<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1998
-------------------------
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 000-21237
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RENTAL SERVICE CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0569350
- ------------------------------------ ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6929 E. GREENWAY PARKWAY, SUITE 200, SCOTTSDALE, ARIZONA 85254
-------------------------------------------------------- ------------------
(Address of Principal Executive Offices) (Zip Code)
(602) 905-3300
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
---
There were 20,630,645 shares of Rental Service Corporation Common Stock,
$.01 par value, outstanding at April 22, 1997.
<PAGE>
RENTAL SERVICE CORPORATION
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997....................... 1
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 (unaudited)................. 2
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997 (unaudited)................. 3
Notes to Consolidated Financial Statements - March 31, 1998 (unaudited) 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............... 13
PART II OTHER INFORMATION
- -----------------------------
ITEM 1. Legal Proceedings........................................................ 14
ITEM 5. Other Information........................................................ 14
ITEM 6. Exhibits and Reports on Form 8-K......................................... 15
SIGNATURES........................................................................... 16
</TABLE>
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents.................................................... $ 4,462,000 $ 8,932,000
Accounts receivable, net..................................................... 65,490,000 62,028,000
Other receivables and prepaid expense........................................ 4,479,000 3,217,000
Income tax receivable........................................................ 638,000 638,000
Parts and supplies inventories, net.......................................... 35,825,000 31,714,000
Deferred taxes............................................................... 15,241,000 15,241,000
Rental equipment, principally machinery, at cost, net........................ 403,266,000 314,696,000
Operating property and equipment, at cost, net............................... 41,106,000 35,799,000
Intangible assets, net....................................................... 287,651,000 220,166,000
Other assets, primarily deferred financing costs, net........................ 6,718,000 6,895,000
------------ -------------
$864,876,000 $699,326,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable............................................................. $ 53,006,000 $ 34,911,000
Payroll and other accrued expenses........................................... 33,040,000 31,937,000
Accrued interest payable..................................................... 1,781,000 2,179,000
Income taxes payable......................................................... 5,812,000 1,686,000
Deferred taxes............................................................... 30,857,000 30,857,000
Bank debt and long term obligations.......................................... 433,140,000 306,975,000
------------ -------------
Total liabilities............................................................ 557,636,000 408,545,000
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 500,000
Issued and outstanding shares - none....................................... - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 20,421,968 at March 31, 1998 and 19,833,437
at December 31, 1997...................................................... 204,000 198,000
Additional paid-in capital.................................................. 284,155,000 270,927,000
Common stock issuable - 184,050 shares at March 31, 1998 and 284,108 shares
at December 31, 1997....................................................... 3,741,000 6,000,000
Retained earnings........................................................... 19,140,000 13,656,000
------------ -------------
Total stockholders' equity................................................... 307,240,000 290,781,000
------------ -------------
$864,876,000 $699,326,000
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------------ -------------
<S> <C> <C>
Revenues:
Equipment rentals........................................................... $ 70,179,000 $27,527,000
Sales of parts, supplies and new equipment.................................. 27,227,000 9,165,000
Sales of used equipment..................................................... 11,257,000 4,617,000
------------ -----------
Total revenues............................................................... 108,663,000 41,309,000
Cost of revenues:
Cost of equipment rentals, excluding equipment rental depreciation.......... 37,073,000 14,316,000
Depreciation, equipment rentals............................................. 15,461,000 6,306,000
Cost of sales of parts, supplies and new equipment.......................... 21,249,000 6,737,000
Cost of sales of used equipment............................................. 7,944,000 2,972,000
------------ -----------
Total cost of revenues....................................................... 81,727,000 30,331,000
------------ -----------
Gross profit................................................................. 26,936,000 10,978,000
Selling, general and administrative expense.................................. 5,659,000 3,784,000
Depreciation and amortization, excluding equipment rental depreciation....... 2,024,000 1,068,000
Amortization of intangibles.................................................. 2,085,000 624,000
------------ -----------
Operating income............................................................. 17,168,000 5,502,000
Interest expense, net........................................................ 7,583,000 1,597,000
------------ -----------
Income before income taxes and extraordinary item............................ 9,585,000 3,905,000
Provision for income taxes................................................... 4,101,000 1,722,000
------------ -----------
Income before extraordinary item............................................. 5,484,000 2,183,000
Extraordinary item, loss on extinguishment of debt less applicable income
tax benefit of $386,000 in 1997............................................. - 534,000
------------ -----------
Net income (loss)............................................................ $ 5,484,000 $ 1,649,000
============ ===========
Earnings per common share:
Income before extraordinary item............................................. $ .27 $ .19
Extraordinary item........................................................... - (.04)
------------ -----------
Net income................................................................... $ .27 $ .15
============ ===========
Weighted average common shares............................................... 20,418,671 11,297,950
============ ===========
Earnings per common share, assuming dilution:
Income before extraordinary item............................................. $ .27 $ .19
Extraordinary item........................................................... - (.05)
------------ -------------
Net income................................................................... $ .27 $ .14
============ ===========
Weighted average common shares, assuming dilution............................ 20,567,885 11,510,711
============ ===========
</TABLE>
See accompanying notes.
2
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31,
1998 1997
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 5,484,000 $ 1,649,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 19,570,000 7,998,000
Extraordinary item......................................................... - 534,000
Provision for losses on accounts receivable................................ 428,000 446,000
Gain on sale of used equipment............................................. (3,313,000) (1,766,000)
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable..................................................... 4,033,000 (1,677,000)
Other receivables and prepaid expense................................... (971,000) 341,000
Income tax receivable................................................... - 39,000
Other assets............................................................ 181,000 68,000
Parts and supplies inventories.......................................... (3,592,000) 88,000
Accounts payable........................................................ 17,971,000 12,963,000
Payroll and other accrued expenses...................................... (4,389,000) (1,485,000)
Accrued interest payable................................................ (398,000) 227,000
Income taxes payable.................................................... 4,128,000 891,000
-------------- -------------
Net cash provided by operating activities.................................... 39,132,000 20,316,000
INVESTING ACTIVITIES
Acquisitions of rental operations, net of cash acquired...................... (107,753,000) (12,015,000)
Cash purchases of rental equipment and operating property and equipment...... (70,664,000) (44,119,000)
Proceeds from sale of used equipment......................................... 11,257,000 4,617,000
-------------- -------------
Net cash used in investing activities........................................ (167,160,000) (51,517,000)
FINANCING ACTIVITIES
Proceeds from bank debt...................................................... 216,904,000 71,400,000
Payments on bank debt........................................................ (93,568,000) (38,262,000)
Payments of debt issuance costs.............................................. - (1,702,000)
Payments on long term obligations............................................ (3,000) (109,000)
Proceeds from exercise of stock options...................................... 53,000 -
Proceeds from QSP Plan offering.............................................. 172,000 -
-------------- -------------
Net cash provided by financing activities.................................... 123,558,000 31,327,000
-------------- -------------
Net increase (decrease) in cash and cash equivalents......................... (4,470,000) 126,000
Cash and cash equivalents at beginning of period............................. 8,932,000 1,452,000
-------------- -------------
Cash and cash equivalents at end of period................................... $ 4,462,000 $ 1,578,000
============== =============
Supplemental disclosure of cash flow information:
Cash paid for interest...................................................... $ 7,981,000 $ 1,369,000
Cash paid for income taxes.................................................. $ - $ 67,000
</TABLE>
See accompanying notes.
