial Statements.
PERSONAL GUARANTY
Ronald D. Offutt, the Chairman, Chief Executive Officer, and principal stockholder of the Company, has personally guaranteed all amounts owed to Deere and its affiliates. Under the Deere Agreement, the Company is permitted to replace the personal guaranty of Mr. Offutt with a letter of credit in an amount and from a financial institution acceptable to Deere. The amount of the letter of credit required by Deere would be adjusted annually based on the level of Company's floor plan financing with Deere and its affiliates and the Company's equity to assets ratio. If Mr. Offutt should elect not to continue to provide his personal guaranty, the Company would be required to establish the letter of credit. As of October 31, 1996, the Company would be required to have a letter of credit of approximately $41.0 million to secure the outstanding Deere floor plan financing, which was approximately $89.1 million as of October 31, 1996, at an annual cost of approximately $205,000.
COMPETITION
The Company's industrial equipment stores compete with distributors of equipment produced by manufacturers other than Deere, including Case, Caterpillar, and Komatsu. The Company also faces
competition from distributors of manufacturers of specific types of industrial equipment, including JCB backhoes, Kobelco excavators, Komatsu wheel loaders and crawler dozers, and Bobcat skid loaders. The Company's agricultural equipment stores compete with distributors of equipment from suppliers other than Deere, including Agco, Case, and New Holland. The Company's agricultural equipment stores also compete with other Deere dealerships. Competing Deere agricultural stores may be located in close proximity to one of the Company's agricultural stores. Competition among equipment dealers is primarily based on price, value, reputation, quality, and design of the products offered by the dealer, the customer service and equipment servicing provided by the dealer, and the accessibility of the stores. The Company believes that its broad product line, product support, and superior quality products will enable it to compete effectively.
PRODUCT WARRANTIES
Product warranties for new equipment and parts are provided by the supplier. The term and scope of these warranties vary greatly by supplier and by product. The Company does not provide additional warranties to retail purchasers of new equipment. Deere pays the Company for repairs to Deere equipment under warranty. The Company generally sells used equipment "as is" and without manufacturer's warranty, although manufacturers sometimes provide limited warranties if the manufacturer's original warranty is transferrable and has not yet expired. Typically, the Company provides no additional warranties on used equipment.
TRADEMARKS
RDO Equipment is a registered servicemark owned by the Company. John Deere is a registered trademark of Deere & Company, the Company's use of which is authorized under the Deere dealership agreements. Trademarks and tradenames of new equipment obtained from suppliers other than Deere are licensed from their respective owners. The Company historically has operated each of its industrial and agricultural stores under either the RDO Equipment tradename or, for purposes of continuity at a particular store if there was strong local name recognition and customer loyalty, the name historically used by the Deere dealership in that location. Beginning in fiscal 1995, the Company began to implement a program to operate all of its industrial and agricultural stores under the RDO Equipment tradename and servicemark. The Company expects to complete this program at its existing stores in fiscal 1998. Each store also is identified as either an authorized John Deere industrial or agricultural equipment store and may display signs of other suppliers.
PRODUCT LIABILITY AND LEGAL PROCEEDINGS
From time to time, the Company is involved in various litigation matters involving ordinary and routine claims incidental to the Company's business. The Company believes that there are no claims or litigation pending, the outcome of which could have a material adverse effect on the financial position or results of operations of the Company; however, the ultimate legal and financial liability of the Company cannot be estimated with certainty. Products that have been or may be sold by the Company may expose it to potential liabilities for personal injury or property damage claims relating to the use of such products. The Company maintains third-party liability insurance, including product liability coverage, in amounts deemed adequate by management. To date, the aggregate costs to the Company for claims, including product liability actions, have not been material. An uninsured or partially insured claim, or a claim for which the manufacturer is not liable or does not assume responsibility, however, could have a material adverse effect on the financial condition of the Company. See "Risk Factors--Product Liability Risk."
ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATIONS
The Company's operations are subject to numerous federal, state, and local rules and regulations, including laws and regulations designed to protect the environment and to regulate the discharge of
materials into the environment, primarily relating to its service operations. Based on current laws and regulations, the Company believes that it is in compliance with such laws and regulations and that its policies, practices, and procedures are designed to prevent unreasonable risk of environmental damage or violation of environmental laws and regulations and any resulting financial liability to the Company and the Company is not aware of any federal, state, or local laws or regulations that have been enacted or adopted, the compliance with which would have a material adverse effect on the Company's results of operations or would require the Company to make any material capital expenditures. No assurance can be given that future changes in such laws or regulations or changes in the nature of the Company's operations or the effects of activities of prior occupants or activities at neighboring facilities will not have an adverse impact on the Company's operations. See "Risk Factors--Government Regulation."
EMPLOYEES
As of October 31, 1996, the Company employed 771 full-time employees. Of this number, 13 employees were located at the Company's corporate offices and employed in corporate administration. The balance of the employees were located at the various stores: 94 were employed in administration, 149 in equipment sales and rental operations, 121 in parts sales, and 394 in servicing equipment. None of the Company's employees is covered by a collective bargaining agreement.
PROPERTIES
The Company owns the real estate for eight of its stores, leases its executive offices and eight stores from various Offutt Entities, and leases 16 stores from unrelated third parties. Lease terms range from one to ten years and some leases include an option to purchase the leased property. See "Certain Relationships and Related Transactions." The Company believes that all of its facilities are in good operating condition.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S)
- ------------------------------ ---- ----------------------------------------
Ronald D. Offutt(1)........... 54 Chairman, Chief Executive Officer, and a
Director
Paul T. Horn(1)............... 54 President, Chief Operating Officer, and
a Director
Allan F. Knoll(1)(2).......... 53 Chief Financial Officer, Secretary, and
a Director
Richard J. Moen............... 49 Chief Administrative Officer and
Treasurer
Gary R. Allan................. 48 Senior Vice President,
Agricultural--Northwest Operations
H. David Frambers............. 53 Senior Vice President,
Industrial--Midwest and South Central
Operations
Larry B. Kerkhoff............. 43 Senior Vice President,
Agricultural--Midwest Operations
Larry E. Scott................ 54 Senior Vice President,
Industrial--Southwest Operations
Mark A. Doda.................. 34 Controller
Bradford M. Freeman(2)(4)..... 54 Director
Ray A. Goldberg(3)(4)......... 70 Director
Norman M. Jones(3)(4)......... 66 Director
James D. Watkins(2)(4)........ 49 Director
|
(1) Member of Executive Committee following completion of this Offering
(2) Member of the Compensation Committee following completion of this Offering
(3) Member of the Audit Committee following completion of this Offering
(4) Will become a director following completion of this Offering
RONALD D. OFFUTT. Mr. Offutt is the Company's founder, Chairman, Chief Executive Officer, and principal stockholder. Mr. Offutt was first elected President of the Company in 1968, upon formation of the Company. Mr. Offutt also serves as Chief Executive Officer and Chairman of the Board of Offutt Co., and he owns, controls, or manages the other Offutt Entities, which are engaged in a variety of businesses such as farming, food processing, auto dealerships, and agricultural financing activities, some of which transact business with the Company. See "Certain Relationships and Related Transactions." Mr. Offutt will continue to spend approximately 25% of his time on the Company's business. Mr. Offutt is Chairman of the Board of Regents of Concordia College of Moorhead and is a graduate of Concordia College of Moorhead with a degree in Economics.
PAUL T. HORN. Mr. Horn has served as President of the Company since August 1996 and as Chief Operating Officer and a Director of the Company since 1986. Prior to October 1, 1996, he was an employee of Offutt Co. and spent approximately 25% of his time on the business of the Company. Since such date, he has been a full-time employee of the Company. Mr. Horn serves as a director and officer and is a beneficial stockholder of many Offutt Entities, and he will continue to hold many of these positions upon consummation of this Offering. See "Certain Relationships and Related Transactions." Mr. Horn currently serves as Chairman of the Board of Crop Growers Insurance Corp., a crop insurance company, and Northern Grain Company, a regional grain elevator. Mr. Horn is a graduate of Michigan State University with degrees in Business Administration and Agronomy.
ALLAN F. KNOLL. Mr. Knoll has served as Chief Financial Officer, Secretary, and a Director of the Company since 1974. Mr. Knoll also serves as Chief Financial Officer and Secretary of Offutt Co., and serves as a director and officer and is a beneficial stockholder of many of the Offutt Entities. See "Certain Relationships and Related Transactions." Mr. Knoll will continue to spend approximately 25% of his time
on the business of the Company. Mr. Knoll is a graduate of Moorhead State University with degrees in Business Administration and Accounting.
RICHARD J. MOEN. Mr. Moen has served as the Chief Administrative Officer and Treasurer of the Company since October 1996. Prior to joining the Company, from August 1993 until September 1996, Mr. Moen served as Vice President--Legal Services of ConAgra Diversified Products Companies, a division of ConAgra, Inc. ("ConAgra"), a diversified international food company. From March 1988 until August 1993, Mr. Moen served as Executive Vice President--Administration, General Counsel, Secretary, and a director of Golden Valley Microwave Foods, Inc., a company specializing in food products designed for use in microwave ovens. Mr. Moen is a graduate of Massachusetts Institute of Technology, with a degree in Economics, and Harvard Law School.
GARY R. ALLAN. Mr. Allan has served as Senior Vice President, Agricultural--Northwest Operations since the closing of the Washington Acquisition in October 1996. Prior to that closing, Mr. Allan was the President of the Washington agricultural stores and had held such position since 1986. He is also a partner in Coho L.T.D., a diversified farming company located in Pasco, Washington, and currently serves on the Board of Directors of Yakima Federal Savings and Loan in Yakima, Washington. Mr. Allan attended Columbia Basin College and Eastern Washington University.
H. DAVID FRAMBERS. Mr. Frambers has served as Senior Vice President, Industrial--Midwest and South Central Operations since July 1996. With the expansion of the Industrial Division, he became Vice President and General Manager of the Industrial Division for the Midwest and Southwest regions and held such position from 1991 to July 1996. Mr. Frambers served as Vice President and General Manager of the Agricultural and Industrial Divisions from 1986 to 1991. Prior to joining the Company, he was the manager of a Deere agricultural dealership in Grand Forks, North Dakota from 1979 to 1986. From 1968 to 1979 he was employed by Deere in sales and marketing and held positions as the territory manager based in Denver, Colorado, the store manager at Fargo Implement, Fargo, North Dakota, and a division sales manager for Deere in Minneapolis, Minnesota. He is a graduate of Kansas State College with a degree in Industrial Technology.
LARRY B. KERKHOFF. Mr. Kerkhoff has served as Senior Vice President, Agricultural--Midwest Operations since July 1996. Prior to that time, he was the manager of the Company's agricultural equipment store in Breckenridge, Minnesota, since 1991. He has been in agri-business for over 20 years. Prior to joining the Company, he was with Kibble Equipment, a Deere agricultural dealership, in Montevideo, Minnesota. He is a graduate of Mankato Area Vocational Institute--Diesel Mechanics Program and Mankato State University with a degree in Business Administration.
LARRY E. SCOTT. Mr. Scott has served as Senior Vice President, Industrial--Southwest Operations since July 1996. Prior to that time, he served as a Vice President and General Manager of the Agricultural Division since 1991. Mr. Scott has been involved in management in the agricultural business for 24 years. He managed the Company's agricultural stores in Casselton, North Dakota, Breckenridge, Minnesota, and Fargo, North Dakota prior to becoming Vice President of the Agricultural Division. He is a graduate of North Dakota State University with a degree in Mathematics and a minor in Business Administration.
MARK A. DODA. Mr. Doda has served as Controller of the Company since September 1992. Prior to joining the Company, Mr. Doda served as a Division Controller for Graco, Inc., a manufacturer of fluid handling systems, from January 1992 to September 1992. From January 1985 to December 1991, Mr. Doda worked for Deloitte & Touche LLP. Mr. Doda is a graduate of the University of North Dakota with a degree in Accounting.
BRADFORD M. FREEMAN. Mr. Freeman will become a director following the consummation of this Offering. Mr. Freeman is a founding partner of Freeman Spogli & Co., a private equity investment firm with offices in Los Angeles and New York. Since its founding in 1983, Freeman Spogli & Co. has organized
the acquisitions of 22 companies with aggregate transaction values in excess of $6.0 billion. Mr. Freeman serves on the Board of Trustees of Stanford University. Mr. Freeman is a graduate of Stanford University and Harvard Business School.
RAY A. GOLDBERG. Mr. Goldberg will become a director following the consummation of this Offering. Mr. Goldberg is currently the Moffett Professor of Agriculture and Business and head of the Agribusiness Program at the Harvard Graduate School of Business Administration where he has been a professor since 1955. Mr. Goldberg also serves as a director of Pioneer Hi-Bred International, Inc., a seed company, and is a member of the Advisory Council to Rabobank U.S.A.
NORMAN M. JONES. Mr. Jones will become a director following the consummation of this Offering. From 1995 to the present, Mr. Jones has been the Chairman of First Bank Savings, fsb, the thrift subsidiary of First Bank System, Inc. Prior to 1995, Mr. Jones was the Chairman and Chief Executive Officer of Metropolitan Financial Corporation, a regional thrift holding company, where he was employed from 1952 through 1995. Mr. Jones has served on the committees of numerous savings and loan organizations and he currently serves on the Board of Directors of First Bank System, Inc., and Lutheran Health Systems, Inc., an owner and manager of a network of hospitals. Mr. Jones is a member of the Board of Regents for Concordia College of Moorhead, Minnesota, a board member and Chairman of Luther Seminary Foundation, an Advisory Board Member for Slumberland, Inc., a retail furniture chain, and an Advisory Board Member for the Board of Pension for the Evangelical Lutheran Church of America. Mr. Jones is a graduate of Concordia College.
JAMES D. WATKINS. Mr. Watkins will become a director following the consummation of this Offering. Mr. Watkins founded Golden Valley Microwave Foods, Inc. in 1978 and continuously served as its Chairman and Chief Executive Officer until it was acquired by ConAgra in July 1991. Since that acquisition, Mr. Watkins has served in ConAgra's Office of the President as President and Chief Operating Officer of ConAgra Diversified Products Companies. Mr. Watkins currently serves as a Trustee of Ronald McDonald House Charities and as a member of the Board of Overseers, Carlson School of Management, University of Minnesota. Mr. Watkins is a graduate of the University of Minnesota with a degree in Economics and Fine Arts.
Mr. Scott is the brother-in-law of Mr. Offutt. There are no other family relationships among the directors and executive officers of the Company. Under the Deere Agreement, Deere has the right to have input with respect to the selection of nominees to the Company's Board of Directors and the removal of directors.
TERM OF OFFICE
Members of the Board of Directors are elected annually to serve for one-year terms or until their successors are elected and qualify.
BOARD COMMITTEES
The Board of Directors has established three committees of the Board which will take effect upon consummation of this Offering: the Executive Committee, the Audit Committee, and the Compensation Committee. The Executive Committee has the authority to take all actions that the Board as a whole is able to take, except as limited by applicable law. The Audit Committee recommends the appointment of auditors and oversees the accounting and audit functions of the Company. The Compensation Committee determines executive officers' and key employees' salaries and bonuses and administers the Incentive Plan. Upon consummation of this Offering, Messrs. Offutt, Horn, and Knoll will be appointed to serve on the Executive Committee, Messrs. Knoll, Freeman, and Watkins will be appointed to serve on the Compensation Committee, and Messrs. Goldberg and Jones will be appointed to serve on the Audit Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, the Company had no Compensation Committee but the Board of Directors performed equivalent functions. Of the members of the Board of Directors in such year, Mr. Offutt served as the Company's Chairman and Chief Executive Officer, Mr. Horn served as the Chief Operating Officer, and Mr. Knoll served as the Company's Chief Financial Officer.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company will receive $1,000 per month and $500 for each Board and committee meeting attended. Directors who are employees or officers of the Company do not receive additional compensation for service as a director. In addition, all directors are entitled to be reimbursed for certain expenses in connection with attendance at Board and committee meetings. At the time such person first becomes a director of the Company, each non-employee director will receive options to purchase 10,000 shares of Class A Common Stock, with such vesting periods as the Compensation Committee may determine. See "--1996 Stock Incentive Plan."
EXECUTIVE COMPENSATION
Historically Messrs. Offutt, Horn, and Knoll were not compensated directly by the Company for their services, which represented approximately 25% of each of their time. Their services were provided to the Company pursuant to an arrangement with Offutt Co. The compensation paid by Offutt Co. to each of Messrs. Offutt, Horn, and Knoll for their services to the Company was $30,000, $50,000, and $50,000 in each of fiscal 1994, 1995, and 1996, respectively. Commencing as of October 1, 1996, each of these officers has been paid directly by the Company for their services to the Company. Messrs. Offutt and Knoll receive salaries from the Company of $50,000 per year for their part-time services, and Mr. Horn receives from the Company a salary of $150,000 per year for his full-time services. Messrs. Offutt, Horn, and Knoll each are eligible for an incentive bonus from the Company.