3
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Rental
Service Corporation ("RSC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the three-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1997.
Certain amounts in the prior period financial statements have been
reclassified to conform with the current period financial statement
presentation.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the requirements of SFAS No. 128, as well as Staff
Accounting Bulletin No. 98 (issued by the Securities and Exchange Commission in
February 1998), which amends the determination of and accounting for "cheap
stock" in periods prior to an initial public offering. The effect of dilutive
securities is computed using the treasury stock method.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which was required to be adopted in the first quarter of 1998. SFAS No. 130
established standards for the reporting and display of comprehensive income and
its components. Comprehensive income includes certain non-owner changes in
equity that are currently excluded from net income. Because the Company
historically has not experienced transactions that would be included in
comprehensive income, the adoption of SFAS No. 130 did not have a material
effect on the consolidated financial position, results of operations or cash
flows of the Company.
2. BUSINESS ACQUISITIONS
A principal component of the Company's business strategy is to continue to
grow through acquisitions that augment its present operations as well as provide
entry into new geographic markets. In keeping with this strategy, the Company
has made several acquisitions of rental operations. These acquisitions have been
accounted for as purchases and, accordingly, the acquired tangible and
identifiable intangible assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition with any excess purchase price
reflected as goodwill in the accompanying consolidated financial statements.
Purchase accounting values for all acquisitions are assigned on a preliminary
basis, and are subject to adjustment when final information as to the fair
values of the net assets acquired is available. The operations of the acquired
businesses are included in the consolidated statements of operations from the
date of acquisition, except as described below.
4
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RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
The following table sets forth, for the periods indicated, the net assets
acquired, liabilities assumed, common stock issued or issuable and cash purchase
price for these acquisitions.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets acquired...................................... $ 54,508,000 $ 6,551,000
Goodwill and covenants not to compete................ 69,489,000 6,798,000
Less: common stock issued or issuable................ (10,750,000)
Less: liabilities assumed............................ (5,494,000) (1,334,000)
------------ -------------
Cash purchase price.................................. $107,753,000 $12,015,000
============ =============
Number of acquisitions............................... 7 5
</TABLE>
The following table sets forth the unaudited pro forma results of operations
for each period in which acquisitions occurred and for the immediately preceding
period as if those acquisitions were consummated at the beginning of the
immediately preceding period:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Total revenues....................................... $118,583,000 $99,006,000
Income before extraordinary item..................... 5,331,000 490,000
Net income........................................... 5,331,000 (44,000)
Earnings per common share:
Income before extraordinary item................ .26 .04
Net income...................................... .26 -
Earnings per common share, assuming dilution:
Income before extraordinary item................ .25 .04
Net income...................................... .25 -
</TABLE>
On February 3, 1998, the Company acquired substantially all of the assets of
JDW Enterprises, Inc. d.b.a Valley Rentals ("Valley") for $93.6 million in cash
and 435,602 shares of RSC common stock. Valley was an independent equipment
rental company operating in Arizona and New Mexico. This acquisition resulted in
approximately $57.0 million in goodwill, which is being amortized over 40 years.
The common stock issuable in the accompanying consolidated balance sheets is
associated with the common stock relating to the acquisitions of Brute Equipment
Co. d/b/a Foxx Hy-Reach ("Foxx") (51,216 shares), Central States Equipment, Inc.
("Central States") (102,435 shares) and Rent-It Center, Inc. d/b/a Center
Rentals and Sales (64,544 shares) that vests over future time periods, and the
common stock relating to the acquisitions of Industrial Air Tool ("IAT") (36,036
shares) and Foxx (29,877 shares) that was earned and payable at December 31,
1997 based on the achievement of performance objectives. During the first
quarter of 1998, 100,058 shares of the common stock issuable were paid to the
sellers of IAT (36,036 shares), Foxx (29,877 shares) and Central States (34,145
shares).
5
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share and
earnings per share, assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Denominator:
Weighted average shares outstanding............................. 20,173,845 11,376,378
Common stock issuable in connection with acquisitions........... 250,755 -
Unvested restricted stock outstanding........................... (5,929) (78,428)
-------------- --------------
Denominator for earnings per share............................... 20,418,671 11,297,950
Effect of dilutive securities:
Add-back of unvested restricted stock outstanding............... 5,929 78,428
Common stock options............................................ 134,840 134,333
Unvested restricted stock not yet outstanding .................. 8,445 -
-------------- --------------
Dilutive potential common shares............................... 149,214 212,761
-------------- --------------
Denominator for earnings per share, assuming dilution............ 20,567,885 11,510,711
============== ==============
</TABLE>
In accordance with SFAS No. 128, weighted average common shares excludes the
effects of the potential issuance of all shares contingent on the achievement of
performance objectives, until the related objectives have been achieved.
4. BANK DEBT AND LONG TERM OBLIGATIONS
Bank debt and long-term obligations consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
$500,000,000 Revolving Line of Credit (the "Revolver")
with banks; interest at the prime rate plus 0.25%, due
monthly, or the Eurodollar rate plus 1.75%, due on
demand, at the Company's option; principal due
December 2, 2002. The interest rate in effect at March 31,
1998 was 7.5%............................................... $329,810,000 $206,475,000
$100,000,000 Term Loan (the "Term Loan") with banks;
interest at the prime rate plus 1.0%, due monthly, or the
Eurodollar rate plus 2.5%, due on demand, at the
Company's option; principal due in annual installments
of $1,000,000 on each of the first six anniversaries, with
the remaining principal balance due on December 2,
2004. The interest rate in effect at March 31, 1998
was 8.2%.................................................... 100,000,000 100,000,000
Other......................................................... 3,300,000 500,000
-------------- --------------
$433,140,000 $306,975,000
============== ==============
</TABLE>
6
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On December 2, 1997, the Company amended and restated the Revolver to increase
its total available financing to $600.0 million. This increase consisted of an
increase in the availability under the Revolver to $500.0 million and the
implementation of the new $100.0 million Term Loan (together with the Revolver,
the "Bank Facility"). In addition, this new financing package extended the
maturity date of the Revolver to December 2, 2002; changed the methodology for
determining the interest rate margins; increased the allowed levels of capital
expenditures and investments to $160.0 million in 1997, $150.0 million in each
of 1998, 1999 and 2000, $160.0 million in 2001, $180.0 million in 2002, $225.0
million in 2003 and $240.0 million in 2004 (plus amounts reinvested from asset
sales); and amended several covenants, including the computation methodology of
certain financial covenants.
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins based on the Company's
achievement of specified total debt to EBITDA ratios. The total amount of credit
available under the Revolver is limited to a borrowing base equal to the sum of
(i) 85% of eligible accounts receivable of the Company's subsidiaries and (ii)
100% of the value (lower of net book value or orderly liquidation value) of
eligible rental equipment through December 31, 1998; 90% of the value of
eligible rental equipment from January 1, 1999 through December 31, 1999; 85% of
the value of eligible rental equipment from January 1, 2000 through December 31,
2000; and 80% of the value of eligible rental equipment from January 1, 2001
through the expiration date of the Revolver.
The Term Loan consists of a $100.0 million seven-year term loan facility,
which requires mandatory principal payments of $1.0 million on each of its first
six anniversaries, with the remaining principal balance due at maturity. The
Term Loan matures on December 2, 2004. Interest on the Term Loan is payable
monthly at either the prime rate plus 1.0% or the Eurodollar rate plus 2.5% (at
the Company's option).
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank
Facility also contains covenants and provisions that restrict, among other
things, the ability of the Company and its subsidiaries to: (i) incur additional
indebtedness; (ii) incur liens on their property, (iii) enter into contingent
obligations; (iv) make certain capital expenditures and investments; (v) engage
in certain sales of assets; (vi) merge or consolidate with or acquire another
person or engage in other fundamental changes; (vii) enter into leases; (viii)
engage in certain transactions with affiliates; and (ix) declare or pay
dividends. As of March 31, 1998, the Company was in compliance with all
covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the personal property
of the Company's subsidiaries and a pledge of the capital stock and intercompany
debt of the Company's subsidiaries. RSC is a guarantor of the obligations of its
subsidiaries under the Bank Facility, and has granted liens on substantially all
of its assets (including the stock of its subsidiaries) to secure such guaranty.
The Bank Facility also restricts the Company from declaring or paying dividends
on its Common Stock. In addition, the Company's subsidiaries are guarantors of
the obligations of the other subsidiaries under the Bank Facility. The Bank
Facility includes a $2.0 million letter of credit facility, with a fee equal to
the applicable margin on Eurodollar Rate loans under the Revolver (1.75% at
March 31, 1998) multiplied by the face amount of letters of credit payable to
the lenders and other customary fees payable to the issuer of the letter of
credit. A commitment fee equal to 0.25% of the unused commitment, excluding the
face amount of all outstanding and undrawn letters of credit, is also payable
monthly in arrears. The obligation of the lenders to make loans or issue letters
of credit under the Bank Facility is subject to certain customary conditions.
The amount outstanding under the Revolver at March 31, 1998 was $329.8
million, with approximately $102.3 million available based on the borrowing
base. Outstanding letters of credit totaled $200,000 at March 31, 1998.
In connection with an amendment to the Revolver in January 1997, the Company
wrote-off the related unamortized deferred financing costs and recorded a loss
on extinguishment of debt of $920,000, net of income taxes of $386,000, which
has been classified as an extraordinary item in the accompanying consolidated
statements of operations for the three months ended March 31, 1997.
7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. STOCKHOLDERS' EQUITY
Stock Option Plans
On January 14, 1998, the Company granted its current chairman, 190,000 stock
options and 10,000 shares of restricted stock under the 1996 Equity
Participation Plan of Rental Service Corporation (the "1996 Plan"). The options
and restricted stock are subject to vesting in equal installments over four
years, however, the options may vest earlier if certain performance criteria are
met. The options were granted at an exercise price equal to the fair market
value on the date of grant. On February 25, 1998, the chairman surrendered to
the Company options to purchase 57,000 shares of common stock in order to ensure
the number of shares of common stock available for issuance pursuant to the 1996
Plan was sufficient to allow certain grants of stock options to other officers.
On February 25, 1998, 183,820 options were granted under the 1996 Plan at an
exercise price equal to the fair market price of the Company's common stock on
the date of grant ($22.875 per share). These options vest in equal installments
over a four-year period from the date of grant.
6. SUBSEQUENT EVENTS
On April 1, 1998, the Company acquired all of the outstanding stock of James
S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers ("Metroquip") for
$51.4 million in cash (including the payoff of assumed debt) and 182,337 shares
of RSC common stock. Up to an additional 95,727 shares of RSC common stock may
be paid to the seller over a three-year period if certain performance objectives
are met. Such contingent shares will be valued and recorded at the date such
contingencies are resolved. Metroquip rented, sold and supported aerial work
platforms and contractors' equipment, and operated in Minnesota and Nebraska.
Metroquip's balance sheet was consolidated with the Company's as of April 1,
1998. This acquisition is expected to result in approximately $33.0 million in
goodwill, which will be amortized over 40 years. Pursuant to the acquisition
agreement, the Company assumed effective control of Metroquip's operations on
March 1, 1998 and has included Metroquip's revenues, costs and expenses from
such date in its consolidated statements of operations, net of related imputed
purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock of T&M
Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of assumed
debt). Up to 33,132 shares of RSC common stock may be paid to the seller over a
three-year period if certain performance objectives are met. Such contingent
shares will be valued and recorded at the date such contingencies are resolved.
T&M was an independent rental company operating in Indiana. T&M's balance sheet
was consolidated with the Company's as of April 2, 1998. This acquisition is
expected to result in approximately $16.0 million in goodwill, which will be
amortized over 40 years. Pursuant to the acquisition agreement, the Company
assumed effective control of T&M's operations on March 1, 1998 and has included
T&M's revenues, costs and expenses from such date in its consolidated statements
of operations, net of related imputed purchase price adjustments.
Subsequent to March 31, 1998, the Company has completed two additional
acquisitions for a total combined purchase price of approximately $7.1 million
(including 8,109 shares of RSC common stock).
As of April 15, 1998, the Company was party to a letter of intent to acquire
an equipment rental business for a purchase price of approximately $10.1 million
(including 45,584 shares of RSC common stock). This acquisition is subject to a
number of closing conditions, including the execution of a definitive purchase
agreement and RSC board of directors approval.