The following table describes the compensation paid or earned for services rendered to the Company in fiscal 1996 by the Company's Chief Executive Officer and four most highly compensated other executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY CASH BONUS COMPENSATION(1)
- ---------------------------------------- ------------- ------------- ----------------
Ronald D. Offutt
Chairman and Chief Executive
Officer............................... $ 50,000(2) -- --
Paul T. Horn
President and Chief Operating
Officer............................... $ 50,000(2) -- --
Allan F. Knoll
Chief Financial Officer and
Secretary............................. $ 50,000(2) -- --
H. David Frambers
Senior Vice President,
Industrial--Midwest and South Central
Operations............................ $ 52,000 $ 148,813 --
Larry E. Scott
Senior Vice President,
Industrial--Southwest Operations...... $ 52,000 $ 147,986 --
|
(1) No executive officer of the Company received perquisites or other personal benefits exceeding $50,000 or 10% of such officer's total annual salary and bonus.
(2) Prior to October 1, 1996, Messrs. Offutt, Horn, and Knoll were not paid directly by the Company, but were compensated by Offutt Co. The amount reflected in the table is the amount of compensation paid for the services provided by each of them to the Company in fiscal 1996.
No option grants were made during fiscal 1996 to any of the executive officers named in the Summary Compensation Table or any other employee of the Company.
1996 STOCK INCENTIVE PLAN
The Board of Directors and stockholders of the Company have adopted the Incentive Plan. The Incentive Plan is intended to advance the best interests of the Company and its stockholders by attracting, retaining, and motivating employees, directors, advisors, and consultants of the Company. The Incentive Plan provides for the grant of stock options (which may be non-qualified stock options or incentive stock options for tax purposes), stock appreciation rights issued independent of or in tandem with such options ("SARs"), restricted stock awards, and performance stock awards, thereby increasing the personal stake of Incentive Plan participants in the continued success and growth of the Company.
The Incentive Plan is administered by the Compensation Committee (the "Committee"), which consists of three members, including at least two non-employee directors of the Company who are disinterested within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee has broad authority to interpret and administer the Incentive Plan, including the power to grant and modify awards and the power to limit or eliminate in its discretion as it may deem advisable to comply with or obtain preferential treatment under any applicable tax or other law, rule, or regulation. The Committee also has broad authority to accelerate the vesting of an award or the time at which any award is exercisable or to waive any condition or restriction on the vesting, exercise, or receipt of any award. The Board of Directors may at any time amend, suspend, discontinue, or terminate the Incentive Plan without stockholder approval or approval of participants, subject to certain limitations.
Initially, 1,250,000 shares of Class A Common Stock are available for issuance under the Incentive Plan. In addition, as of February 1 of each year the Incentive Plan is in effect, if the total number of shares
of Common Stock issued and outstanding, not including any shares of Class A Common Stock issued under the Incentive Plan, exceeds the total number of shares of Common Stock issued and outstanding as of February 1 of the preceding year (or, for fiscal 1997, as of the commencement of the Incentive Plan), the number of shares available will be increased by an amount such that the total number of shares available for issuance under the Incentive Plan equals 10% of the total number of shares of Common Stock outstanding, not including any shares issued under the Incentive Plan. Lapsed, forfeited, or cancelled awards will not count against these limits. Cash exercises of SARs and cash settlements of other awards will also not be counted against these limits but the total number of SARs and other awards settled in cash shall not exceed the total number of shares authorized for issuance under the Incentive Plan (without reduction for issuances).
As of the date of this Prospectus, no awards have been made under the Incentive Plan. Prior to consummation of this Offering, the Company plans to grant options to purchase an aggregate of approximately 600,000 shares of Class A Common Stock under the Incentive Plan at the initial public offering price.
CASH BONUS INCENTIVES
The Company expects that annual cash bonuses will be a substantial portion of the cash compensation of its management team. For its senior management, bonuses are determined based on achievement of a variety of factors, including targeted return on assets and earnings per share growth. Each store manager is evaluated based on a number of performance criteria, including efficiency of asset management, store profitability, sales growth, productivity, and product support. Bonuses are accrued monthly based on the actual year-to-date performance of the managers. A portion of each bonus is paid quarterly, with the balance paid after the final bonus amount is determined at the end of each year.
401(K) EMPLOYEE SAVINGS PLAN
The Company's employees participate in a 401(k) employee savings plan, sponsored by an Offutt Entity, which covers substantially all employees. The Company matches a portion of employee contributions up to an annual maximum of $900 per employee. Contributions to the plan by the Company were $121,000, $151,000, and $194,000 for fiscal 1994, 1995, and 1996, respectively, and $151,000 and $166,000 for the nine months ended October 31, 1995 and 1996, respectively.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation contains provisions (i) eliminating the personal liability of its directors, officers, employees, and other agents for monetary damages resulting from breaches of their fiduciary duty to the fullest extent permitted by the law, and (ii) indemnifying its directors and officers to the fullest extent permitted by the DGCL. These provisions in the Certificate of Incorporation do not eliminate the duty of care and, in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. Each director will continue to be subject to liability for breach of a director's duty of loyalty to the Company or its stockholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for improper distributions to stockholders. These provisions also do not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws.
The DGCL and the Company's Certificate of Incorporation also provide that the Company shall, under certain circumstances and subject to certain limitations, indemnify any person made or threatened to be made a party to a proceeding by reason of that person's former or present official capacity with the Company against judgments, penalties, fines, settlements, and reasonable expenses. Any such person is also entitled, subject to certain limitations, to payment or reimbursement of reasonable expenses in
advance of the final disposition of the proceeding. The Company has entered into indemnification agreements with its directors and executive officers which indemnify such persons to the fullest extent permitted by its Certificate of Incorporation, its Bylaws, and the DGCL. The Company also intends to obtain directors' and officers' liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company historically has engaged, and expects to engage in the future, in various business transactions with various of the Offutt Entities, including Ag Capital, a significant provider of working capital and floor plan financing to the Company and financing to the Company's customers. Messrs. Offutt, Horn, and Knoll each serve as officers or directors and have ownership interests in various of the Offutt Entities, including all of the Offutt Entities which have engaged in and will continue to engage in transactions with the Company, as described below. The Company believes that all of these transactions were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. All future transactions between the Company and any of the Offutt Entities or any of the Company's officers, directors, principal stockholders, and their affiliates will be approved both by a majority of all members of the Company's Board of Directors and by a majority of the independent and disinterested outside directors, and will continue to be on terms believed to be no less favorable to the Company than could be obtained from unaffiliated third parties.
The Company had sales to the Offutt Entities of agricultural equipment and related parts and service totalling $1.9 million, $3.5 million, $5.5 million, and $4.9 million in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively.
The Company leases eight of its dealership facilities and many of its service vehicles from an Offutt Entity. Total rent expense for these leases totalled $579,000, $737,000, $1,089,000, and $1,138,000 in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. These leases have terms expiring at various times from 1997 to 2007.
In October 1995, the Company acquired all the outstanding capital stock of a Deere agricultural equipment dealership located in Kindred, North Dakota, which was controlled by Mr. Offutt, in exchange for 233,559 shares of the Company's Class B Common Stock, $520,000 in cash, and a note payable for $375,000 which bears interest at a rate per annum of 10% and is due January 31, 1999. The amount of consideration paid for the capital stock of the dealership was determined by the Company's Board of Directors. See Note 3 to the Combined Financial Statements.
The Company receives corporate support services from various Offutt Entities, including office space for its executive offices, use of conference and meeting facilities, use of an aircraft for Company business, administration of the Company's 401(k) plan, and real estate management services. The Company has historically paid for such services based on its pro rata usage of services as compared to the usage of other Offutt Entities or at a fixed charge. Total charges for such services totalled $48,000, $56,000, $77,000, and $94,000 in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. Effective upon consummation of this Offering, all such services will be provided to the Company pursuant to a three-year Corporate Services Agreement, which is terminable by the Company in whole or in part on 30 days' notice, on the same cost basis as in prior years.
Ag Capital and Farmers Equipment Rental provide financing to the Company's customers. The total amounts of such customer financing outstanding as of the end of fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, were $12.2 million, $24.3 million, $32.8 million, and $43.8 million, respectively. A portion of the financing provided by Ag Capital and Farmers Equipment Rental is recourse to the Company. See "Business--Customer Financing Options" and Note 9 to the Combined Financial Statements. The Company finances certain of its working capital needs, primarily inventory financing for non-Deere equipment, fixed assets, and acquisitions through Ag Capital and other Offutt Entities. Interest on such inventory financing typically bears interest at the prime rate as it varies from time to time. Total
interest paid to Offutt Entities was $771,000, $627,000, $849,000, and $829,000 in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. The total amount outstanding under these financing arrangements at October 31, 1996 was $25.1 million, with an interest rate, as of that date, of 8.25%. See "Business--Floor Plan Financing" and Notes 5 and 6 to the Combined Financial Statements as to floor plan payables, notes payable, and long-term debt due to various Offutt Entities.
To facilitate sales to certain customers, the Company guarantees a portion of the outstanding balances of certain customer notes and lease contracts financed by third parties, including customer financing provided by Ag Capital and other Offutt Entities. The amount guaranteed by the Company to Ag Capital and other Offutt Entities for customer financing was $4.4 million as of October 31, 1996.
In September 1996, the Company entered into an agreement to acquire MVI, a company controlled by Mr. Offutt, in exchange for 191,725 shares of Class B Common Stock. The exchange ratio was determined by the Company's Board of Directors. Because the Company and MVI have been under common ownership of the same controlling stockholder, the financial statements of the Company have been combined with the financial statements of MVI in the financial statements presented in this Prospectus. MVI is a dealer involved in the sale and service of irrigation equipment and vegetable ventilation systems.
At various times in the past, to facilitate its money management the Company has deposited funds with various Offutt Entities on a short-term and interest bearing basis, as described in Note 4 to Combined Financial Statements. In addition, in connection with its reorganization in fiscal 1994, the Company had notes outstanding from the stockholders in the amounts of $5.4 million and $921,000 in fiscal 1994 and 1995, respectively. All such short-term notes were repaid in fiscal 1995 and 1996 and the Company has no plans to make similar arrangements in the future. See Notes 4 and 12 to the Combined Financial Statements.
In October 1996, the Company sold its auto dealership, located in Lisbon, North Dakota, to an Offutt Entity. The total purchase price for the net assets was $123,000, which was considered by the Board of Directors of the Company to be its market value. The results of operations of this dealership have not been included with the Company's results of operations for any of the periods presented.
Effective as of July 1, 1996, the Company completed the Central Texas Acquisition and financed $8.4 million of the purchase price with a short-term note, due February 28, 1997, payable to Ag Capital. The interest rate on this indebtedness is at the prime rate and, as of December 31, 1996 was 8.25%. A portion of the net proceeds of this Offering will be used to pay this indebtedness in full.
The principal stockholder and operator of the Deere agricultural dealership acquired by the Company in the Washington Acquisition is Gary Allan, who, upon completion of the acquisition, became the Senior Vice President, Agricultural--Northwest Operations of the Company. The purchase price of the Washington Acquisition was approximately $2.7 million, including cash in the amount of $1.7 million, and a five-year note in the amount of $1.0 million, with an interest rate of 8.25% per annum. In addition, the Company has agreed to make an additional payment, up to a maximum of $750,000, in the event the acquired Washington operations meet certain operating and profit objectives during the next three years.
The Washington Acquisition was financed by the Company with a short-term note in the amount of $1.7 million, due February 28, 1997, payable to Ag Capital, which bears interest at prime, which was 8.25% as of December 31, 1996. A portion of the net proceeds of this Offering will be used to repay this indebtedness in full.
Under the Deere agreements, Mr. Offutt currently personally guarantees all Company obligations to Deere. Mr. Offutt has the right to terminate his personal guaranty at any time, which would require the Company to obtain a letter of credit in an amount meeting Deere's then current guidelines from a bank acceptable to Deere. As of October 31, 1996, the required amount of the letter of credit to replace
Mr. Offutt's personal guaranty was approximately $41.0 million, which the Company estimates would cost approximately $205,000 per year.
Prior to fiscal 1997, a portion of the net income of the Company was distributed to the stockholders, primarily to enable them to pay the tax liability incurred by them due to the Company's election to be taxed as an S corporation. Distributions declared to date in fiscal 1997 approximate the net income of the Company for that period. Dividends declared and paid for the fiscal years ended January 31, 1994, 1995, 1996, and during the nine-month period ended October 31, 1996 aggregated approximately $2.3 million, $3.8 million, $4.3 million, and $7.5 million, respectively, and dividends declared but unpaid as of October 31, 1996 were $2.2 million. This amount, plus net income before taxes for the fourth quarter of fiscal 1997 (estimated to be approximately $900,000), is expected to be distributed as a dividend to the existing stockholders prior to consummation of this Offering. In addition, simultaneously with the consummation of this Offering, the Company will pay from the net proceeds of this Offering to its existing stockholders an additional aggregate distribution of approximately $15.0 million. This amount represents substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996 with respect to which such stockholders have previously paid taxes. Purchasers of Class A Common Stock in this Offering will not receive any of these distributions. The Company intends to enter into a tax agreement with its current stockholders prior to the consummation of this Offering. This agreement will provide that, to the extent such undistributed taxable income of the Company, as subsequently established in connection with the filing of the Company's tax return for the Company's short S corporation tax year, is less than these dividends, such stockholders will make a payment equal to such difference to the Company, and if such undistributed taxable income is greater than these dividends, the Company will make an additional distribution equal to such difference to such stockholders. This agreement will also provide that the Company will indemnify its current stockholders against additional income taxes resulting from adjustments made (as a result of a final determination made by a competent tax authority) to the taxable income reported by the Company as an S corporation for periods prior to consummation of this Offering, but only to the extent those adjustments provide a tax benefit to the Company.
The Company and Mr. Offutt have entered into a mutual indemnification agreement relating to federal and certain state and local income tax liabilities of the Company and for tax years during which the Company has elected to be treated as an S corporation. This agreement generally provides that the Company will indemnify Mr. Offutt, and Mr. Offutt will indemnify the Company, against any increase in the indemnified party's income tax liabilities (including interest and penalties and all expenses, attorneys' fees, and accountants' fees incurred in connection therewith) for those jurisdictions in which an S corporation election was made or deemed to have been made. Mr. Offutt's indemnification is limited to the prior distributions he has received.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect to the beneficial ownership of the Common Stock as the date of this Prospectus, and as adjusted to reflect the sale of the shares of Class A Common Stock offered hereby, for (i) each person known by the Company to beneficially own more than 5% of the Common Stock, (ii) each of the executive officers named in the summary compensation table, (iii) each of the Company's current directors and persons who will be a Company director following completion of this Offering, and (iv) all executive officers, current directors, and directors following completion of this Offering as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information provided by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Unless otherwise noted, the address of each of the stockholders named below is the Company's principal executive administrative office.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
--------------------------------------- ---------------------------------------
NUMBER OF NUMBER OF PERCENT OF NUMBER OF NUMBER OF PERCENT OF
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
NAME OF STOCKHOLDER SHARES SHARES VOTING POWER(1) SHARES SHARES VOTING POWER(1)
- ------------------------------------ ---------- ---------- --------------- ---------- ---------- ---------------
Ronald D. Offutt.................... 7,458,492(2) 7,458,492 97.1% 7,458,492(2) 7,458,492 85.4%
Paul T. Horn........................ 413,580(3) -- 1.4 413,580(3) -- 1.2
Allan F. Knoll...................... 639,170(4) -- 2.1 639,170(4) -- 1.8
H. David Frambers................... 106,142 -- 0.4 106,142 -- 0.3
Larry E. Scott...................... 214,777 -- 0.7 214,777 -- 0.6
Bradford M. Freeman(5).............. -- -- -- -- -- --
Ray A. Goldberg(5).................. -- -- -- -- -- --
Norman M. Jones(5).................. -- -- -- -- -- --
James D. Watkins(5)................. -- -- -- -- -- --
All executive officers, current
directors, and directors following
completion of this Offering as a
group (13 persons)................ 7,966,908 7,458,492 98.8 7,966,908 7,458,492 86.9
|
(1) In calculating the percent of total voting power, the voting power of shares of Class A Common Stock (one vote per share) and Class B Common Stock (four votes per share) is aggregated.
(2) Includes the 7,458,492 shares of Class A Common Stock into which Mr. Offutt's 7,458,492 shares of Class B Common Stock are convertible on a one-for-one basis, including an aggregate of 991,600 shares of Class A Common Stock that Messrs. Horn and Knoll have the right to acquire from Mr. Offutt pursuant to option agreements.