8
<PAGE>
RENTAL SERVICE CORPORATION
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's consolidated financial
condition and results of operations should be read in conjunction with the
Company's Unaudited Consolidated Financial Statements and the notes thereto
appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
Revenues. Total revenues for the three months ended March 31, 1998 increased
163.0% to $108.7 million from $41.3 million for the three months ended March 31,
1997. This increase was primarily due to the inclusion of revenues from
acquisitions of 24 businesses (consisting of 78 locations) and the opening of 18
start-up locations since March 31, 1997. Also contributing to the increased
revenues was the larger rental fleet resulting from the Company's significant
investment in capital expenditures. Equipment rental revenues increased 154.9%
to $70.2 million from $27.5 million due to the larger rental fleet resulting
from acquisitions and capital expenditures. Sales of parts, supplies and new
equipment increased 197.1% to $27.2 million from $9.2 million due primarily to
the acquisition of IAT (effective in the Company's results of operations from
March 1, 1997), the increased number of rental locations selling these items and
the acquisitions of businesses that were dealers for certain new equipment.
Sales of used equipment increased 143.8% to $11.3 million from $4.6 million due
to the larger rental fleet and the Company's continuing strategy of selling the
older items in its fleet.
Gross Profit. Gross profit for the three months ended March 31, 1998 increased
to $26.9 million, or 24.8% of total revenues, from $11.0 million, or 26.6% of
total revenues, for the three months ended March 31, 1997. This increase is
primarily attributable to the Company's increased number of locations due to
acquisitions and start-up locations and the increased rental fleet resulting
from capital expenditures. Gross margin on equipment rentals was 25.1% of
equipment rental revenues for the three months ended March 31, 1998 and 1997.
Gross margin on sales of parts, supplies and new equipment decreased to 22.0% of
sales from 26.5%, due primarily to the acquisition of IAT, effective in the
Company's results of operations from March 1, 1997, and a change in the product
mix of parts, supplies and new equipment sales. Excluding the effect of the
acquisition of IAT, the Company's gross margin on sales of parts, supplies and
new equipment would have been 25.1% for the three months ended March 31, 1998.
The Company believes the gross margin on sales of parts, supplies and new
equipment will likely remain at this lower level due to the impact of IAT's
product sales, which generally have had lower gross margins than the parts,
supplies and new equipment sold by the Company prior to the acquisition of IAT.
Gross margin on sales of used equipment decreased to 29.4% of sales from 35.6%,
due primarily to variations in the mix and age of the equipment being sold.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three months ended March 31, 1998 was $5.7
million, or 5.2% of total revenues, compared to $3.8 million, or 9.2% of total
revenues for the three months ended March 31, 1997. This increase is the result
of the greater number of locations and employees resulting from the Company's
acquisitions and start-ups since March 31, 1997.
Depreciation and Amortization, excluding equipment rental depreciation.
Depreciation and amortization, excluding equipment rental depreciation, for the
three months ended March 31, 1998 was $2.0 million, or 1.9% of total revenues,
compared to $1.1 million, or 2.6% of total revenues for the three months ended
March 31, 1997. This increase is primarily attributable to the larger fleet of
service and delivery vehicles in 1998 versus 1997, which has grown as a result
of the Company's increased number of locations and larger rental fleet.
Amortization of Intangibles. Amortization of intangibles for the three months
ended March 31, 1998 was $2.1 million, or 1.9% of total revenues, compared to
$624,000, or 1.5% of total revenues for the three months ended March 31, 1997.
This increase is due to the additional goodwill and covenants not to compete
associated with acquisitions completed since March 31, 1997.
Interest Expense, net. Interest expense, net, for the three months ended March
31, 1998 was $7.6 million, compared to $1.6 million for the three months ended
March 31, 1997. This increase is the result of the Company's increased average
debt outstanding for the three months ended March 31, 1998 versus the three
months ended
9
<PAGE>
RENTAL SERVICE CORPORATION
MARCH 31, 1998
March 31, 1997. The increased debt has resulted from acquisitions, capital
expenditures and start-up locations financed under the Bank Facility. Interest
expense will continue to increase in subsequent periods to the extent the
Company borrows under the Bank Facility, or otherwise, to fund acquisitions and
capital expenditures.
Provision for Income Taxes. Provision for income taxes was $4.1 million for
the three months ended March 31, 1998, compared to $1.7 million for the three
months ended March 31, 1997. The Company's effective tax rate was 42.8% for the
three months ended March 31, 1998, compared to 44.1% for the three months ended
March 31, 1997. The decrease in the Company's effective tax rate is a result of
increased profitability, which has lessened the impact of the higher levels of
non-deductible items (primarily goodwill).
Extraordinary Item. In connection with the implementation of an amendment to
the Revolver in January 1997, the Company wrote off the related unamortized
deferred financing costs and recorded a loss on extinguishment of debt of
$920,000, which has been classified as an extraordinary item, net of income
taxes of $386,000, in the consolidated statement of operations for the three
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been the funding of capital
expenditures, acquisitions and start-up locations. The Company has historically
financed its capital expenditures, acquisitions and start-up locations primarily
through the issuance of equity securities, secured bank borrowings and net cash
provided by operating activities. The Company had cash and cash equivalents of
$4.5 million at March 31, 1998 and $8.9 million at December 31, 1997.
Operating activities. During the three months ended March 31, 1998 and 1997,
the Company's operating activities provided net cash flow of $39.1 million and
$20.3 million, respectively. The principal causes for the variations in cash
flow between periods were higher net income, increased depreciation and
amortization and higher average accounts payable.
Investing activities. Net cash used in investing activities was $167.2 million
and $51.5 million for the three months ended March 31, 1998 and 1997,
respectively. The increase between periods was attributable to a higher combined
level of capital expenditures and acquisitions. Acquisition spending totaled
$107.8 million and $12.0 million for the three months ended March 31, 1998 and
1997, respectively. In addition, the Company had capital expenditures of $70.7
million and $44.1 million for the three months ended March 31, 1998 and 1997,
respectively. Capital expenditures were primarily for purchases of rental
equipment. Included in investing activities were proceeds from the sale of used
equipment, which were $11.3 million and $4.6 million for the three months ended
March 31, 1998 and 1997, respectively.
Financing activities. Net cash provided by financing activities was $123.6
million and $31.3 million for the three months ended March 31, 1998 and 1997,
respectively. The net cash provided by financing activities during these periods
was primarily from borrowings under the Revolver.
Since December 2, 1997, the Company's principal source of liquidity has been
the Bank Facility, which consists of the Revolver and the Term Loan. Prior to
December 2, 1997, the Company's principal source of liquidity was the Revolver,
which consisted of a revolving line of credit and availability of letters of
credit. On January 31, 1997, the Company amended the Revolver to, among other
things, increase the availability to $200.0 million, decrease the interest rate
margins by 0.50% and extend the maturity date to January 31, 2002. On June 4,
1997, the Company again amended the Revolver to, among other things, increase
the availability to $300.0 million, decrease the interest rate margins by 0.25%
with further reductions if certain interest coverage ratios are met and to
reduce the unused line fee to 0.25% of the unused commitment. In connection with
the implementation of the January 1997 amendment, the Company recorded an
extraordinary loss on extinguishment of debt of $920,000, net of income taxes of
$386,000, associated with the write-off of unamortized debt issuance costs.
On December 2, 1997, the Company amended and restated the Revolver to increase
its total available financing to $600.0 million. This increase consisted of an
increase in the availability under the Revolver to $500.0 million and the
implementation of the new $100.0 million Term Loan (together with the Revolver,
the "Bank Facility"). In
10
<PAGE>
RENTAL SERVICE CORPORATION
MARCH 31, 1998
addition, this new financing package extended the maturity date of the Revolver
to December 2, 2002; changed the methodology for determining the interest rate
margins; increased the allowed levels of capital expenditures and investments to
$160.0 million in 1997, $150.0 million in each of 1998, 1999 and 2000, $160.0
million in 2001, $180.0 million in 2002, $225.0 million in 2003 and $240.0
million in 2004 (plus amounts reinvested from asset sales); and amended several
covenants, including the computation methodology of certain financial covenants.
The amended and restated Revolver contains provisions to periodically adjust
the prime and Eurodollar interest rate margins based on the Company's
achievement of specified total debt to EBITDA ratios. The total amount of credit
available under the Revolver is limited to a borrowing base equal to the sum of
(i) 85% of eligible accounts receivable of the Company's subsidiaries and (ii)
100% of the value (lower of net book value or orderly liquidation value) of
eligible rental equipment through December 31, 1998; 90% of the value of
eligible rental equipment from January 1, 1999 through December 31, 1999; 85% of
the value of eligible rental equipment from January 1, 2000 through December 31,
2000; and 80% of the value of eligible rental equipment from January 1, 2001
through the expiration date of the Revolver. The Revolver expires December 2,
2002.
The Term Loan consists of a $100.0 million seven-year term loan facility,
which requires mandatory principal payments of $1.0 million on each of its first
six anniversaries, with the remaining principal balance due at maturity. The
Term Loan matures on December 2, 2004. Interest on the Term Loan is payable
monthly at either the prime rate plus 1.0% or the Eurodollar rate plus 2.5% (at
the Company's option).
The Bank Facility has financial covenants for RSC regarding debt incurrence,
interest coverage, capital expenditures and investments (including
acquisitions), rental equipment utilization and minimum EBITDA levels. The Bank
Facility also contains covenants and provisions that restrict, among other
things, the ability of the Company and its subsidiaries to: (i) incur additional
indebtedness; (ii) incur liens on their property, (iii) enter into contingent
obligations; (iv) make certain capital expenditures and investments; (v) engage
in certain sales of assets; (vi) merge or consolidate with or acquire another
person or engage in other fundamental changes; (vii) enter into leases; (viii)
engage in certain transactions with affiliates; and (ix) declare or pay
dividends. As of March 31, 1998, the Company was in compliance with all
covenants of the Bank Facility.
Borrowings under the Bank Facility are secured by all of the personal property
of the Company's subsidiaries and a pledge of the capital stock and intercompany
debt of the Company's subsidiaries. RSC is a guarantor of the obligations of its
subsidiaries under the Bank Facility, and has granted liens on substantially all
of its assets (including the stock of its subsidiaries) to secure such guaranty.
The Bank Facility also restricts the Company from declaring or paying dividends
on its common stock. In addition, the Company's subsidiaries are guarantors of
the obligations of the other subsidiaries under the Bank Facility. The Bank
Facility also includes a $2.0 million letter of credit facility. A commitment
fee equal to 0.25% of the unused commitment, excluding the face amount of all
outstanding and undrawn letters of credit, is also payable monthly in arrears.
The obligation of the lenders to make loans or issue letters of credit under the
Bank Facility is subject to certain customary conditions.
At April 15, 1998, the principal amount outstanding under the Revolver was
$428.2 million, the average interest rate on such borrowings was 7.4%, and an
additional $59.5 million was available to the Company under the Revolver.
Acquisitions and Start-ups. As part of its growth strategy, the Company is
continually involved in the investigation and evaluation of potential
acquisitions and start-up locations. The Company is currently evaluating a
number of acquisition opportunities and start-up locations and may at any time
be a party to one or more letters of intent or acquisition agreements. At
December 31, 1997, the Company operated 165 locations throughout the United
States. Since December 31, 1997, the Company has completed eleven acquisitions
of rental equipment businesses (including Valley, Metroquip and T&M) with an
aggregate of 31 locations, has opened five new start-up locations and has
consolidated two acquired locations with existing locations serving the same
markets, bringing the Company's total number of locations to 199 as of April 15,
1998.
During the three months ended March 31, 1998, the Company completed seven
acquisitions of rental equipment businesses with a combined total of 22
locations for an aggregate purchase price of approximately $107.8 million in
cash (including the payoff of assumed debt), 450,109 shares of RSC common stock
and the assumption of
11
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RENTAL SERVICE CORPORATION
MARCH 31, 1998
approximately $5.5 million in liabilities. During the three months ended March
31, 1997, the Company completed five acquisitions of rental equipment businesses
with a combined total of eight locations for an aggregate purchase price of
approximately $12.0 million in cash and the assumption of approximately $1.3
million in liabilities.
During the three months ended March 31, 1998, the Company opened two new
start-up locations and consolidated two acquired locations with existing
locations serving the same markets.
On April 1, 1998, the Company acquired all of the outstanding stock of James
S. Peterson Enterprises d/b/a Metroquip Rental Centers ("Metroquip") for $51.4
million in cash (including the payoff of assumed debt) and 182,337 shares of RSC
common stock. Up to an additional 95,727 shares of RSC common stock may be paid
to the seller over a three-year period if certain performance objectives are
met. Metroquip rented, sold and supported aerial work platforms and contractors'
equipment and operated a total of five locations in Minnesota and Nebraska.