(3) Includes 383,005 shares of Class A Common Stock that Mr. Horn has the right to acquire from Mr. Offutt pursuant to an option agreement.
(4) Includes 608,595 shares of Class A Common Stock that Mr. Knoll has the right to acquire from Mr. Offutt pursuant to an option agreement.
(5) Will become a director following completion of this Offering. Does not include options for 10,000 shares of Class A Common Stock each will receive upon consummation of this Offering, or shares each may purchase in this Offering or subsequent thereto.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of this Offering, the authorized capital stock of the Company will consist of 20,000,000 shares of Class A Common Stock, 7,500,000 shares of Class B Common Stock, each with a par value of $0.01 per share, and 500,000 shares of Preferred Stock, with no par value. As of the date of this Prospectus, after giving effect to the stock split and stock exchange in connection with the Company's reincorporation, there were 891,508 shares of Class A Common Stock and 7,458,492 shares of Class B Common Stock outstanding, which were held of record by 10 stockholders, and no shares of Preferred Stock outstanding. After consummation of this Offering, 5,091,508 shares of Class A Common Stock and 7,458,492 shares of Class B Common Stock will be issued and outstanding, assuming no exercise of the Underwriters' over-allotment option. The following summary of the terms and provisions of the Company's capital stock does not purport to be complete and is qualified in its entirety by reference to the Company's Certificate of Incorporation and Bylaws, which have been filed as exhibits to the Company's registration statement, of which this Prospectus is a part, and applicable law.
COMMON STOCK
DIVIDENDS. Holders of record of shares of Common Stock are entitled to receive such dividends when, if, and as may be declared by the Board of Directors out of funds legally available for such purposes. No dividends may be declared or paid on any share of any class of Common Stock unless such dividend, at the same rate per share, is simultaneously declared or paid on each share of the other class of Common Stock. In the case of a stock dividend or distribution, holders of Class A Common Stock are entitled to receive the same percentage dividend or distribution as holders of Class B Common Stock and vice versa, except that stock dividends and distributions shall be made in shares of Class A Common Stock to the holders of Class A Common Stock and in shares of Class B Common Stock to the holders of Class B Common Stock.
VOTING RIGHTS. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to four votes per share. Holders of shares of Common Stock vote as a single class on all matters submitted to a vote of stockholders except with respect to future issuances of Class B Common Stock and as otherwise required by law. The Certificate of Incorporation provides that all issuances of Class B Common Stock must be approved by the affirmative vote of a majority of each class of Common Stock, voting separately as a class, except with respect to (i) payment of stock dividends on Class B Common Stock, and (ii) a stock split, reclassification, or other subdivision of the Class B Common Stock. Under Delaware law, the affirmative vote of the holders of a majority of the outstanding shares of any class of Common Stock is required to approve, among other things, a change in the designations, preferences, or limitations on the shares of such class of Common Stock.
CONVERTIBILITY. Each share of Class B Common Stock is convertible, at the option of its holder, into one share of Class A Common Stock at any time. The Class A Common Stock is not convertible into Class B Common Stock. Each share of Class B Common Stock shall automatically be converted into one share of Class A Common Stock (i) in the event of Mr. Offutt's death, or (ii) in the event such share shall be transferred (including, without limitation, by way of sale, assignment, exchange, gift, bequest, or appointment or otherwise) to any person or entity other than a trust arrangement pursuant to which Mr. Offutt retains the right to control the voting of such shares.
LIQUIDATION RIGHTS. Upon liquidation, dissolution, or winding-up of the Company, the holders of Class A Common Stock are entitled to share ratably with the holders of Class B Common Stock in all assets available for distributions after payment in full to creditors.
OTHER PROVISIONS. The holders of Common Stock are not entitled to preemptive or subscription rights. Any stockholder action required or permitted may be taken without a meeting, without prior notice and without vote, by written consent of the holders of outstanding voting stock having sufficient votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In any merger, consolidation, or business combination, the consideration to be received
per share by holders of Class A Common Stock must be identical to that received by holders of Class B Common Stock. All outstanding shares of Class A Common Stock offered hereby will be, upon issuance, validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 500,000 shares of Preferred Stock in one or more series and to designate the rights, preferences, and privileges of each series, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the Common Stock, without any further vote or action by stockholders. The issuance of Preferred Stock could adversely affect the voting power of holders of both classes of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. The issuance of Preferred Stock also could have the effect of delaying, deferring, or preventing a change of control of the Company. The Company has no present plans to issue any shares of Preferred Stock.
PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECT
The Company is subject to Section 203 of the DGCL. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns (or, in the case of affiliates or associates of the corporation, within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation's voting stock. The existence of this provision could have anti-takeover effects with respect to transactions not approved in advance by the Board of Directors, which could discourage takeover attempts that might result in a premium over the market price of the Common Stock. For purposes of Section 203, Mr. Offutt and the Offutt Entities would not be prohibited from engaging in such transactions.
The Company's Certificate of Incorporation or By-laws, as applicable, among other things, (i) limits the right of stockholders to call special stockholders' meetings, (ii) requires stockholders to follow an advance notification procedure for certain stockholder nominations of candidates to the Board of Directors and for new business to be conducted at stockholders' meetings, and (iii) provides that the Board of Directors, without action by the stockholders, may issue and fix the rights and preferences of shares of Preferred Stock. These provisions may have the effect of delaying, deferring, or preventing a change of control of the Company without further action by the stockholders, may discourage bids for the Class A Common Stock at a premium over the market price of the Class A Common Stock, may adversely affect the market price of, and the voting and other rights of, the holders of the Class A Common Stock, and could have the effect of discouraging certain attempts to acquire the Company or remove incumbent management or members of the Company's Board of Directors even if some of the Company's stockholders deemed such an attempt to be in their best interests.
The Deere Agreement permits Deere to terminate the Company's dealer appointments if Mr. Offutt, during his lifetime, ceases to (i) own or control shares representing in excess of 50% of all outstanding voting power or whatever percentage is required to control corporate actions that require a stockholder vote, and (ii) own 35% of the outstanding Common Stock. In the event of Mr. Offutt's death, Deere thereafter will have the right to terminate the Company's dealer appointments upon the occurrence of a "change of control." A "change of control" is defined for these purposes as (i) the sale, lease, exchange, or other transfer of substantially all of the Company's assets; (ii) a merger, consolidation, reorganization, or similar transaction in which the Company's stockholders do not own more than 50% of the voting power of
the surviving entity (provided that if they own more than 50% but less than 80%
of the voting power, the merger must be approved by a majority of the directors
who were directors at the time of Mr. Offutt's death or subsequent directors
whose election has been approved by existing directors ("Continuity
Directors")); (iii) a vote by the stockholders to approve a transaction set
forth in (i) or (ii); (iv) the acquisition by a person other than Mr. Offutt or
his heirs of 50% or more of the voting power of the Company (20% if such
acquisition has not been approved by a majority of the Continuity Directors);
(v) a change in the corporate executive officers without Deere's approval; or
(vi) if Continuity Directors cease to constitute a majority of the Company's
Board of Directors. See "Risk Factors--Deere Termination Rights." These
provisions could discourage or prevent a third party from acquiring a
significant equity position or control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock is Norwest Bank Minnesota, National Association.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have outstanding 5,091,508 shares of Class A Common Stock and 7,458,492 shares of Class B Common Stock (5,721,508 shares of Class A Common Stock if the Underwriters' over-allotment option is exercised in full). Of these shares, all of the 4,200,000 shares of Class A Common Stock sold in this Offering will be freely tradeable by persons other than "affiliates" of the Company. The 891,508 shares of Class A Common Stock and 7,458,492 shares of Class B Common Stock outstanding prior to this Offering are "restricted securities" under the Securities Act. These shares, and any shares purchased by affiliates of the Company, may not be sold unless they are registered under the Securities Act or unless an exemption from registration, such as the exemption provided by Rule 144 under the Securities Act, is available. The Class B Common Stock is convertible on a one-for-one basis into Class A Common Stock and must be converted to effect any sale of such shares.
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned "restricted securities" for at least two years is entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Common Stock, or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission") pursuant to Rule 144 (or, if no such notice is required, the date of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker). Sales under Rule 144 also are subject to certain other requirements relating to manner of sale, notice of sale, and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not and has not been an affiliate of the Company at any time during the three months immediately preceding the sale of the Common Stock is entitled to sell "restricted securities" pursuant to Rule 144(k) without regard to the limitations described above, provided that three years have elapsed since the date on which such restricted shares were acquired from the Company or the date they were acquired from an affiliate of the Company.
After expiration of the lock-up agreements, which will be 180 days after the date of this Prospectus, an aggregate of approximately 7,924,716 shares of Class A Common Stock will be available for sale in the public market, including 7,033,208 shares of Class A Common Stock into which shares of Class B Common Stock are convertible on a one-for-one basis, subject in certain cases to volume and manner of sale limitations. The remaining approximately 425,284 shares held by existing stockholders will become eligible for public resale at various times over a period of less than two years following the consummation of this Offering, subject to volume and manner of sale limitations pursuant to Rule 144.
Prior to this Offering, there has been no established trading market for the Class A Common Stock, and no predictions can be made as to the effect that sales of Class A Common Stock under Rule 144, pursuant to a registration statement, or otherwise, or the availability of shares of Class A Common Stock for sale, will have on the market price prevailing from time to time. Sales of substantial amounts of Class A Common Stock in the public market, or the perception that such sales could occur, could depress the prevailing market price. Such sales may also make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that it deems appropriate. See "Risk Factors--Shares Eligible for Future Sale."
Certain stockholders of the Company, holding in the aggregate approximately 8,350,000 shares of Common Stock, have agreed not to offer, sell, contract to sell, announce their intention to sell, pledge, or otherwise dispose of any such Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation. See "Underwriting."
The Company has agreed that it will not offer, sell, contract to sell, announce its intention to sell, pledge, or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any additional shares of its Common Stock, other than with respect to the Incentive Plan, or securities convertible into or exchangeable or exercisable for any shares of the Common Stock without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this Prospectus.
The Company intends to file a registration statement under the Securities Act to register an aggregate of 1,250,000 shares of Class A Common Stock reserved for issuance under the Incentive Plan, thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act, subject, however, to vesting requirements with the Company and the lock-up agreements described above.
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement dated , 1997 (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters"), for whom Credit Suisse First Boston Corporation and Dain Bosworth Incorporated are acting as representatives (the "Representatives"), have severally, but not jointly, agreed to purchase from the Company the following respective numbers of shares of Class A Common Stock:
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------ ----------
Credit Suisse First Boston Corporation......................
Dain Bosworth Incorporated..................................
----------
Total............................................... 4,200,000
----------
----------
|
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the shares of Class A Common Stock offered hereby (other than those shares covered by the over-allotment option described below), if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to 630,000 additional shares of Class A Common Stock at the initial public offering price less the underwriting discounts and commissions, all as set forth on the cover page of this Prospectus. Such option may be exercised only to cover over-allotments in the sale of the shares of Class A Common Stock. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Class A Common Stock from the Company as it was obligated to purchase from the Company pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Class A Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $ per share and the Underwriters and such dealers may allow a discount of $ per share on sales to certain other dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the Representatives.
The Representatives have informed the Company that they do not expect discretionary sales by the Underwriters to exceed 5% of the shares of Class A Common Stock being offered hereby.
At the request of the Company, the Underwriters have reserved for sale, at the initial public offering price, approximately 5% of the shares offered hereby for employees and officers of the Company and the Offutt Entities who have expressed an interest in purchasing such shares of Class A Common Stock in this Offering. In addition, at the request of the Company, approximately 100,000 shares offered hereby have been reserved for sale, at the initial public offering price, to the four individuals who will become non-employee directors of the Company following completion of this Offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby.
Certain stockholders of the Company, holding in the aggregate approximately 8,350,000 shares of Common Stock, have agreed not to offer, sell, contract to sell, announce their intention to sell, pledge, or otherwise dispose of any such Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation. See "Shares Eligible for Future Sale."
The Company has agreed that it will not offer, sell, contract to sell, announce its intention to sell, pledge, or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any additional shares of its Common Stock, other than with respect to the Incentive Plan, or securities convertible into or exchangeable or exercisable for any shares of the Common Stock without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this Prospectus.
Prior to this Offering, there has been no public trading market for the Class A Common Stock. Accordingly, the initial public offering price for the shares has been determined by negotiation among the Company and the Representatives. In determining such price, consideration has been given to various factors, including the history of and prospects for the industry in which the Company operates, the Company's past and present operations, its past and present operating income and earnings and the trends of such operating income and earnings, the prospects for operating income and earnings of the Company, an assessment of the Company's management, stock prices of comparable companies, and the general condition of the securities markets. There can be no assurance, however, that the price at which the Class A Common Stock will sell in the public market after this Offering will not be lower than the price at which it is sold by the Underwriters.
The Company and Ronald D. Offutt have agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or contribute to payments which the Underwriters may be required to make in respect thereof.
The shares of Class A Common Stock have been approved for listing on the NYSE under the symbol "RDO." In order to meet the requirements for listing the Class A Common Stock on the NYSE, the Underwriters have undertaken to the NYSE to sell lots of 100 or more shares of Class A Common Stock to a minimum of 2,000 beneficial holders.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the shares of Class A Common Stock in Canada is being made only on a private placement basis exempt from the requirement that the Company prepare and file a prospectus with the securities regulatory authorities in each province where trades of the shares of Class A Common Stock are effected. Accordingly, any resale of the Class A Common Stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the shares of Class A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of shares of Class A Common Stock in Canada who receives a purchase confirmation will be deemed to represent to the Company and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such shares of Class A Common Stock without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, that such purchaser is purchasing as principal and not as agent, and (iii) such purchaser has reviewed the text above under "--Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by section 32 of the Regulation under the SECURITIES ACT(Ontario). As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the United States federal securities laws.
All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Ontario purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of shares of Class A Common Stock to whom the SECURITIES ACT (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any of the shares of Class A Common Stock acquired by such purchaser pursuant to this Offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from the Company. Only one such report must be filed in respect of shares of Class A Common Stock acquired on the same date and under the same prospectus exemption.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby is being passed upon for the Company by Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota. Certain legal matters will be passed upon for the Underwriters by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The combined financial statements of RDO Equipment Co. and Affiliate as of and for the year ended January 31, 1996 included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The combined financial statements of the Company and MVI as of January 31, 1995 and for each of the two years ended January 31, 1995 appearing elsewhere herein have been included in reliance upon the report of Eide Helmeke PLLP, independent public accountants, and upon their authority as experts in accounting and auditing.
Effective as of April 17, 1995, the Company's Board of Directors dismissed Eide Helmeke PLLP and appointed Arthur Andersen LLP as the Company's independent public accountants. The report of Eide Helmeke PLLP on the Company's financial statements as of January 31, 1995 and for each of the two years ended January 31, 1995, did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits for the fiscal years ended January 31, 1994 and 1995, and through April 17, 1995, there were no disagreements with Eide Helmeke PLLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure at the time of the change of independent public accountants or with respect to the Company's financial statements. Prior to retaining Arthur Andersen LLP, the Company
had not consulted with Arthur Andersen LLP regarding the application of accounting principles or the type of audit opinion that might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C. 20549, a Registration Statement under the Securities Act with respect to the shares of Class A Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Class A Common Stock offered hereby, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. Although all material terms and provisions of any material contract or other document are referred to in this Prospectus and described herewith, such descriptions are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement may be inspected without charge at the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part of the Registration Statement may be obtained from the Public Reference Section of the Commission in Washington, D.C. upon the payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy statements, and other information that have been or will be filed by the Company.
The Company intends to furnish holders of the Class A Common Stock with annual reports containing financial statements audited by independent public accountants, and quarterly updates for each of the first three quarters of each fiscal year containing summary unaudited financial information. Upon issuance of the Class A Common Stock, the Company also will be subject to the informational requirements of the Exchange Act.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
RDO EQUIPMENT CO.:
Reports of Independent Public Accountants
--Arthur Andersen LLP................................................... F-2
--Eide Helmeke PLLP..................................................... F-3
Combined Balance Sheets as of January 31, 1995 and 1996, and as of
October 31, 1996 (unaudited).......................................... F-4
Combined Statements of Operations for the Years Ended January 31, 1994,
1995, and 1996, and Nine Months Ended October 31, 1995 and 1996
(unaudited)........................................................... F-5
Combined Statements of Stockholders' Equity for the Years Ended January
31, 1994, 1995, and 1996, and Nine Months Ended October 31, 1996
(unaudited)........................................................... F-6
Combined Statements of Cash Flows for the Years Ended January 31, 1994,
1995, and 1996, and Nine Months Ended October 31, 1995 and 1996
(unaudited)........................................................... F-7
Notes to Combined Financial Statements.................................. F-8
PRO FORMA UNAUDITED FINANCIAL STATEMENTS:
Introduction to Pro Forma Unaudited Financial Statements................ F-20
Pro Forma Unaudited Balance Sheet as of October 31, 1996................ F-21
Notes to Pro Forma Unaudited Balance Sheet.............................. F-22
Pro Forma Unaudited Statement of Operations for the Year Ended January
31, 1996.............................................................. F-23
Pro Forma Unaudited Statement of Operations for the Nine Months Ended
October 31, 1996...................................................... F-24
Notes to Pro Forma Unaudited Statements of Operations................... F-25
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RDO Equipment Co.:
We have audited the accompanying combined balance sheet of RDO Equipment Co. (a North Dakota corporation) and Affiliate as of January 31, 1996, and the related combined statements of operations, stockholders' equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of RDO Equipment Co. and Affiliate as of January 31, 1996, and the combined results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 29, 1996 (except for Note 13,
as to which the date is January 2, 1997)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RDO Equipment Co.:
We have audited the accompanying combined balance sheet of RDO Equipment Co. (a North Dakota corporation) and Affiliate as of January 31, 1995, and the related combined statements of operations, stockholders' equity and cash flows for each of the two years in the period ended January 31, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of RDO Equipment Co. and Affiliate as of January 31, 1995, and the combined results of their operations and their cash flows for each of the two years in the period ended January 31, 1995, in conformity with generally accepted accounting principles.
EIDE HELMEKE PLLP
Fargo, North Dakota,
December 15, 1995
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
OCTOBER 31,
JANUARY 31, 1996,
--------------------- OCTOBER 31, AS ADJUSTED
1995 1996 1996 FOR
--------- ---------- ----------- DISTRIBUTION
(UNAUDITED) -----------
(UNAUDITED)
(NOTE 8)
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 683 $ 787 $ 18 $ 18
Accounts receivable (less allowance for doubtful accounts of
$319, $555, and $706)....................................... 10,906 15,533 26,157 26,157
Receivables from affiliates................................... 396 490 123 123
Notes receivable from affiliates.............................. 4,010 -- -- --
Inventories................................................... 77,204 115,616 125,766 125,766
Prepaid expenses.............................................. 270 312 312 312
--------- ---------- ----------- -----------
Total current assets........................................ 93,469 132,738 152,376 152,376
PROPERTY AND EQUIPMENT, net..................................... 3,625 13,039 15,785 15,785
OTHER ASSETS:
Deposits...................................................... 1,111 1,579 1,433 1,433
Other......................................................... 110 737 7,118 7,118
--------- ---------- ----------- -----------
Total assets................................................ $ 98,315 $ 148,093 $ 176,712 $ 176,712
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables........................................... $ 53,581 $ 91,614 $ 100,612 $ 100,612
Notes payable and current maturities of long-term debt--
Banks and others............................................ 233 2,835 5,012 5,012
Affiliates.................................................. 1,965 136 10,916 10,916
Accounts payable.............................................. 4,229 4,104 5,389 5,389
Accrued liabilities........................................... 2,926 3,350 5,917 5,917
Customer advance deposits..................................... 3,835 4,103 1,506 1,506
Distributions payable......................................... -- -- 2,246 17,246
--------- ---------- ----------- -----------
Total current liabilities................................... 66,769 106,142 131,598 146,598
LONG-TERM DEBT, net of current maturities:
Banks and others.............................................. 641 6,469 6,008 6,008
Affiliates.................................................... 438 1,198 4,822 4,822
--------- ---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock (Note 1)......................................... 84 84 84 84
Additional paid-in capital.................................... 16,216 16,284 16,216 16,216
Retained earnings............................................. 14,167 17,916 17,984 2,984
--------- ---------- ----------- -----------
Total stockholders' equity.................................. 30,467 34,284 34,284 19,284
--------- ---------- ----------- -----------
Total liabilities and stockholders' equity.................. $ 98,315 $ 148,093 $ 176,712 $ 176,712
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
|
The accompanying notes are an integral part of these combined balance sheets.
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, OCTOBER 31,
---------------------------------- ----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
REVENUES:
Wholegoods sales................................... $ 106,600 $ 135,704 $ 164,054 $ 131,211 $ 170,036
Parts and service.................................. 37,512 48,206 58,998 45,614 57,322
Rental............................................. -- -- 505 -- 1,902
---------- ---------- ---------- ---------- ----------
Total Revenues................................... 144,112 183,910 223,557 176,825 229,260
COST OF SALES........................................ 116,369 148,111 180,839 143,718 186,451
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................................... 27,743 35,799 42,718 33,107 42,809
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES........ 20,577 24,893 31,655 23,600 29,492
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 7,166 10,906 11,063 9,507 13,317
INTEREST EXPENSE..................................... (1,670) (1,895) (3,817) (2,435) (4,116)
INTEREST INCOME...................................... 336 802 823 586 633
---------- ---------- ---------- ---------- ----------
NET INCOME BEFORE INCOME TAXES....................... $ 5,832 $ 9,813 $ 8,069 $ 7,658 $ 9,834
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
UNAUDITED PRO FORMA DATA (Notes 8 and 13):
Income before income taxes......................... $ 5,832 $ 9,813 $ 8,069 $ 7,658 $ 9,834
Provision for income taxes......................... 2,332 3,925 3,228 3,063 3,934
---------- ---------- ---------- ---------- ----------
Net income......................................... $ 3,500 $ 5,888 $ 4,841 $ 4,595 $ 5,900
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma net income per share....................... $ .51 $ .63
---------- ----------
---------- ----------
Weighted average shares outstanding.................. 9,429 9,414
---------- ----------
---------- ----------
|
The accompanying notes are an integral part of these combined financial statements.
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1994, 1995, AND 1996
AND THE NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
COMMON STOCK
---------------------------------------------
CLASS B
--------------------- ADDITIONAL
MVI TOTAL PAID-IN RETAINED
CLASS A SHARES RDO SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ---------- ----------- ----------- --------- ---------
BALANCE, January 31, 1993.......... 275,037 191,725 4,408,962 $ 49 $ 6,405 $ 4,651 $ 11,105
Conversion of debt to equity..... -- -- 1,940,347 19 5,480 -- 5,499
Issuance of common stock......... 616,471 -- 917,458 16 4,331 -- 4,347
Net income....................... -- -- -- -- -- 5,832 5,832
Dividends paid................... -- -- -- -- -- (2,280) (2,280)
--------- --------- ---------- ----- ----------- --------- ---------
BALANCE, January 31, 1994.......... 891,508 191,725 7,266,767 84 16,216 8,203 24,503
Net income....................... -- -- -- -- -- 9,813 9,813
Dividends paid................... -- -- -- -- -- (3,849) (3,849)
--------- --------- ---------- ----- ----------- --------- ---------
BALANCE, January 31, 1995.......... 891,508 191,725 7,266,767 84 16,216 14,167 30,467
Issuance of common stock......... 20,383 -- -- -- 68 -- 68
Net income....................... -- -- -- -- -- 8,069 8,069
Dividends paid................... -- -- -- -- -- (4,320) (4,320)
--------- --------- ---------- ----- ----------- --------- ---------
BALANCE, January 31, 1996.......... 911,891 191,725 7,266,767 84 16,284 17,916 34,284
Purchase of common stock......... (20,383) -- -- -- (68) -- (68)
Net income (unaudited)........... -- -- -- -- -- 9,834 9,834
Dividends paid (unaudited)....... -- -- -- -- -- (7,520) (7,520)
Dividends payable (unaudited).... -- -- -- -- -- (2,246) (2,246)
--------- --------- ---------- ----- ----------- --------- ---------
BALANCE, October 31, 1996
(unaudited)...................... 891,508 191,725 7,266,767 $ 84 $ 16,216 $ 17,984 $ 34,284
--------- --------- ---------- ----- ----------- --------- ---------
--------- --------- ---------- ----- ----------- --------- ---------
|
The accompanying notes are an integral part of these combined financial statements.
RDO EQUIPMENT CO. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, OCTOBER 31,
--------------------------------- ----------------------
1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- ----------
OPERATING ACTIVITIES:
Net income........................................... $ 5,832 $ 9,813 $ 8,069 $ 7,658 $ 9,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 668 690 1,326 614 1,930
Change in operating assets and liabilities:
Accounts and notes receivable.................... (1,052) (5,285) (432) (2,717) (10,257)
Inventories...................................... (9,186) (12,436) (29,266) (14,726) 4,259
Prepaid expenses................................. (47) (199) (36) 50 2
Deposits......................................... (64) (405) (343) (296) 146
Floor plan payables.............................. 3,142 8,995 32,723 16,391 (912)
Accounts payable and accrued liabilities......... 2,032 971 (125) 3,531 3,586
Customer advance deposits........................ 1,508 1,072 184 (1,593) (2,597)
--------- ---------- ---------- ---------- ----------
Net cash provided by operating activities...... 2,833 3,216 12,100 8,912 5,991
--------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment................... (627) (1,208) (9,993) (9,674) (3,182)
Purchase of net assets of dealerships................ -- -- (1,263) (1,263) (10,100)
Other, net........................................... 43 (46) (571) (632) (860)
--------- ---------- ---------- ---------- ----------
Net cash used for investing activities......... (584) (1,254) (11,827) (11,569) (14,142)
--------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 1,024 250 5,862 4,962 3,397
Payments on long-term debt........................... (736) (565) (510) (287) (1,383)
Net proceeds (payments) of bank lines and short-term
notes payable...................................... (259) (1,711) (1,269) 562 12,956
Proceeds from collection of notes receivable from
affiliates......................................... -- 1,259 -- -- --
Issuance of common stock............................. 70 -- 68 68 --
Purchase of common stock............................. -- -- -- -- (68)
Payment of dividends................................. (2,280) (761) (4,320) (2,964) (7,520)
--------- ---------- ---------- ---------- ----------
Net cash provided by (used for) financing
activities................................... (2,181) (1,528) (169) 2,341 7,382
--------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH............................ 68 434 104 (316) (769)
CASH AND CASH EQUIVALENTS, beginning of period......... 181 249 683 683 787
--------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period............... $ 249 $ 683 $ 787 $ 367 $ 18
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
|
The accompanying notes are an integral part of these combined financial statements.
RDO EQUIPMENT CO. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF OCTOBER 31, 1995 AND 1996, AND
FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
1. NATURE OF BUSINESS:
PRINCIPLES OF COMBINATION
The financial statements of RDO Equipment Co. (RDO) have been combined with the financial statements of Minnesota Valley Irrigation, Inc. (MVI or Affiliate), a Minnesota corporation, as RDO entered into an agreement to acquire MVI in September 1996 and both of these entities (collectively, the Company) are owned by the same majority stockholder. The acquisition, which will be effective upon successful completion of the proposed initial public offering (see Note 13) will be effected through the issuance of 191,725 shares of RDO common stock in exchange for 200 shares of MVI common stock. Because RDO and MVI are under common control, the merger will be accounted for essentially as a pooling of interests. In connection with the proposed initial public offering, the Company declared a 44.5-for-1 stock split and reincorporated in Delaware (see Note 13). This stock split and the MVI stock exchange have been retroactively reflected in the combined financial statements.
CAPITAL STOCK
Upon consummation of the proposed initial public offering (see Note 13), the authorized capital stock of the Company will consist of 20,000,000 shares of Class A Common Stock and 7,500,000 shares of Class B Common Stock, each with a par value of $0.01 per share; and 500,000 shares of Preferred Stock, no par value. The economic rights of each class of common stock are the same, but the voting rights differ. Each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to four votes per share. In addition, the shares of Class B Common Stock contain restrictions as to transferability and are convertible into shares of Class A Common Stock on a one-for-one basis.
Following is a summary of the outstanding Common Stock of RDO and MVI as of January 31, 1995 and 1996 and October 31, 1996 (as adjusted for the 44.5-for-1 stock split).
JANUARY 31,
-------------------- OCTOBER 31,
1995 1996 1996
--------- --------- -----------
RDO Common Stock: par value $.01; 8,158,275 shares issued and outstanding at
January 31, 1995 and October 31, 1996 and 8,178,658 shares issued and
outstanding at January 31, 1996............................................... $ 81,582 $ 81,786 $ 81,582
MVI Common Stock: par value $.01; 191,725 shares issued and outstanding (also
as adjusted for the 21.5-for-1 exchange ratio used to effect the
acquisition).................................................................. 1,917 1,917 1,917
--------- --------- -----------
Total...................................................................... $ 83,499 $ 83,703 $ 83,499
--------- --------- -----------
--------- --------- -----------
|
Upon consummation of the MVI merger and proposed initial public offering, 7,458,492 shares of the Company's outstanding common stock will be designated as Class B Common Stock and the 891,508 remaining outstanding shares will be designated as Class A Common Stock. There are no shares of Preferred Stock issued or outstanding as of October 31, 1996.
BUSINESS
The Company is engaged in the sale, servicing, and rental of industrial and agricultural equipment to customers primarily in the construction and agricultural industries and to governmental agencies. The
1. NATURE OF BUSINESS: (CONTINUED)
Company's headquarters are located in Fargo, North Dakota. The Company owns and operates industrial and agricultural equipment dealerships located in Arizona, California, Minnesota, North Dakota, South Dakota, Texas, and Washington. Accordingly, the Company's results of operations can be significantly impacted by the general economic health of the construction and agricultural industries. MVI is a dealer involved in the sales and service of irrigation equipment and vegetable storage ventilation systems.
The Company's major supplier of new equipment and parts for sale is Deere & Company (Deere), which accounted for 47%, 47%, and 48% of total revenues for fiscal years 1994, 1995, and 1996, respectively, and 47% and 48% of total revenues for the nine months ended October 31, 1995 and 1996, respectively. No other supplier's equipment accounted for more than 10% of total revenues.
As discussed in Note 10, the Company has significant transactions with related parties, primarily related to financing arrangements.
DEALERSHIP AGREEMENTS
The Company has entered into agreements with Deere which authorize the Company to act as an authorized dealer of Deere industrial and agricultural equipment. The dealer agreements continue until terminated by Deere or the Company in accordance with the specified provisions.
The Company is required to meet certain performance criteria and equity ratios, to maintain suitable facilities, to actively promote the sale of Deere equipment, to fulfill warranty obligations, and to maintain stores only in the authorized locations. The Company's principal stockholder is also required to maintain certain voting control and ownership interests. The agreements also contain certain provisions that must be complied with in order to retain the Company's dealership agreements in the event of certain changes in control, as defined, or the death of the controlling stockholder.
Deere is obligated to make available to the Company floor plan and other financing programs that it offers to other dealers, provide promotional and marketing materials, and authorize the Company to use Deere trademarks and trade names.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses during the reporting period and disclosure of contingent assets and liabilities. The ultimate results could differ from those estimates. Estimates are used for such items as used equipment inventory, depreciable lives of property and equipment, allowance for uncollectible accounts, inventory reserves, and guarantees. As better information becomes available or as actual amounts are determinable, the recorded estimates are revised.
INTERIM FINANCIAL STATEMENTS
The combined balance sheet as of October 31, 1996, and the related combined statements of operations, stockholders' equity and cash flows for the nine months ended October 31, 1995 and 1996, are unaudited and are not covered by the reports of independent public accountants. However, in the opinion of management, these interim financial statements include all adjustments (consisting of only normal recurring adjustments) which are necessary for the fair presentation of the results for the interim periods presented. The results of operations for the unaudited nine-month period ended October 31, 1996 are not necessarily indicative of the results which may be expected for the entire fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of certificates of deposit.
INVENTORIES
All inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for new equipment and parts inventory. The specific identification method is used to determine cost for used equipment.
Inventories consisted of the following (in thousands):
JANUARY 31,
--------------------- OCTOBER 31,
1995 1996 1996
--------- ---------- -----------
New equipment............................................. $ 47,541 $ 72,647 $ 75,378
Used equipment............................................ 21,333 32,056 35,418
Parts and other........................................... 8,330 10,913 14,970
--------- ---------- -----------
Total................................................. $ 77,204 $ 115,616 $ 125,766
--------- ---------- -----------
--------- ---------- -----------
|
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Major betterments and improvements which extend the useful life of the related item are capitalized and depreciated. Depreciation is provided for over the estimated useful lives of the individual assets using accelerated and straight-line methods. In fiscal 1996, the Company began using the straight-line method of depreciation exclusively for all new additions. The impact on net income resulting from this change was not material.