Metroquip's balance sheet was consolidated with the Company's as of April 1,
1998. Pursuant to the acquisition agreement, the Company assumed effective
control of Metroquip's operations on March 1, 1998 and has included Metroquip's
revenues, costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock of T&M
Rental, Inc. ("T&M") for $21.9 million in cash (including the payoff of assumed
debt). Up to 33,132 shares of RSC common stock may be paid to the seller over a
three-year period if certain performance objectives are met. T&M was an
independent rental company operating one location in Indiana. T&M's balance
sheet was consolidated with the Company's as of April 2, 1998. Pursuant to the
acquisition agreement, the Company assumed effective control of T&M's operations
on March 1, 1998 and has included T&M's revenues, costs and expenses from such
date in its consolidated statements of operations, net of related imputed
purchase price adjustments.
Subsequent to March 31, 1998, the Company completed two additional
acquisitions for a total combined purchase price of approximately $7.1 million
(including 8,109 shares of RSC common stock). These acquisitions had a combined
three locations in Missouri and Virginia.
As of April 15, 1998, the Company was party to a letter of intent to acquire
an equipment rental business with three locations in Illinois and Wisconsin for
a purchase price of approximately $10.1 million (including 45,584 shares of
Common Stock). This acquisition is subject to a number of closing conditions,
including the execution of a definitive purchase agreement and RSC board of
directors approval.
General. The Company's liquidity and capital resources have been and will
continue to be significantly impacted by the Company's growth strategy and by
the need to offer customers a modern and well-maintained rental equipment fleet.
To pursue its growth strategy, the Company must be able to complete
acquisitions, open start-up locations and make the capital expenditures
necessary to acquire and maintain its rental fleet. At April 15, 1998, the
Company was obligated, under noncancellable purchase commitments, to purchase
approximately $51.4 million of equipment. Such purchases are expected to be
financed with cash flows from operations and through borrowings under the
Revolver.
The Company believes cash flow from operations, together with availability
under the Revolver, and vendor financing in appropriate cases, will be
sufficient to support its current operations for at least the next 12 months.
However, to complete certain pending acquisitions, to make certain discretionary
capital expenditures and if additional acquisition opportunities arise, the
Company will need to seek additional capital. Such acquisitions and capital
expenditures could be financed through the incurrence of additional
indebtedness, including convertible debt, or the issuance of common or preferred
stock (which may be issued to third parties or to sellers of acquired
businesses), depending on market conditions. If such financing were not
available, the Company's growth strategy could be hampered and its cash flow
from operations reduced, thereby constraining funds available for growth and
acquisitions. Further, additional indebtedness generally would increase RSC's
leverage and may make the Company more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures. However, there can be no
assurance that the Company's business will generate sufficient cash flow or that
future borrowings or additional capital, if and when required, will be available
on terms acceptable to the Company, or at all.
12
<PAGE>
RENTAL SERVICE CORPORATION
MARCH 31, 1998
ENVIRONMENTAL
The Company and its operations are subject to a variety of federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes. Under
such laws, an owner or lessee of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. The Company incurs ongoing expenses associated with the
removal of older underground storage tanks and other activities to come into
compliance with environmental laws, and the performance of appropriate
remediation at certain locations. The Company has accrued $594,000 at March 31,
1998 related to the removal of underground tanks and remediation expenses. The
Company believes the impact of the cost of such remediation on its financial
position, results of operations and cash flows will not be material.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report, including without limitation,
statements concerning the Company's operations, economic performance and
financial condition, including in particular, the integration of acquisitions
and start-up locations into the Company's existing operations are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "believe," "expect," "anticipate" and other similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties,
including without limitation, those described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 and other risks and uncertainties
indicated from time to time in the Company's filings with the Securities and
Exchange Commission. Actual results could differ materially from the forward-
looking statements. In addition, important factors to consider in evaluating
such forward-looking statements include changes in external market factors,
changes in the Company's business strategy or an inability to execute its
strategy due to changes in its industry or the economy generally, the emergence
of new or growing competitors and various other competitive factors. In light of
these risks and uncertainties, there can be no assurance that the results
referred to in the forward-looking statements contained in this report will in
fact occur. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
13
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RENTAL SERVICE CORPORATION
MARCH 31, 1998
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various litigation
matters, in most cases involving ordinary and routine claims incidental
to the business of the Company. The ultimate legal and financial
liability of the Company with respect to such pending litigation cannot
be estimated with certainty, but the Company believes, based on its
examination of such matters, that such ultimate liability will not have
a material adverse effect on the business or financial condition of the
Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On April 1, 1998, the Company acquired all of the outstanding stock
of James S. Peterson Enterprises, Inc. d/b/a Metroquip Rental Centers
("Metroquip") for $51.4 million in cash (including the payoff of
assumed debt) and 182,337 shares of RSC common stock. Up to an
additional 95,727 shares of RSC common stock may be paid to the seller
over a three-year period if certain performance objectives are met.
Metroquip rented, sold and supported aerial work platforms and
contractors' equipment, operated a total of five locations in Minnesota
and Nebraska, and had total revenues of approximately $25.2 million for
its fiscal year ended December 31, 1997. Metroquip's balance sheet was
consolidated with the Company's as of April 1, 1998. This acquisition
is expected to result in approximately $33.0 million in goodwill, which
will be amortized over 40 years. Pursuant to the acquisition agreement,
the Company assumed effective control of Metroquip's operations on
March 1, 1998 and has included Metroquip's revenues, costs and expenses
from such date in its consolidated statements of operations, net of
related imputed purchase price adjustments.
On April 2, 1998, the Company acquired all of the outstanding stock
of T&M Rentals, Inc. ("T&M") for $21.9 million in cash (including the
payoff of assumed debt). Up to 33,132 shares of RSC common stock may be
paid to the seller over a three-year period if certain performance
objectives are met. T&M was an independent rental company operating one
location in Indiana, and had total revenues of approximately $5.8
million for its fiscal year ended February 28, 1998. T&M's balance
sheet was consolidated with the Company's as of April 2, 1998. This
acquisition is expected to result in approximately $16.0 million in
goodwill, which will be amortized over 40 years. Pursuant to the
acquisition agreement, the Company assumed effective control of T&M's
operations on March 1, 1998 and has included T&M's revenues, costs and
expenses from such date in its consolidated statements of operations,
net of related imputed purchase price adjustments.
The Company is considering operations in Canada, and may consider
operations elsewhere outside of the United States in the near future.
These operations are subject to risks normally associated with
international operations, including currency conversion risks, slower
and more difficult accounts receivable collection, greater difficulty
and expense in administering business abroad and complying with foreign
laws.