Property and equipment consisted of the following (in thousands):
JANUARY 31, USEFUL
-------------------- OCTOBER 31, LIVES
1995 1996 1996 (YEARS)
--------- --------- ----------- -----------
Land.............................................. $ 224 $ 488 $ 800 --
Buildings and improvements........................ 2,020 3,394 3,654 31.5
Equipment, furniture and fixtures................. 4,174 5,585 7,783 5-7
Rental equipment.................................. 201 7,750 9,191 5-7
Construction in progress.......................... 442 18 73 --
--------- --------- -----------
Total....................................... 7,061 17,235 21,501
Accumulated depreciation.......................... (3,436) (4,196) (5,716)
--------- --------- -----------
Property and equipment, net....................... $ 3,625 $ 13,039 $ 15,785
--------- --------- -----------
--------- --------- -----------
|
REVENUE RECOGNITION
Revenue on equipment and parts sales is recognized upon delivery of product to customers. Rental and service revenue is recognized at the time such services are provided.
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NET INCOME PER SHARE
Net income per share is computed based on weighted average shares outstanding, which have been retroactively restated for the 44.5-for-1 stock split discussed in Notes 1 and 13 and the number of shares whose proceeds would be necessary to repay the $15.0 million dividend of accumulated undistributed S-corporation earnings discussed in Note 8.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires companies to review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This pronouncement also provides guidance to be considered in performing such reviews. The Company will be required to adopt SFAS No. 121 in fiscal 1997. The Company expects that the ultimate adoption of SFAS No. 121 will not have a significant impact on its financial position or results of operations.
3. BUSINESS COMBINATIONS:
In October 1995, the Company acquired all the common stock of Cass County Equipment Co. (Cass), which was controlled by the Company's majority stockholder, in exchange for 233,559 shares (adjusted for the 44.5-for-1 stock split) of the Company's common stock, $520,000 in cash, and a note payable for $375,000. Because the Company and Cass were under common control, the merger has been accounted for essentially as a pooling of interests. Accordingly, the Company's financial statements include the historical carrying amounts of the combined net assets and results of the operations of the combined entities for all periods presented.
In February 1995, the Company purchased the assets and assumed certain liabilities of Whitney Machinery, Inc. (Whitney). Total consideration for the acquisition was $2,699,000. The acquisition has been accounted for using the purchase method. Accordingly, the purchase price was allocated to assets and liabilities based on the estimated fair value at the acquisition date. The excess of purchase price over the fair value of the net assets totaled $625,000 and is being amortized over 30 years. The fiscal 1996 financial statements include Whitney's results of operations from the date of acquisition. Pro forma results of operations for fiscal 1994 and 1995, had the acquisition taken place on February 1, 1993, were not significantly different from reported amounts.
4. NOTES RECEIVABLE--AFFILIATES:
Short-term notes receivable from affiliates, all of which were repaid in fiscal 1996, were as follows as of January 31, 1995 (in thousands):
Majority stockholder, demand note, interest at 8.0%................. $ 922
Farmers Equipment Rental, Inc., demand note, interest at 7.5%....... 2,408
R. D. Offutt Company, demand notes, interest ranging from 7.5% to
8.0%............................................................... 680
---------
$ 4,010
---------
---------
|
5. FLOOR PLAN PAYABLES:
Floor plan payables include borrowings from Deere, Ag Capital and other vendors under floor plan financing arrangements for inventory. The terms of these arrangements generally include a one-to-twelve-
5. FLOOR PLAN PAYABLES: (CONTINUED)
month interest-free term followed by a term during which interest is charged. Payoff of the floor plan generally occurs at the earlier of sale of the equipment or in accordance with the terms of the financing arrangements. All amounts owed to Deere are guaranteed by the majority stockholder of the Company and are collateralized by inventory. Floor plan payables consist of the following (in thousands):
JANUARY 31,
-------------------- OCTOBER 31,
1995 1996 1996
--------- --------- -----------
INTEREST BEARING:
Deere Credit Services inventory notes, due as inventory is sold, interest at
various rates from 5.65% to 9.25%.......................................... $ 608 $ 20,015 $ 46,051
Deere & Company payables, due as inventory is sold, interest at various rates
from 8.25% to 9.0%......................................................... 14,496 17,487 5,069
Ag Capital Company, interest based on prime (8.5% at January 31, 1995 and
1996 and 8.25% at October 31, 1996)........................................ 3,858 7,299 9,388
Other........................................................................ 628 363 1,064
--------- --------- -----------
19,590 45,164 61,572
--------- --------- -----------
NON-INTEREST BEARING:
Deere Credit Services........................................................ -- -- 2,183
Deere & Company.............................................................. 33,991 45,147 35,796
Other........................................................................ -- 1,303 1,061
--------- --------- -----------
33,991 46,450 39,040
--------- --------- -----------
Total...................................................................... $ 53,581 $ 91,614 $ 100,612
--------- --------- -----------
--------- --------- -----------
|
6. NOTES PAYABLE AND LONG-TERM DEBT:
BANKS AND OTHERS
Notes payable and long-term debt to banks and others consisted of the following (in thousands):
JANUARY 31,
-------------------- OCTOBER 31,
1995 1996 1996
--------- --------- -----------
Deere Credit Services rental equipment notes, due in various amounts through
January 2000, interest at various rates from 8.25% to 9.0%, collateralized by
rental equipment................................................................. $ -- $ 3,533 $ 6,233
Bank lines of credit (see below).................................................. -- 3,472 2,433
Other............................................................................. 874 2,299 2,354
--------- --------- -----------
Total......................................................................... 874 9,304 11,020
Less short-term notes and current maturities of long-term debt.................... (233) (2,835) (5,012)
--------- --------- -----------
$ 641 $ 6,469 $ 6,008
--------- --------- -----------
--------- --------- -----------
|
The Company has bank lines of credit totaling $3,000,000 through May 1, 1997 at variable interest rates. Bank lines of credit are guaranteed by the majority stockholder of the Company. During the fiscal years ended January 31, 1994, 1995, and 1996, the highest balances outstanding under these lines were $562,000, $750,000, and $2,972,000, respectively. The weighted average interest rates on these lines during such periods were 6.86%, 7.94%, and 8.41%, respectively.
6. NOTES PAYABLE AND LONG-TERM DEBT: (CONTINUED) AFFILIATES
Notes payable and long-term debt due to affiliates consist of the following (in thousands):
JANUARY 31,
-------------------- OCTOBER 31,
1995 1996 1996
--------- --------- -----------
Ag Capital Company, bridge loans related to acquisition of net assets of Central
Texas and Washington (See Note 13), interest based on prime (8.25%),
collateralized by substantially all assets of the Company...................... $ -- $ -- $ 10,100
Ag Capital Company, other, interest at 8.25%, collateralized by property and
equipment...................................................................... 611 1,334 5,638
Farmers Equipment Rental, Inc., interest at prime plus 1% (9.50% at January 31,
1995) collateralized by inventory and equipment, paid in fiscal 1996........... 1,792 -- --
--------- --------- -----------
Total.......................................................................... 2,403 1,334 15,738
Less short-term notes and current maturities of long-term debt................... (1,965) (136) (10,916)
--------- --------- -----------
$ 438 $ 1,198 $ 4,822
--------- --------- -----------
--------- --------- -----------
|
Future maturities of all debt as of January 31, 1996 are as follows (in thousands):
1997............................................................... $ 2,971
1998............................................................... 4,901
1999............................................................... 1,505
2000............................................................... 391
2001............................................................... 116
Thereafter......................................................... 754
---------
$ 10,638
---------
---------
|
The Company's debt agreements contain various restrictive covenants which, among other matters, require the Company to maintain minimum net worth levels, as defined, and place limits on additional indebtedness. The Company was in compliance with all debt covenants at January 31, 1996 and October 31, 1996.
7. EMPLOYEE BENEFIT PLANS:
401(k) EMPLOYEE SAVINGS PLAN
The Company's employees participate in a 401(k) employee savings plan sponsored by an affiliate which covers substantially all employees. The Company matches a portion of employee contributions up to an annual maximum of $900 per employee. Contributions to the plan by the Company were $121,000, $151,000, and $194,000 for the fiscal years ended January 31, 1994, 1995, and 1996, respectively, and $151,000 and $166,000 for the nine months ended October 31, 1995 and 1996, respectively.
EMPLOYEE HEALTH BENEFIT TRUST
The Company participates in a tax-exempt voluntary employee benefit trust sponsored by an affiliate which provides health and dental benefits for full-time employees. In the event of a deficiency in the trust, additional monthly premiums could be assessed to the Company; however, management anticipates no
7. EMPLOYEE BENEFIT PLANS: (CONTINUED) substantial increases in premiums at the present time. The maximum liability to the Company is limited by stop-loss insurance to the lesser of $35,000 per employee or 120% of expected claims for the year.
8. INCOME TAXES:
The Company has elected to be treated as an S corporation under the Internal Revenue Code. Under this election, the Company is not directly subject to income taxes. Instead, corporate taxable earnings are passed through to the stockholders, who are responsible for any taxes which may be due.
In connection with the pending reorganization and offering described in Note 13, both RDO and MVI will terminate their S corporation federal tax status and change to C corporations and, accordingly, will be subject to federal and certain state income taxes. Prior to such termination, the Company will distribute to its current stockholders all, or a portion of, accumulated S corporation earnings as of the termination date. Through January 31, 1996, the amount of the undistributed accumulated Subchapter S corporation earnings was approximately $15.0 million. Accrual of this distribution payable has been reflected in the unaudited balance sheet as of October 31, 1996, adjusted for the distribution. Additional undistributed Subchapter S corporation earnings of $2.2 million have been declared but unpaid as of October 31, 1996.
Pro forma net income and pro forma net income per share for the year ended January 31, 1996, and for the nine months ended October 31, 1996, have been determined assuming that the Company had been taxed as a C corporation for federal and certain state income tax purposes for such periods.
Unaudited pro forma income taxes represent the estimated income taxes that would have been reported had the Company been a taxable entity for both federal and state income tax purposes for the fiscal years ended January 31, 1994, 1995, and 1996. The components of the unaudited pro forma income tax provision are summarized as follows (in thousands):
YEAR ENDED JANUARY 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
Currently payable:
Federal........................................................ $ 1,671 $ 3,319 $ 2,433
State.......................................................... 504 992 757
Deferred......................................................... 157 (386) 38
--------- --------- ---------
Unaudited pro forma provision for income taxes................... $ 2,332 $ 3,925 $ 3,228
--------- --------- ---------
--------- --------- ---------
|
A reconciliation of taxes based on the federal statutory rate of 34% and the unaudited pro forma provision for income taxes for the fiscal years ended January 31, 1994, 1995, and 1996 is summarized as follows:
YEAR ENDED JANUARY 31,
-------------------------------------
1994 1995 1996
----- ----- -----
Income taxes at the federal statutory rate............................ 34% 34% 34%
State income taxes, net of federal benefit............................ 6 6 6
-- -- --
Unaudited pro forma provision for income taxes........................ 40% 40% 40%
-- -- --
-- -- --
|
Effective with the termination of the Company's S corporation status, the Company will provide for deferred income taxes for cumulative temporary differences between the tax basis and financial reporting basis of its assets and liabilities at the date of termination. If the termination had occurred at October 31, 1996, the net deferred income tax asset would have approximated $850,000.
8. INCOME TAXES: (CONTINUED) The pro forma deferred tax asset consisted of the following temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities (in thousands):
JANUARY 31,
--------------------
1995 1996
--------- ---------
Deferred tax assets:
Accruals and reserves...................................................... $ 417 $ 320
Compensation accruals...................................................... 384 480
Other...................................................................... 17 6
--------- ---------
Total deferred tax assets................................................ 818 806
Deferred tax liabilities:
Property and equipment..................................................... (191) (249)
Inventory.................................................................. (332) (300)
--------- ---------
Total deferred tax liabilities........................................... (523) (549)
--------- ---------
Net deferred tax asset................................................... $ 295 $ 257
--------- ---------
--------- ---------
|
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases retail space and vehicles under various noncancelable operating leases. The leases have varying terms and expire at various dates through 2007. Generally, the leases require the Company to pay taxes, insurance and maintenance costs. Rent expense was $1,033,000, $1,386,000, and $2,055,000 for fiscal 1994, 1995, and 1996, respectively, and $1,528,000 and $1,897,000 for the nine months ended October 31, 1995 and 1996, respectively.
Future minimum rental payments, by year, required under leases with initial or remaining terms of one year or more consist of the following (in thousands):
1997................................................................ $ 1,746
1998................................................................ 1,360
1999................................................................ 1,112
2000................................................................ 909
2001................................................................ 843
Thereafter.......................................................... 1,088
---------
$ 7,058
---------
---------
|
GUARANTEES
The Company has guaranteed a portion of the remaining outstanding balances of certain customer notes and lease contracts financed by credit companies. The Company has made deposits with the finance
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED) companies to partially fund contingent liabilities which may come due. These customer notes are collateralized by equipment. The contingent liability and off-setting deposits are as follows (in thousands):
JANUARY 31, 1996 OCTOBER 31, 1996
-------------------------- --------------------------
FINANCE FINANCE
GUARANTEED DEPOSITS GUARANTEED DEPOSITS
AMOUNTS RECEIVABLE AMOUNTS RECEIVABLE
----------- ------------- ----------- -------------
Ag Capital Company (affiliate).................................. $ 1,862 $ -- $ 3,442 $ --
Farmers Equipment Rental, Inc. (affiliate)...................... 1,418 -- 942 --
Deere Credit Services........................................... 771 745 847 847
Other........................................................... 25 3 224 6
----------- ----- ----------- -----
Total......................................................... $ 4,076 $ 748 $ 5,455 $ 853
----------- ----- ----------- -----
----------- ----- ----------- -----
|
MINIMUM REPURCHASE GUARANTEES
The Company has entered into various sales agreements with certain customers which are subject to repurchase agreements. Pursuant to these agreements, the Company, at the discretion of the customer, may be required to repurchase equipment at specified future dates at specified repurchase prices. With respect to these agreements, the Company believes the estimated future retail values of the equipment exceed the guaranteed repurchase prices. To the extent that underlying agreements do not meet the criteria for full profit sales recognition, the underlying profit is deferred and recognized over the term of the repurchase agreements.
The Company's existing repurchase agreements expire as follows (in thousands):
1997................................................................ $ 270
1998................................................................ 296
1999................................................................ 1,640
2000................................................................ 1,362
2001................................................................ 3,250
Thereafter.......................................................... 2,998
---------
Total............................................................. $ 9,816
---------
---------
|
10. RELATED-PARTY TRANSACTIONS:
The Company has transactions with companies which are related through common ownership. A summary of significant related-party transactions is as follows:
a. Ag Capital Company and Farmers Equipment Rental, Inc. provide financing to customers purchasing equipment, parts and repair service from the Company. The Company is contingently liable to these related entities on a portion of this customer financing as summarized in Note 9.
b. In addition, the Company has floor plan payables, notes payable and long-term debt owed to Ag Capital Company and Farmers Equipment Rental, Inc. to finance inventory as summarized in Notes 5 and 6. Interest expense paid to related entities totaled $771,000, $627,000, and $849,000 in fiscal 1994, 1995, and 1996, respectively, and $727,000 and $829,000 during the nine months ended October 31, 1995 and 1996, respectively.
c. The Company's notes receivable from affiliates are summarized in Note 4.
d. The Company had sales to related entities totaling $1,885,000, $3,450,000, and $5,492,000 in fiscal 1994, 1995, and 1996, respectively, and $3,000,000 and $4,931,000 during the nine months ended
10. RELATED-PARTY TRANSACTIONS: (CONTINUED)
October 31, 1995 and 1996, respectively. The Company also leases certain retail space and vehicles from related entities. Total rent expense for these leases totaled $579,000, $737,000, and $1,089,000 in fiscal 1994, 1995, and 1996, respectively, and $827,000 and $1,138,000 during the nine months ended October 31, 1995 and 1996, respectively.
11. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Supplemental cash flow disclosures for the Company are as follows (in thousands):
NINE MONTHS ENDED
YEAR ENDED JANUARY 31, OCTOBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
Cash payments for interest...................................... $ 1,436 $ 1,937 $ 3,820 $ 2,329 $ 4,015
Supplemental disclosures of noncash investing and financing
activities:
Increase in assets related to acquisitions of dealerships
through issuance and assumption of debt and issuance of
common stock................................................ $ -- $ -- $ 9,991 $ 9,991 $ 11,325
Dividends declared, accrued and unpaid........................ $ -- $ -- $ -- $ -- $ 2,246
Reduction of notes receivable from affiliates and other
receivables through payment of dividends.................... $ -- $ 3,088 $ -- $ -- $ --
Conversion of long-term debt due to affiliates to common
stock....................................................... $ 5,499 $ -- $ -- $ -- $ --
Issuance of common stock in exchange for short-term note
receivable from affiliate................................... $ 4,347 $ -- $ -- $ -- $ --
|
12. SEGMENT INFORMATION:
The Company's operations are classified into two business segments:
industrial and agricultural. The industrial operations include the sale,
service, and rental of industrial equipment to customers primarily in the
construction and utility industries and to units of government. Agricultural
operations include the sale, service, and rental of agricultural equipment
primarily to customers in the agricultural industry.
Operating earnings by business segment are defined as revenues less operating costs and expenses. Income and expense not allocated to business segments include investment income, interest expense, and corporate administrative costs.
Identifiable assets are those used exclusively in the operations of each business segment or which are allocated when used jointly. Corporate assets are principally comprised of cash, short-term investments, certain property, plant, and equipment and stockholder notes receivable which originated from the Company's reorganization in fiscal 1994. These stockholder notes receivable of $5.4 million and $921,000 in fiscal 1994 and 1995, respectively, have all been repaid.
12. SEGMENT INFORMATION: (CONTINUED) The following tables show sales, operating income and other financial information by business segment for the fiscal years 1994, 1995, and 1996 (in thousands):
CORPORATE
INDUSTRIAL AGRICULTURAL AND OTHER TOTAL
---------- ----------- ----------- ----------
1994:
Revenues.................................. $ 86,721 $ 57,391 $ -- $ 144,112
Operating income (loss)................... 4,234 3,436 (504) 7,166
Depreciation.............................. 423 245 -- 668
Identifiable assets....................... 48,990 28,962 5,389 83,341
Capital expenditures...................... 448 179 -- 627
1995:
Revenues.................................. 110,546 73,364 -- 183,910
Operating income (loss)................... 6,709 4,796 (599) 10,906
Depreciation.............................. 388 239 7 634
Identifiable assets....................... 59,573 37,110 1,632 98,315
Capital expenditures...................... 540 643 25 1,208
1996:
Revenues.................................. 138,972 84,585 -- 223,557
Operating income (loss)................... 6,604 4,826 (367) 11,063
Depreciation.............................. 750 307 28 1,085
Identifiable assets....................... 102,289 45,591 213 148,093
Capital expenditures...................... 7,855 2,001 137 9,993
|
13. PENDING OFFERING, CHANGE IN TAX STATUS, AND RECENT ACQUISITIONS:
PROPOSED INITIAL PUBLIC OFFERING
The Company has filed a Registration Statement with the Securities and Exchange Commission for the sale of up to 4,830,000 shares (including the Underwriters' over-allotment option to purchase up to 630,000 shares) of Class A Common Stock (the Offering). The Company expects to use the net proceeds of this Offering (estimated to be approximately $59.5 million) to fund the distribution of accumulated S corporation dividends (see Note 8), repay certain notes issued in connection with the acquisitions of Mega Equipment Company (Central Texas) and Liberty Agricultural, Inc. (Washington) (see Acquisitions Completed Subsequent to January 31, 1996 below), pay down inventory floor plan financing, fund potential future acquisitions, and for general corporate purposes. The over-allotment option, which will grant to the Underwriters an option to purchase up to 630,000 additional shares of Class A Common Stock at the initial public offering price, is exercisable for a period of 30 days from the effective date.
REORGANIZATION
On January 2, 1997, the Company's Board of Directors approved the reclassification and split of each share of common stock into 44.5 shares of either Class A or Class B Common Stock to be effected immediately prior to the Offering. This reclassification and stock split has been retroactively reflected in the accompanying combined financial statements.
CHANGE IN TAX STATUS
The Company will terminate its S corporation federal tax election upon the consummation of this Offering and, accordingly, will be subject to federal and certain state income taxes as a C corporation from that date forward (see Note 8).
13. PENDING OFFERING, CHANGE IN TAX STATUS, AND RECENT ACQUISITIONS: (CONTINUED)
STOCK INCENTIVE PLAN
In connection with the proposed initial public offering, the Company will adopt the 1996 Stock Incentive Plan (the Plan) to provide incentives to key employees, directors, advisors, and consultants of the Company. The Plan, which is administered by the Compensation Committee of the Board of Directors (the Committee), will provide for an authorization of shares of common stock for issuance thereunder such that the total number of shares available for issuance under the Plan equals 10% of the total number of shares of Common Stock issued and outstanding. Under the Plan, the Company may grant eligible recipients incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, stock awards, or any combination thereof. The Committee establishes the exercise price of any stock options granted under the Plan.
ACQUISITIONS COMPLETED SUBSEQUENT TO JANUARY 31, 1996
Effective July 1, 1996, the Company acquired certain assets and assumed certain liabilities of Mega Equipment Company (Central Texas), which consists of three full-service industrial stores located in the Dallas/Fort Worth metropolitan area and Waco, Texas. Total consideration for the net assets acquired, which has been accounted for using the purchase method, was approximately $8.4 million and was financed by debt from Ag Capital, which will be repaid with a portion of the net proceeds from the proposed initial public offering. Resulting goodwill of approximately $4.4 million is being amortized over 30 years. The Company also acquired certain new equipment and parts inventory from Deere to stock the Central Texas dealership. Total consideration for such inventory of approximately $7.7 million was financed through Deere floor plan financing arrangements. Central Texas' results of operations have been included in the Company's results of operations beginning on July 1, 1996.
Effective October 1, 1996, the Company purchased certain assets and assumed certain liabilities of Liberty Agricultural, Inc. (Washington), a full-service agricultural equipment dealership with two stores located in Pasco and Sunnyside, Washington. The total purchase price for the net assets of Washington was approximately $2.7 million and was financed with debt, a portion of which will be repaid with the net proceeds from the proposed initial public offering. The purchase agreement also calls for future contingent consideration of up to $750,000 in the event certain performance criteria are met over a three-year period. The Company anticipates accounting for the contingent consideration paid, if any, as compensation expense. The Washington acquisition will be accounted for under the purchase method and will result in goodwill of approximately $1.6 million, which will be amortized over 30 years. Washington's results of operations have been included in the Company's results of operations beginning on October 1, 1996.
14. UNAUDITED QUARTERLY FINANCIAL DATA (IN THOUSANDS):
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL YEAR
--------- --------- --------- --------- ----------
Fiscal 1995:
Total revenues...................... $ 45,472 $ 49,732 $ 48,713 $ 39,993 $ 183,910
Gross profit........................ 8,806 9,768 9,822 7,403 35,799
Net income before income taxes...... 2,566 3,376 2,461 1,410 9,813
Fiscal 1996:
Total revenues...................... 52,029 57,718 67,078 46,732 223,557
Gross profit........................ 9,765 10,863 12,480 9,610 42,718
Net income before income taxes...... 1,884 2,697 3,078 410 8,069
|
RDO EQUIPMENT CO. AND AFFILIATE
INTRODUCTION TO PRO FORMA UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 31, 1996 AND THE
NINE-MONTH PERIOD ENDED OCTOBER 31, 1996
The following unaudited pro forma consolidated financial information consists of pro forma unaudited consolidated statements of operations of the Company for the fiscal year ended January 31, 1996 and for the nine-month period ended October 31, 1996 and a pro forma consolidated balance sheet of the Company as of October 31, 1996. The unaudited pro forma consolidated financial statements give effect to the July 1, 1996 acquisition of certain net assets of Mega Equipment Co. (Central Texas) and the October 1, 1996 acquisition of certain net assets of Liberty Agricultural, Inc. (Washington). The pro forma unaudited consolidated statements of operations give effect to such transactions as if the transactions had occurred on February 1, 1995. The Central Texas and Washington acquisitions have been reflected in the Company's historical balance sheet as of October 31, 1996.
Effective July 1, 1996, the Company acquired certain assets and assumed certain liabilities of Central Texas. Total consideration for the acquisition, which has been accounted for using the purchase method, was $8.4 million and was financed by borrowings from an affiliated entity, all of which will be repaid out of the net proceeds from the Offering. Resulting goodwill of approximately $4.4 million is being amortized over 30 years. The Company acquired certain new equipment and parts inventory from Deere to stock the Central Texas dealership. Total consideration for such inventory of approximately $7.7 million was financed through the John Deere floor plan financing arrangement.
Effective October 1, 1996, the Company purchased certain assets and assumed certain liabilities of Washington, a full-service agricultural equipment dealership with two stores located in Pasco and Sunnyside, Washington. The purchase price was approximately $2.7 million and was financed by debt, a portion of which will be repaid out of the net proceeds from the Offering. The acquisition will be accounted for using the purchase method. Resulting goodwill of approximately $1.6 million will be amortized over 30 years.
The unaudited pro forma consolidated statement of operations for the year ended January 31, 1996, reflects the audited historical combined income statement of the Company for the year ended January 31, 1996, the audited historical income statement of Central Texas for the year ended December 31, 1995 and the unaudited historical income statement of Washington for its year ended December 31, 1995. The unaudited pro forma consolidated statement of operations for the nine months ended October 31, 1996, reflect the unaudited historical combined financial statements of the Company as of the nine months ended October 31, 1996, the unaudited historical statement of operations of Central Texas for the five-month period preceding the Central Texas acquisition, and the unaudited historical statement of operations of Washington for the eight-month period preceding the Washington acquisition.
The pro forma unaudited consolidated financial statements and accompanying notes should be read in conjunction with the historical combined financial statements and notes thereto appearing elsewhere or incorporated by reference in this Registration Statement. The pro forma unaudited consolidated financial statements do not purport to represent what the results of operations or financial positions of what the Company would actually have been if the aforementioned transactions had occurred on February 1, 1995 or on October 31, 1996 or at any future date.
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED BALANCE SHEET
AS OF OCTOBER 31, 1996
(IN THOUSANDS)
ASSETS
PRO FORMA PRO
THE COMPANY ADJUSTMENTS FORMA
----------- --------------- -------------
CURRENT ASSETS:
Cash and cash equivalents.................. $ 18 $ -- $ 18
Accounts receivable........................ 26,280 -- 26,280
Inventories................................ 125,766 -- 125,766
Prepaid expenses........................... 312 -- 312
----------- --------------- -------------
Total current assets..................... 152,376 -- 152,376
PROPERTY AND EQUIPMENT, net.................. 15,785 -- 15,785
DEFERRED INCOME TAXES........................ -- 850(1) 850
OTHER ASSETS:
Deposits................................... 1,433 -- 1,433
Goodwill and other intangibles, net........ 6,512 -- 6,512
Other...................................... 606 -- 606
----------- --------------- -------------
Total assets............................. $ 176,712 $ 850 $ 177,562
----------- --------------- -------------
----------- --------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables........................ $ 100,612 $ -- $ 100,612
Notes payable and current maturities of
long-term debt--
Banks and others......................... 5,012 -- 5,012
Affiliates............................... 10,916 -- 10,916
Accounts payable........................... 5,389 -- 5,389
Accrued liabilities........................ 5,917 -- 5,917
Customer advance deposits.................. 1,506 -- 1,506
Distributions payable...................... 2,246 15,000(2) 17,246
----------- --------------- -------------
Total current liabilities.............. 131,598 15,000 146,598
----------- --------------- -------------
LONG-TERM DEBT, net of current maturities:
Banks and others........................... 6,008 -- 6,008
Affiliates................................. 4,822 -- 4,822
----------- --------------- -------------
Total long-term debt..................... 10,830 -- 10,830
----------- --------------- -------------
STOCKHOLDERS' EQUITY:
Common stock............................... 84 -- 84
Additional paid-in capital................. 16,216 -- 16,216
Retained earnings.......................... 17,984 850(1) 3,834
(15,000)(2)
----------- --------------- -------------
Total stockholders' equity............... 34,284 (14,150) 20,134
----------- --------------- -------------
Total liabilities and stockholders'
equity................................. $ 176,712 $ 850 $ 177,562
----------- --------------- -------------
----------- --------------- -------------
|
RDO EQUIPMENT CO.
NOTES TO PRO FORMA UNAUDITED BALANCE SHEET
AS OF OCTOBER 31, 1996
(IN THOUSANDS)
Pro forma adjustments related to the Company's reorganization and change in tax status:
(1) Reflects a deferred income tax asset of $850, and a corresponding credit to retained earnings, as if the Company and Washington had converted to C corporations as of October 31, 1996.
(2) Reflects $15,000 distribution to be paid to the existing stockholders, which represents substantially all of the previously undistributed, accumulated S corporation net income of the Company as of January 31, 1996 and will be paid out of the proceeds of the Company's proposed initial public offering of common stock.
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CENTRAL
THE TEXAS WASHINGTON PRO FORMA PRO
COMPANY ACQUISITION ACQUISITION ADJUSTMENTS FORMA
------------ ------------ ------------ -------------- -------------
REVENUES:
Wholegoods sales........................... $ 164,054 $ 20,769 $ 10,137 $ (2,200)(1) $ 192,760
Parts and service.......................... 58,998 7,280 5,935 -- 72,213
Rental..................................... 505 -- -- -- 505
------------ ------------ ------------ ------- -------------
Total revenues........................... 223,557 28,049 16,072 (2,200) 265,478
Cost of sales................................ 180,839 22,054 12,234 (2,200)(1) 212,824
(103)(2)
------------ ------------ ------------ ------- -------------
Gross profit................................. 42,718 5,995 3,838 103 52,654
Selling, general and administrative expense.. 31,655 5,468 3,008 (1,765)(3) 38,858
175(4)
240(5)
77(6)
------------ ------------ ------------ ------- -------------
Operating income............................. 11,063 527 830 1,376 13,796
Interest expense............................. (3,817) (423) (361) (662)(7) (1,584)
3,679(8)
Interest income.............................. 823 155 53 -- 1,031
------------ ------------ ------------ ------- -------------
Net income before income taxes............... 8,069 259 522 4,393 13,243
Provision for income taxes(9)................ 3,228 96 193 1,780 5,297
------------ ------------ ------------ ------- -------------
Net income................................... $ 4,841 $ 163 $ 329 $ 2,613 $ 7,946
------------ ------------ ------------ ------- -------------
------------ ------------ ------------ ------- -------------
Net income per common share.................. $ .63
-------------
-------------
Weighted average shares outstanding.......... 12,570(10)
-------------
-------------
|
See the accompanying notes to pro forma unaudited statements of operations.
RDO EQUIPMENT CO.
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS))
CENTRAL
THE TEXAS WASHINGTON PRO FORMA PRO
COMPANY ACQUISITION ACQUISITION ADJUSTMENTS FORMA
------------ ------------ ------------ -------------- -------------
REVENUES:
Wholegoods sales........................... $ 170,036 $ 11,088 $ 9,920 $ -- $ 191,044
Parts and service.......................... 57,322 2,333 5,222 -- 64,877
Rental..................................... 1,902 -- -- -- 1,902
------------ ------------ ------------ ------ -------------
Total revenues........................... 229,260 13,421 15,142 -- 257,823
Cost of sales................................ 186,451 10,620 11,510 -- 208,581
------------ ------------ ------------ ------ -------------
Gross profit................................. 42,809 2,801 3,632 -- 49,242
Selling, general and administrative expense.. 29,492 1,567 2,540 105(4) 33,908
180(5)
24(6)
------------ ------------ ------------ ------ -------------
Operating income............................. 13,317 1,234 1,092 (309) 15,334
Interest expense............................. (4,116) (352) (221) (317)(7) (2,247)
2,759(8)
Interest income.............................. 633 110 73 -- 816
------------ ------------ ------------ ------ -------------
Net income before income taxes............... 9,834 992 944 2,133 13,903
Provision for income taxes(9)................ 3,934 367 349 911 5,561
------------ ------------ ------------ ------ -------------
Net income................................... $ 5,900 $ 625 $ 595 $ 1,222 $ 8,342
------------ ------------ ------------ ------ -------------
------------ ------------ ------------ ------ -------------
Net income per common share.................. $ .66
-------------
-------------
Weighted average shares outstanding.......... 12,555(10)
-------------
-------------
|
See the accompanying notes to pro forma unaudited statements of operations.
RDO EQUIPMENT CO.
NOTES TO PRO FORMA UNAUDITED STATEMENTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1996 AND THE NINE MONTHS ENDED OCTOBER 31, 1996
(1) To reflect reclassification of certain Central Texas revenues and costs of goods sold to a basis consistent with the Company's.
(2) To reflect the current year impact of the conversion of Central Texas and Washington from LIFO to FIFO.
(3) To eliminate salary and bonus payments made to the previous owner of Central Texas who was not retained as an employee after the acquisition, net of estimated compensation to be paid to a new general manager.
(4) Reflects amortization of $6.0 million of goodwill over 30 years arising from the acquisitions of Central Texas and Washington.
(5) Reflects increase in rent expense related to new leases on buildings used in the Washington operations.
(6) Reflects the net change in depreciation expense associated with certain assets not acquired, and the write-up to fair market value of certain assets acquired, from Central Texas and Washington.
(7) The pro forma adjustments to interest expense arising from the acquisitions of Central Texas and Washington are presented below (in thousands):
NINE MONTHS
YEAR ENDED ENDED OCTOBER
JANUARY 31, 1996 31, 1996
----------------- -------------
Eliminate interest on debt not assumed........................ $ (254) $ (200)
Interest on acquisition debt.................................. 916 517
----- -----
Pro forma interest adjustment............................... $ 662 $ 317
----- -----
----- -----
|
(8) Eliminates interest expense on acquisition debt and floor plan financing which is to be paid with proceeds of the Company's proposed initial public offering of common stock.