14
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RENTAL SERVICE CORPORATION
MARCH 31, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- ------------------------------------------------------------------------------------
<C> <S>
10.1 Asset Purchase Agreement by and among JDW Enterprises, Inc. d/b/a "Valley Rentals"
as "Seller," Rental Service Corporation, RSC Center, Inc. as "Buyer" and Jerald and
Elfriede Adams, Dan and Mary Evans, and Warren and Linda Youel, dated December 30,
1997. (1)
10.2 Stock Purchase Agreement by and among James S. Peterson as "Seller," Walker Jones
Equipment, Inc. as "Buyer," Rental Service Corporation as "Parent" and James S.
Peterson Enterprises, Inc. as the "Company," dated April 1, 1998.
10.3 Stock Purchase Agreement by and among Mark S. Mosak and Thomas A. Mosak as
"Sellers," Walker Jones Equipment, Inc. as "Buyer," Rental Service Corporation as
"Parent" and T&M Rental, Inc. as the "Company," dated April 2, 1998.
10.4 Employment Agreement with Martin R. Reid.
27.1 Financial Data Schedule
</TABLE>
__________
(1) Filed as an exhibit to the Company's Current Report on Form 8-K
dated February 18, 1998, and incorporated herein by reference.
(b) Reports on Form 8-K
1) The Company filed a Current Report on Form 8-K, dated January 22,
1998, announcing the signing of a definitive agreement to acquire
substantially all of the assets of Valley. This 8-K also announced the
election of David P. Lanoha to the Company's Board of Directors, the
appointment of John Markle to the position of Senior Vice President of
Operations succeeding Mr. Lanoha and the resignation of Bruce Lisanti
as Senior Vice President of Marketing.
2) The Company filed a Current Report on Form 8-K/A, dated February 9,
1998, which included the audited financial statements of Center and
the unaudited pro forma consolidated financial information of the
Company, including the acquisitions of IAT, Foxx and Center.
3) The Company filed a Current Report on Form 8-K, dated February 18,
1998, announcing the closing of the acquisition of Valley.
15
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RENTAL SERVICE CORPORATION
MARCH 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
RENTAL SERVICE CORPORATION
-------------------------------------------------
(Registrant)
<S> <C> <C> <C>
Date: April 23, 1998 By: /s/ Martin R. Reid
----------------------------------- -------------------------------------------------
Martin R. Reid
Chairman and Chief Executive Officer
Date: April 23, 1998 By: /s/ Robert M. Wilson
----------------------------------- -------------------------------------------------
Robert M. Wilson
Senior V.P. and Chief Financial Officer
</TABLE>
16
<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
by and among
JAMES S. PETERSON
as "Seller,"
WALKER JONES EQUIPMENT, INC.
as "Buyer,"
Rental Service Corporation
as "Parent"
and
JAMES S. PETERSON ENTERPRISES, INC.
as the "Company"
April 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS.................................................1
1.1 Defined Terms..............................................1
1.2 Other Defined Terms........................................6
ARTICLE II SALE AND TRANSFER OF SHARES................................7
2.1 Transfer of Shares.........................................7
2.2 Purchase Price.............................................7
2.3 Holdback and Escrow Agreement..............................8
2.4 Purchase Price Adjustments.................................9
ARTICLE III CLOSING..................................................11
3.1 Closing...................................................11
3.2 Conveyances at Closing....................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
COMPANY.........................................................12
4.1 Organization of the Company...............................13
4.2 Authorization.............................................13
4.3 No Violation..............................................14
4.4 Capitalization............................................15
4.5 No Changes to the Assets..................................16
4.6 Related Entities..........................................16
4.7 Equipment and Other Assets; Absence of Encumbrances.......17
4.8 Facilities................................................17
4.9 Permits and Consents......................................18
4.10 Contracts and Commitments.................................18
4.11 Financial Statements......................................19
4.12 Books and Records.........................................19
4.13 Litigation................................................20
4.14 Labor Matters.............................................20
4.15 Compliance with Law.......................................20
4.16 Brokers...................................................20
4.17 No Other Agreements to Sell the Company...................21
4.18 Proprietary Rights........................................21
4.19 Tax Matters...............................................22
4.20 Accounts Receivable...................................... 24
4.21 Inventory.................................................25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.22 Employees and Employee Benefits...........................25
4.23 Representations...........................................27
4.24 Compliance With Environmental Laws........................29
4.25 Liabilities...............................................32
4.26 Insurance.................................................32
4.27 Conduct of the Business...................................33
4.28 Securities Law Matters....................................33
4.29 Affiliate Transactions....................................34
4.30 Disclosure................................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT.........35
5.1 Representation and Warranties of Buyer....................35
5.2 Representations and Warranties of RSC.....................36
ARTICLE VI COVENANTS OF BUYER, THE COMPANY AND SELLER................37
6.1 Further Assurances........................................37
6.2 Employee Matters..........................................38
6.3 Environmental Assessments and Remediation.................38
6.4 Registration Rights.......................................39
6.5 Key Man Life Insurance; Transferred Assets................40
6.6 Stock Options.............................................40
6.7 Tax Attributes............................................40
ARTICLE VII CONDITIONS TO SELLER'S OBLIGATIONS.......................40
7.1 Representations, Warranties and Covenants.................40
7.2 No Proceedings, Litigation or Laws....................... 40
7.3 Ancillary Agreements......................................41
7.4 Certificate...............................................41
7.5 No Cessation of Trading...................................41
7.6 Opinion Letter of Buyer's Attorneys.......................41
7.7 Buyer and RSC Corporate Documents.........................41
ARTICLE VIII CONDITIONS TO BUYER'S AND PARENT'S OBLIGATIONS..........41
8.1 Representations, Warranties and Covenants.................41
8.2 Consents..................................................42
8.3 Board Approval............................................42
8.4 No Proceedings or Litigation..............................42
8.5 Opinion of Counsel........................................42
8.6 Certificates..............................................42
8.7 Performance Incentive Agreement...........................42
8.8 Escrow Agreement..........................................42
8.9 Employment and Non-Competition Agreements.................42
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.10 Release of Encumbrances...................................43
8.11 Material Changes..........................................43
8.12 Corporate Documents.......................................43
8.13 Due Diligence Review......................................43
8.14 Completion of Environmental Remediation...................43
8.15 Financing. ...............................................43
8.16 Tax Clearance Certificate.................................43
8.17 Audit.....................................................43
ARTICLE IX CONDUCT OF SELLER AND BUYER PENDING THE CLOSING...........43
9.1 Seller Covenants..........................................43
9.2 No Negotiations...........................................46
9.3 Public Announcements......................................46
9.4 Confidentiality...........................................46
ARTICLE X [INTENTIONALLY OMITTED]....................................47
ARTICLE XI ACTIONS BY SELLER AND BUYER AFTER THE CLOSING.............47
11.1 Books and Records; Tax Examinations.......................47
11.2 Survival of Representations, Etc..........................47
11.3 Indemnifications..........................................48
ARTICLE XII MISCELLANEOUS............................................51
12.1 Termination...............................................51
12.2 In the Event of Termination...............................52
12.3 Assignment................................................52
12.4 Notices...................................................52
12.5 Choice of Law.............................................54
12.6 Entire Agreement; Amendments and Waivers..................54
12.7 Multiple Counterparts.....................................54
12.8 Expenses..................................................54
12.9 Invalidity................................................54
12.10 Titles....................................................54
12.11 Publicity; Confidentiality................................55
12.12 Cumulative Remedies.......................................55
12.13 Arbitration...............................................55
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of April 1, 1998 (the
"Agreement") to be effective as of March 1, 1998 by and among Walker Jones
Equipment, Inc., a Mississippi corporation ("Buyer"), Rental Service
Corporation, a Delaware corporation ("Parent or RSC") for the limited purpose
set forth herein, James S. Peterson, an individual ("Seller") and James S.