(9) To provide for federal and state income tax expense as if the Company, Central Texas and Washington had been taxed as C corporations for all periods presented at rates which reflect the federal statutory rate plus the net effect of state taxes.
(10) Reflects the shares of common stock issued to reduce acquisition debt and floor plan financing and to pay the $15.0 million S corporation distribution.
[PHOTOS]
[inside back cover: four photos, one depicting a harvester and three depicting various store locations]
No dealer, salesperson or other person has been authorized to give any information or to make any representation not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof or that there has been no change in the affairs of the Company since such date.
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
S Corporation Distributions............................................... 18
Reincorporation........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 22
Selected Combined and Pro Forma Financial and Operating Data.............. 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 26
Business.................................................................. 36
Management................................................................ 49
Certain Relationships and Related Transactions............................ 55
Principal Stockholders.................................................... 58
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 63
Notice to Canadian Residents.............................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Additional Information.................................................... 66
Index to Financial Statements............................................. F-1
|
Until , 1997 (25 days after the commencement of the Offering), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
4,200,000 SHARES
[LOGO]
CLASS A COMMON STOCK
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
DAIN BOSWORTH
INCORPORATED
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Company in connection with the sale of Class A Common Stock being registered. All of the amounts shown are estimates, except the SEC registration fee, the NASD filing fee and the NYSE listing fee.
AMOUNT TO BE
PAID
------------
SEC registration fee............................................................ $ 24,882
NASD filing fee................................................................. 8,711
NYSE listing fee................................................................ 91,600
Blue Sky fees and expenses...................................................... 15,000
Legal fees and expenses......................................................... 280,000
Accounting fees and expenses.................................................... 265,000
Printing expenses............................................................... 225,000
Transfer agent fees............................................................. 2,500
Miscellaneous................................................................... 87,307
------------
Total....................................................................... $ 1,000,000
------------
------------
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may indemnify any person who was or is a party
or is threatened to be made a party to an action (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by him ("Expenses"), and judgments,
fines and amounts paid in settlement of such action, provided that he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although the DGCL permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnify for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, (2) if there are no such
directors or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders. The DGCL also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the DGCL provides the general authorization of
advancement of a director's or officer's litigation expenses in lieu of
requiring the authorization of such advancement by the board of directors in
specific cases, and that indemnification and advancement of expenses provided by
the statute shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement or otherwise.
II-1
The Company's By-Laws provide for indemnification of the Company's directors and officers, to the fullest extent not prohibited by DGCL.
The Company has entered into agreements to indemnify its directors and certain officers, in addition to the indemnification provided for in the Company's By-Laws. These agreements, among other things, indemnify the Company's directors and selected officers for all direct and indirect expenses and costs (including, without limitation, all reasonable attorneys' fees and related disbursement, other out of pocket costs and reasonable compensation for time spent by such persons for which they are not otherwise compensated by the Company or any third person) and liabilities of any type whatsoever (including, but not limited to, judgments, fines and settlement fees) actually and reasonably incurred by such person in connection with either the investigation, defense, settlement or appeal of any threatened, pending or completed action, suit or other proceeding, including any action by or in the right of the corporation, arising out of such person's services as a director, officer, employee or other agent of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company if such director or officer acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe his or her conduct was unlawful.
Under the terms of the Underwriting Agreement, the Underwriters have agreed to indemnify, under certain conditions, the Company, its directors, certain of its officers and persons who control the Company within the meaning of the Securities Act of 1933, as amended (the "Securities Act") against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The descriptions of issuances of securities set forth below have been adjusted to reflect the 44.5-for-one stock split and share exchange to be effected pursuant to the Company's reincorporation in Delaware in January 1997.
1. Effective in January 1997, the Company reincorporated in Delaware and completed a 44.5-for-one stock split so that each shareholder other than Ronald D. Offutt received 44.5 shares of Class A Common Stock and Mr. Offutt received 44.5 shares of Class B Common Stock of the new Delaware corporation in exchange for each share of the North Dakota corporation.
2. In October 1996, the Company agreed to acquire all of the outstanding stock of MVI in exchange for the issuance of 191,725 shares of Class B Common Stock to Mr. Offutt.
3. On November 17, 1995, the Company issued 233,559 shares of Class B Common Stock to Ronald D. Offutt in exchange for all of his shares of Cass County Equipment Co. ("CCE"). The balance of the outstanding shares of CCE were owned by the Company. CCE was merged into the Company pursuant to Articles of Merger, filed with the North Dakota Secretary of State on November 28, 1995.
4. On February 1, 1995, the Company sold an aggregate of 20,383 shares of Class A Common Stock to certain existing stockholders of the Company at approximately $3.31 per share for an aggregate consideration of $67,482 in the following amounts: David Chandler (7,521 shares) and Larry Kerkhoff (12,862 shares). These shares were subsequently repurchased by the Company on October 31, 1996 for an aggregate consideration of $67,482.
5. On January 1, 1994, the Company sold 917,458 shares of Class B Common Stock to Ronald D. Offutt for an aggregate consideration of $2,600,000 paid for by delivery of a promissory note, due December 31, 1994, with an interest rate of 7% per annum.
6. On January 1, 1994, the Company also sold an aggregate of 616,471 shares of Class A Common Stock to certain individuals at $2.83 per share for an aggregate consideration of $1,747,017 in the following
II-2
amounts: Larry Scott (214,777 shares), H. David Frambers (106,142 shares), Larry Kerkhoff (126,347 shares), David Chandler (65,421 shares), and Betty Lou Scott (103,784 shares).
7. On November 1, 1993, the Company issued 1,940,347 shares of Class B Common Stock at $2.83 per share, to Ronald D. Offutt in consideration of Mr. Offutt's assumption of $5,498,646 of debt owed by the Company to R.D. Offutt Company and certain of its affiliates.
8. In connection with the merger, effective as of October 31, 1993, as amended, of Lisbon Equipment Co., Fargo Implement, Inc., McClean County Implement, Inc., and Central Dakota Equipment Co., each a North Dakota corporation, Red River Implement Company, Inc. and Midwest Machinery, Inc., each a Minnesota corporation, Brown Implement Co., a South Dakota corporation, and Arizona Industrial Machinery Company, an Arizona corporation, with and into the Company, the Company issued shares of Common Stock in consideration for shares of stock of the acquired companies surrendered in the merger as follows: Ronald D. Offutt (4,175,403 shares of Class B Common Stock), John H. Hastings (161,060 shares of Class A Common Stock), Ronald Becker (52,827 shares of Class A Common Stock), Paul T. Horn (30,575 shares of Class A Common Stock), and Allan F. Knoll (30,575 shares of Class A Common Stock).
No underwriting commissions or discounts were paid with respect to the sales of unregistered securities described herein.
The issuances of the securities set forth in this Item 15 were deemed to be exempt from registration in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering. In all such transactions that relied upon the exemption set forth in Section 4(2) of the Securities Act, the recipients of securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT NO.
- -----------
1.1. Form of Underwriting Agreement
*3.1. Certificate of Incorporation of the Registrant (to be effective upon reincorporation in Delaware)
*3.2. Bylaws of the Registrant (to be effective upon reincorporation in Delaware)
4.1. Certificate of Incorporation and Bylaws of the Registrant. (See Exhibits 3.1 and 3.2 above)
**4.2. Specimen of certificate representing Class A Common Stock, $.01 par value, of the Registrant
**4.3. Specimen of certificate representing Class B Common Stock, $.01 par value, of the Registrant
**5.1. Opinion of Oppenheimer Wolff & Donnelly regarding legality of the Common Stock being registered
*10.1. Agreement between Ronald D. Offutt, RDO Equipment Co., John Deere Company, and John Deere Industrial
Equipment Company
10.2. Form of Deere Agricultural Dealer Agreement Package
10.3. Form of Deere Industrial Dealer Agreement Package
10.4. Loan Agreement, Seasonal Note, and Security Agreement between Ag Capital Company and the Registrant,
dated July 25, 1996.
10.5. Loan Agreement and Seasonal Note between Ag Capital Company and Minnesota Valley Irrigation, Inc.,
dated August 26, 1996
|
II-3
EXHIBIT NO.
- -----------
10.6 Deere Agricultural Dealer Finance Agreement
10.7. Deere Industrial Dealer Finance Agreement
10.8. RDO Equipment Co. 1996 Stock Incentive Plan
10.9. Form of Indemnification Agreement, among the Company and its executive officers and directors
*10.10. Corporate Services Agreement, between RDO Equipment Co. and R.D. Offutt Company, dated as of November
1, 1996
10.11. Letter of Intent between the Company and Liberty Agriculture, Inc.
10.12 Intentionally omitted
10.13 Agreement and Plan of Merger, by and between RDO Equipment Co. (North Dakota) and RDO Equipment Co.
(Delaware)
*10.14 Tax Agreement Relating to S Corporation Distributions
*10.15 Agreement between RDO Equipment Co., John Deere Company, and John Deere Industrial Equipment Company
*11.1. Statement re Computation of Per Share Earnings
*16.1 Letter re Change in Certifying Accountant
*23.1. Consent of Arthur Andersen LLP
*23.2. Consent of Eide Helmeke PLLP
23.3. Consent of Oppenheimer Wolff and Donnelly (included in Exhibit 5.1)
24.1. Powers of Attorney (see page II-5) (previously filed)
27.1. Financial Data Schedule
*99.1 Consent of Bradford M. Freeman pursuant to Rule 438
*99.2 Consent of Ray A. Goldberg, pursuant to Rule 438
*99.3 Consent of Norman M. Jones, pursuant to Rule 438
*99.4 Consent of James D. Watkins, pursuant to Rule 438
|
* Denotes documents filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules.
Inapplicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or the Bylaws of Registrant, the Underwriting Agreement, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant
II-4
of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fargo, State of North Dakota on January 3, 1997.
RDO EQUIPMENT CO.
By /s/ RONALD D. OFFUTT
------------------------------------------
Ronald D. Offutt
CHIEF EXECUTIVE OFFICER
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed on January 3, 1997, by the following persons in the capacities indicated.
NAME AND SIGNATURE TITLE
- ---------------------------------------- --------------------------------------
/s/ RONALD D. OFFUTT Chairman, Chief Executive Officer, and
- ---------------------------------------- Director (principal executive
Ronald D. Offutt officer)
/s/ PAUL T. HORN President, Chief Operating Officer,
- ---------------------------------------- and Director
Paul T. Horn
/s/ ALLAN F. KNOLL Chief Financial Officer, Secretary,
- ---------------------------------------- and Director (principal financial
Allan F. Knoll officer)
/s/ MARK A. DODA Controller (principal accounting
- ---------------------------------------- officer)
Mark A. Doda
|
II-6
INDEX TO EXHIBITS
EXHIBITS PAGE
- ----------- ---------
1.1. Form of Underwriting Agreement...............................................................
*3.1. Certificate of Incorporation of the Registrant (to be effective upon reincorporation in
Delaware)..................................................................................
*3.2. Bylaws of the Registrant (to be effective upon reincorporation in Delaware)..................
4.1. Certificate of Incorporation and Bylaws of the Registrant. (See Exhibits 3.1 and 3.2
above).....................................................................................
**4.2. Specimen of certificate representing Class A Common Stock, $.01 par value, of the
Registrant.................................................................................
**4.3. Specimen of certificate representing Class B Common Stock, $.01 par value, of the
Registrant.................................................................................
**5.1. Opinion of Oppenheimer Wolff & Donnelly regarding legality of the Common Stock being
registered.................................................................................
*10.1. Agreement between Ronald D. Offutt, RDO Equipment Co., John Deere Company, and John Deere
Industrial Equipment Company...............................................................
10.2. Form of Deere Agricultural Dealer Agreement Package..........................................
10.3. Form of Deere Industrial Dealer Agreement Package............................................
10.4. Loan Agreement, Seasonal Note, and Security Agreement between Ag Capital Company and the
Registrant, dated July 25, 1996............................................................
10.5. Loan Agreement and Seasonal Note between Ag Capital Company and Minnesota Valley Irrigation,
Inc., dated August 26, 1996................................................................
10.6 Deere Dealer Agricultural Finance Agreement..................................................
10.7. Deere Dealer Industrial Finance Agreement....................................................
10.8. RDO Equipment Co. 1996 Stock Incentive Plan..................................................
10.9. Form of Indemnification Agreement, among the Company and its executive officers and
directors..................................................................................
*10.10. Corporate Services Agreement, between RDO Equipment Co. and R.D. Offutt Company, dated as of
November 1, 1996...........................................................................
10.11. Letter of Intent between the Company and Liberty Agriculture, Inc............................
10.12 Intentionally omitted........................................................................
10.13 Agreement and Plan of Merger, by and between RDO Equipment Co. (North Dakota) and RDO
Equipment Co. (Delaware)...................................................................
*10.14 Tax Agreement Relating to S Corporation Distributions........................................
*10.15 Agreement between RDO Equipment Co., John Deere Company and John Deere Industrial Equipment
Company....................................................................................
*11.1. Statement re Computation of Per Share Earnings...............................................
*16.1 Letter re Change in Certifying Accountant....................................................
*23.1. Consent of Arthur Andersen LLP...............................................................
*23.2. Consent of Eide Helmeke PLLP.................................................................
23.3. Consent of Oppenheimer Wolff and Donnelly (included in Exhibit 5.1)..........................
24.1. Powers of Attorney (see page II-5) (previously filed)........................................
27.1. Financial Data Schedule......................................................................
*99.1 Consent of Bradford Freeman, pursuant to Rule 438............................................
*99.2 Consent of Ray A. Goldberg, pursuant to Rule 438.............................................
*99.3 Consent of Norman M. Jones, pursuant to Rule 438.............................................
*99.4 Consent of James D. Watkins, pursuant to Rule 438............................................
|
* Filed herewith.
** To be filed by amendment.
CERTIFICATE OF INCORPORATION
OF
RDO EQUIPMENT CO. - DELAWARE
ARTICLE
I.
The name of this corporation is RDO Equipment Co. - Delaware (the "Corporation").
ARTICLE
II.
The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent is The Corporation Trust Company.
ARTICLE
III.
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE
IV.
The aggregate number of shares of stock which the Corporation shall have authority to issue is Twenty-eight Million (28,000,000) shares, of which Twenty Million (20,000,000) shares shall be designated Class A Common Stock, $.01 par value ("Class A Common Stock"), Seven Million Five Hundred Thousand (7,500,000) shares shall be designated Class B Common Stock, $.01 par value ("Class B Common Stock"), and Five Hundred Thousand (500,000) shares shall be designated preferred stock, no par value ("Preferred Stock").
1. COMMON STOCK. The Class A Common Stock and the Class B Common Stock shall be identical in all respects and shall have equal rights and privileges, except as otherwise provided in this Article IV.
2. PREFERRED STOCK. The Preferred Stock may be issued from time to time in one or more series, each of which series shall have such distinctive designation or title and such number of shares as shall be fixed by the Board of Directors prior to the issuance of any shares thereof. Each such series of Preferred Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it. The Board of Directors is further authorized to increase or decrease (but not below the number of shares outstanding) the number of shares of any series of Preferred Stock subsequent to the issuance of shares of that series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status of which they had prior to the adoption of the resolution originally fixing the number of shares of such series. Except as may be provided in the resolution or resolutions of the Board of Directors
creating any series of Preferred Stock, the shares of the Class A Common Stock and Class B Common Stock shall have the exclusive right to vote for the election and removal of directors and for all other purposes.
3. DIVIDENDS ON COMMON STOCK. Dividends may be paid on either or both the Class A Common Stock and Class B Common Stock as and when declared by the Board of Directors of the Corporation out of funds of the Corporation legally available for the payment of dividends, except that so long as any shares of Class B Common Stock are outstanding:
(a) No dividend (other than a dividend payable in shares of the Corporation in the manner provided in paragraph 3(b) below) shall be declared or paid upon either class of Common Stock unless such dividend, at the same rate per share, is simultaneously declared and paid upon both classes of Common Stock.
(b) Stock dividends declared and paid on the Class A Common Stock shall be payable solely in shares of Class A Common Stock and stock dividends declared and paid on the Class B Common Stock shall be payable solely in shares of Class B Common Stock. No stock dividend may be declared or paid on the Class A Common Stock unless a stock dividend payable in shares of Class B Common Stock, proportionately on a per share basis, is simultaneously declared and paid on the Class B Common Stock. No stock dividend may be declared or paid on the Class B Common Stock unless a stock dividend payable in shares of Class A Common Stock, proportionately on a per share basis, is simultaneously declared and paid on the Class A Common Stock.
4. TREATMENT OF COMMON STOCK ON LIQUIDATION. The holders of Class A Common Stock and Class B Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of Common Stock in any liquidation, dissolution or winding up of the Corporation.
5. VOTING RIGHTS. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to four votes per share on all matters to be voted on by the stockholders of the Corporation. Except as otherwise provided in paragraph 14 of this Article IV or as otherwise required by applicable law, holders of Class A Common Stock and Class B Common Stock shall vote together as one class on all matters to be voted on by the stockholders of the Corporation.
6. TRANSFER OF CLASS B COMMON STOCK. No person holding shares of Class B Common Stock may transfer, and the Corporation shall not register the transfer of such shares of Class B Common Stock, whether by sale, assignment, exchange, gift, bequest, appointment or otherwise, except to a "Permitted Transferee." The term "Permitted Transferee" shall mean any trust that is established by Ronald D. Offutt ("Offutt") for estate planning purposes that provides for distribution to Offutt's beneficiaries of shares of Class B Common Stock upon Offutt's death, provided that Offutt retains voting control with respect to such shares of Class B Common Stock until his death.
(a) If any shares of Class B Common Stock are acquired by any person who is not a Permitted Transferee, all shares of Class B Common Stock then held by such person shall be deemed, without further act on the part of any person, to be converted into shares of Class A Common Stock, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent the like number of shares of Class A Common Stock.
(b) Notwithstanding anything to the contrary set forth in this Article IV, Offutt may pledge his shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee; provided, however, that (i) Offutt at all times retains voting control with respect to such pledged shares until an event of foreclosure or similar action, and (ii) such shares shall not be transferred to or registered in the name of any such pledgee and shall remain subject to the provisions of this paragraph (b). In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock shall be deemed, without further act on the part of any person, to be converted into shares of Class A Common Stock and transferred to the pledgee.
(c) Shares of Class B Common Stock shall be registered in the names of the beneficial owners thereof and not in "street" or "nominee" name. For this purpose, a "beneficial owner" of any shares of Class B Common Stock shall mean Offutt or a Permitted Transferee. The Corporation shall note or cause to be noted on the certificates for shares of Class B Common Stock, the existence of the restrictions on transfer and registration of transfer imposed by this paragraph 6.
7. OPTIONAL CONVERSION OF CLASS B COMMON STOCK.
(a) Each share of Class B Common Stock may, at any time, be converted, at the option of the holder thereof, into one fully paid and nonassessable share of Class A Common Stock. Such right shall be exercised by the surrender of the certificate representing such shares of Class B Common Stock to be converted at the office of the Corporation or its transfer agent (the "Transfer Agent") during normal business hours accompanied by a written notice of the election by the holder thereof to convert and (if so required by the Corporation or the Transfer Agent) an instrument of transfer, in a form satisfactory to the Corporation and the Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, together with any funds in the amount of any applicable transfer tax (unless provision satisfactory to the Corporation is otherwise made therefor), if required pursuant to paragraph 7(c) below.
(b) As promptly as practical after the surrender for conversion of a certificate representing shares of Class B Common Stock in the manner provided in paragraph 7(a) above and the payment of funds in any amount required by the provisions of paragraphs 7(a) and 7(c), the Corporation shall deliver or cause to be delivered at its office or at the office of the Transfer Agent to or upon the written order of the holder of such certificate, a certificate or certificates representing the number of fully paid and nonassessable shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate representing shares of Class B Common Stock, and all rights of the holder of such shares of Class B Common Stock as such holder shall cease at such time and the person or persons in whose name or names the certificate or certificates representing the shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock at such time; provided, however, that any such surrender and payment on any date when the stock transfer books of the Corporation shall be closed shall constitute a transfer to the person or persons in whose name or names the certificate or certificates representing shares of Class A Common Stock are to be issued as the recordholder or holders thereof for all purposes effective immediately prior to the close of business on the next succeeding day on which such stock transfer books are open.
(c) The issuance of certificates for shares of Class A Common Stock upon conversion of shares of Class B Common Stock shall be made without charge for any stamp or similar tax in respect to such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Common Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance, or shall establish to the satisfaction of the Corporation that any such tax has been paid.
8. MANDATORY CONVERSION OF CLASS B COMMON STOCK. Upon the death of Offutt or the transfer of shares of Class B Common Stock to any person other than a Permitted Transferee, then, without further act on the part of any person, each share of Class B Common Stock issued and outstanding (in the case of Offutt's death) or each share of Class B Common Stock transferred to a person other than a Permitted Transferee (in the case of such a transfer) shall be converted to one fully paid and nonassessable share of Class A Common Stock. Upon any such conversion, stock certificates formerly representing outstanding shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock, and any outstanding right to receive Class B Common Stock shall automatically become the right to receive a like number of shares of Class A Common Stock.
9. NO CONVERSION OF CLASS A COMMON STOCK. The holders of Class A Common Stock shall not be entitled to convert shares of Class A Common Stock into shares of Class B Common Stock.
10. REPURCHASES OF COMMON STOCK. Subject to any applicable provisions of this Article IV, the Corporation may, at any time or from time to time, purchase or otherwise acquire shares of its Common Stock of either class in any manner now or hereafter permitted by law, publicly or privately, or pursuant to any agreement.
11. SUBDIVISION OR COMBINATION OF COMMON STOCK. The shares of Common Stock of either class shall not be subdivided by a stock split, reclassification or otherwise or combined by reverse stock split, reclassification or otherwise unless, at the same time, the shares of Common Stock of both classes are proportionately, on a per share basis, so subdivided or combined.
12. COVENANT TO RESERVE CLASS A COMMON STOCK. The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock as shall be issuable upon the conversion of all such outstanding shares of Class B Common Stock; provided, however, that nothing contained in this paragraph 12 shall be construed to preclude the Corporation from satisfying its obligations with respect to the conversion of the outstanding shares of Class B Common Stock by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation. The Corporation covenants that if any shares of Class A Common Stock required to be reserved for purposes of conversion hereunder require registration with or approval of any governmental authority under any federal or state law before such shares of Class A Common Stock may be issued upon conversion, the Corporation will use reasonable efforts to cause such shares to be duly registered or approved, as the case may be. The Corporation covenants that all shares of Class A Common Stock which shall be issued upon conversion of shares of Class B Common Stock, will, upon issue, be fully paid and nonassessable and not entitled to any preemptive rights.
13. TREATMENT OF COMMON STOCK ON CONSOLIDATION OR MERGER. In the event of a merger or consolidation of the Corporation with or into another entity (whether or not the Corporation is the surviving entity), the holders of each class of Common Stock shall be entitled to receive the same per share
consideration as the per share consideration, if any, received by any holder of each other class of Common Stock in such merger or consolidation.
14. LIMITATION ON ISSUANCE OF CLASS B COMMON STOCK. Following the initial issuance of shares of Class B Common Stock to Offutt in exchange for all outstanding shares of Class A Common Stock then held by Offutt, such Class B Common Stock shall be issued by the Corporation only (i) in payment of a stock dividend on then outstanding shares of Class B Common Stock as provided in paragraph 3(b) of this Article IV or (ii) in connection with a stock split, reclassification or other subdivision of then outstanding shares of Class B Common Stock as provided in paragraph 11 of this Article IV, unless such further issuance shall have been approved by the holders of a majority of the voting power of the shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
15. STATUS OF REACQUIRED CLASS B COMMON STOCK. Shares of Class B Common Stock converted, exchanged, purchased, retired or surrendered to the Corporation, or which have been issued and reacquired by the Corporation in any manner, shall be retired and shall not thereafter be reissued. At such time as a certificate that identifies the shares to be retired, states that reissuance of such shares is prohibited and recites the retirement of such shares shall be executed, acknowledged and filed in accordance with applicable law, then, without further act on the part of any person, this Certificate of Incorporation of the Corporation shall be deemed to be amended so as to reduce accordingly the number of authorized shares of Class B Common Stock.
16. ISSUANCE OF STOCK. Except as provided in paragraph 14 above, shares of capital stock of the Corporation may be issued by the Corporation from time to time in such amounts and proportions and for such consideration as may be fixed and determined from time to time by the Board of Directors and as shall be permitted by law. Except as may be provided in the resolution or resolutions of the Board of Directors creating any series of Preferred Stock, no holder of shares of the capital stock of the Corporation shall be entitled to any preemptive right to subscribe to any new or additional shares of capital stock of the Corporation or securities convertible into shares of capital stock, whether now or hereafter authorized.
17. UNCLAIMED DIVIDENDS. Any and all right, title, interest and claim in or to any dividends declared by the Corporation, whether in cash, stock or otherwise, that are unclaimed by the stockholder entitled thereto for a period of six years after the close of business on the payment date, shall be deemed to be extinguished and abandoned, and such unclaimed dividends in the possession of the Corporation, its transfer agents or other agents or depositories, shall at such time become the absolute property of the Corporation, free and clear of any and all claims of any persons whatsoever.
18. AMENDMENT AND WAIVER. No amendment or waiver of any provision of this Article IV shall be effective without the prior approval of the holders of a majority of the voting power of the shares of Class A Common Stock and Class B Common Stock, each voting separately as a class. Notwithstanding the foregoing, unless otherwise required by applicable law, an amendment to this Article IV to increase the number of authorized shares of Class B Common Stock solely in connection with payment of a stock dividend on then outstanding shares of Class B Common Stock as provided in paragraph 3(b) of this Article IV or in connection with a stock split, reclassification or other subdivision of then outstanding shares of Class B Common Stock as provided in paragraph 11 of this Article IV shall only require the prior approval of the holders of a majority of the voting power of the shares of Class B Common Stock, voting separately as a class.
ARTICLE
V.
The name and mailing address of the incorporator is:
NAME MAILING ADDRESS
---- ----------------
Gary M. Nelson Oppenheimer Wolff & Donnelly
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402
ARTICLE
VI.
|
Any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding voting stock of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded.
ARTICLE
VII.
In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation.
ARTICLE
VIII.
The Corporation shall indemnify, to the full extent authorized or permitted by law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification than permitted prior to such amendment), any person who was or is made or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; provided, however, that the Corporation shall not indemnify any director or officer in connection with any action by such director or officer against the Corporation unless the Corporation shall have consented to such action. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. No amendment or repeal of this Article VIII shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omission occurring prior to such amendment or repeal.
ARTICLE
IX.
No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director, except to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit. If the General Corporation Law of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware as so amended. No amendment to or repeal of this Article X shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE
X.
The Corporation reserves the right to amend, alter, change, or repeal any provisions contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE
XI.
Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.
The undersigned being the incorporator hereinbefore named, for the purpose of forming a Corporation pursuant to the General Corporation Law of the State of Delaware, does hereby make this Certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this ______ day of January, 1997.
BYLAWS
OF
RDO EQUIPMENT CO.
A Delaware corporation
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting.
Section 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by either the Chairman, if there be one, or the President and shall be called by any such officer at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders holding a majority of the voting power represented by the issued and outstanding capital stock of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.
Section 4. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the voting power represented by the issued and outstanding Class A Common Stock and Class B Common Stock, taken together as a single class, and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business; provided, however, that, with respect to any matter on which any class of stock is entitled to vote separately as a class, the holders of a majority of the voting power
represented by the issued and outstanding shares of such class, present in person or represented by proxy, shall constitute a quorum for purposes of such matter. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.
Section 5. VOTING. When a quorum is present at any meeting, the vote of the holders of a majority of the voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of law or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Except to the extent required by law or the Certificate of Incorporation, holders of Class A Common Stock and Class B Common Stock shall vote together as a single class. Each holder of Class A Common Stock shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of Class A Common Stock held by such stockholder, and each holder of Class B Common Stock shall at every meeting of the stockholders be entitled to four votes in person or by proxy for each share of Class B Common Stock held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
Section 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
Section 8. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 9. NOTICE OF STOCKHOLDER PROPOSALS. At an Annual Meeting of Stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the Annual Meeting of Stockholders by, or at the direction of, the Board of Directors or by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 9. For a proposal to have been properly brought by a stockholder before an Annual Meeting of Stockholders, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than sixty nor more than ninety days prior to the scheduled Annual Meeting of Stockholders, regardless of any postponements, deferrals or adjournments of such meeting to a later date; provided, however, that if less than seventy days' notice or prior public disclosure of the date of the scheduled Annual Meeting of Stockholders is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled Annual Meeting of Stockholders was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the Annual Meeting of Stockholders (i) a brief description of the proposal desired to be brought before the Annual Meeting of Stockholders and the reasons for conducting such business at the Annual Meeting of Stockholders, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (iv) any financial interest of the stockholder in such proposal. If the presiding officer of the Annual Meeting of Stockholders determines that a stockholder proposal was not made in accordance with the terms of this Section 9, such officer shall so declare at the Annual Meeting of Stockholders and any such proposal shall not be acted upon at the Annual Meeting of Stockholders.
Section 10. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 10
shall be eligible for election to the Board of Directors of the Corporation.
Nominations of persons for election to the Board of Directors may be made (i)
by, or at the direction of, the Board of Directors or (ii) by any stockholder
of the Corporation entitled to vote for the election of directors at a
meeting of stockholders who complies with the notice procedures set forth in
this Section 10. For a nomination to have been properly brought by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not less than sixty nor more than ninety days
prior to the scheduled Annual Meeting of Stockholders, regardless of any
postponements, deferrals or adjournments of such meeting to a later date;
provided, however, that if less than seventy days' notice or prior public
disclosure of the date of the scheduled meeting of stockholders is given or
made, notice by the stockholder to be timely must be so delivered or received
not later than the close of business on the tenth day following the earlier
of the day on which such notice of the date of the scheduled meeting of
stockholders was mailed or the day on which such public disclosure was made.
As to each person whom the stockholder proposes to nominate for election or
re-election to the Board of Directors, such notice shall set forth (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number
of shares of the Corporation that are beneficially owned by such person, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written consent to serving as a
director if elected). As to the stockholder giving the notice, such notice
shall set forth the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such nomination and any other stockholders known by such stockholder
to be supporting such nomination and the class and number of shares of the
Corporation's stock which are beneficially owned by the stockholder on the date
of such stockholder notice and by any other stockholders known by such
stockholder to be supporting such nomination on the date of such stockholder
notice. If the presiding officer of the meeting of stockholders determines that
a stockholder nomination was not made in accordance with the terms of this
Section 10, such officer shall so declare at the meeting of stockholders and any
such nomination shall be disregarded and shall not be acted upon at the meeting
of stockholders.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND ELECTION OF DIRECTORS. The Board of Directors shall consist of not less than three members and not more than nine members, the exact number of which shall initially be fixed by the Incorporator and thereafter from time to time by the Board of Directors. Except as provided in Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier resignation or removal.
Section 3. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or a majority of the directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or facsimile on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 5. QUORUM. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 6. ACTIONS OF BOARD. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board if Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required.
Section 9. COMPENSATION. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 10. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his, her, or
their votes are counted for such purpose if (i) the material facts as to his,
her, or their relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his, her, or their relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted
in determining
the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Chief Financial Officer, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.
Section 2. ELECTION. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries and other compensation of all officers of the Corporation shall be fixed by the Board of Directors.
Section 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman, the President, the Chief Financial Officer, or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
Section 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Unless determined otherwise by the Board of Directors, the Chairman of the Board shall be the Chief Executive Officer of the Corporation, and except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may from time to time exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors.
Section 5. PRESIDENT. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He or she shall, unless the Board of Directors otherwise determines, be the Chief Operating Officer of the Corporation. He or she shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there is no Chairman of the Board of Directors, or if the Board of Directors otherwise determines, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors.
Section 6. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have general supervision of and responsibility for the financial planning, finances, and financial controls of the Corporation. He or she shall, at the request of the President or in his or her absence or in the event of his or her inability or refusal to act (and if there be no Chairman of the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. He or she shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of the financial condition of the Company. He or she shall also meet and consult with the Audit Committee of the Corporation (if there be one) as it may request and, with the Audit Committee, coordinate and work with outside auditors for the Corporation.
Section 7. VICE PRESIDENTS. Each Vice President shall perform such duties and have such powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Chief Financial Officer, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
Section 8. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation (if there be one) the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed, are properly kept or filed, as the case may be.
Section 9. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President, the Chief Financial Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer.
Section 10. ASSISTANT SECRETARIES. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chairman, the President, the Chief Financial Officer, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
Section 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chairman, the President, the Chief Financial Officer, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer.
Section 12. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, including any duties and powers assigned by these Bylaws to any other officer of the Corporation. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation, (i) by the Chairman of the Board of Directors, the President, the Chief Financial Officer or a Vice President, and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him, her or it in the Corporation.
Section 2. SIGNATURES. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.
Section 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
Section 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his, her or its address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by facsimile, telegram, telex or cable.
Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V