Peterson Enterprises, Inc., a Minnesota corporation (the "Company").
RECITALS
--------
A. Seller owns, of record and beneficially, all of the issued and
outstanding shares of capital stock of the Company (the "Shares") and, as of the
Closing Date (as defined below), will own, of record and beneficially, all of
the Shares.
B. Company owns all of the issued and outstanding shares of capital stock
of Metroquip, Inc. ("Metroquip").
C. Metroquip is engaged in the business of equipment rental and sales.
D. Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, all of the Shares upon the terms and subject to the conditions of this
Agreement, whereupon Buyer will own all of the equity interests in the Company
and through the Company, Metroquip.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
1.1.1 "Affiliate" shall have the meaning set forth in the Securities
---------
Exchange Act of 1934, as amended, and the rules and regulations thereunder.
<PAGE>
1.1.2 "Agreement" shall have the meaning specified in the first
---------
paragraph of this Agreement.
1.1.3 "Ancillary Agreements" shall mean the Performance Incentive
--------------------
Agreement, Escrow Agreement and the Employment and Noncompetition Agreement.
1.1.4 Assets" shall mean the assets of the Company and Metroquip as
------
reflected on the Consolidated December 31 Balance Sheet, together with those
assets acquired (less those assets disposed of) in the ordinary course of
business since the Consolidated December 31 Balance Sheet Date, less the assets
identified on Schedule 1.1.4 attached hereto ("Transferred Assets").
--------------
1.1.5 "Balance Sheets" shall mean the audited consolidated balance
--------------
sheets of the Company and Metroquip at each of December 31, 1994, 1995, 1996 and
1997.
1.1.6 "Books and Records" shall mean (a) all records and lists
-----------------
pertaining to the Business, customers, suppliers, or personnel of the Company
and Metroquip, (b) all product, business and marketing plans of the Company and
Metroquip and (c) all books, ledgers, subledgers, trial balances, files,
reports, plans, drawings, and operating records of every kind maintained by the
Company and Metroquip.
1.1.7 "Business" shall mean Metroquip's equipment rental and sales
--------
business, operating under the name "Metroquip" or otherwise.
1.1.8 "Buyer" shall have the meaning specified in the first paragraph
-----
of this Agreement.
1.1.9 "Closing Date" shall mean April 1, 1998 or such other date as
------------
Buyer and Seller shall mutually agree upon.
1.1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended,
----
and the rules and regulations promulgated thereunder.
1.1.11 "Commission" shall mean the Securities and Exchange Commission.
----------
1.1.12 "Company" shall have the meaning specified in the first
-------
paragraph of this Agreement.
1.1.13 "Consolidated December 31 Balance Sheet" shall mean the audited
--------------------------------------
consolidated balance sheet of Company and Metroquip dated December 31, 1997, as
adjusted on a mutually agreed upon basis between Buyer and Seller and attached
hereto as Schedule 1.1.13.
---------------
<PAGE>
1.1.14 "Consolidated December 31 Balance Sheet Date" shall mean
-------------------------------------------
December 31, 1997.
1.1.15 "Consolidated December 31 Shareholder Net Worth" shall be as set
----------------------------------------------
forth on the Consolidated December 31 Balance Sheet.
1.1.16 "Contract" shall mean any agreement, contract, note, loan,
--------
evidence of indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license, instrument,
obligation or commitment to which the Company or Metroquip is a party or is
bound and which relates to the Business or Assets, whether oral or written.
1.1.17 "Effective Date" shall mean March 1, 1998.
--------------
1.1.18 "Effective Date Balance Sheet" shall mean the consolidated
----------------------------
balance sheet of the Company and Metroquip dated as of February 28, 1998 as
adjusted on a mutually agreed upon basis between Buyer and Seller and attached
hereto as Schedule 1.1.18.
---------------
1.1.19 "Encumbrance" shall mean any claim, lien, pledge, option,
-----------
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
1.1.20 "Equipment" shall mean all of the furniture, fixtures,
---------
furnishings, rental fleet, machinery, automobiles, trucks, spare parts, tools,
supplies, equipment, telephones, office equipment, signs and other tangible
personal property owned by the Company and Metroquip and used in connection with
the Business.
1.1.21 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
1.1.22 "Escrow Agent" shall mean the entity designated by Buyer and
------------
Seller to act as escrow agent under the Escrow Agreement.
1.1.23 "Escrow Agreement" shall mean that certain Escrow Agreement,
----------------
dated as of the Closing Date, by and among Buyer, Seller and the Escrow Agent,
substantially in the form of Exhibit 8.8 attached hereto.
3
<PAGE>
1.1.24 "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended, and the rules and regulations promulgated thereunder.
1.1.25 "Facilities" shall mean the rental yards, stores, offices,
----------
maintenance and storage facilities, shops, warehouses, improvements and other
structures, together with all related fixtures and improvements, located at or
on the Leased Real Property.
1.1.26 "Financial Statements" shall mean the Year-End Financial
--------------------
Statements and the Interim Financial Statements.
1.1.27 "Holdback Amount" shall mean collectively the Short-term Hold-
---------------
back Amount and the General Holdback Amount.
1.1.28 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improve-
-------
ments Act of 1976, as amended.
1.1.29 "Interim Financial Statements" shall mean the unaudited balance
----------------------------
and profit and loss statements of the Company and Metroquip for the two month
period ended February 28, 1998.
1.1.30 "Inventory" shall mean all of the Company's and Metroquip's
---------
inventory held for resale and all of the Company's and Metroquip's new repair or
replacement parts, supplies and packaging items and similar items with respect
to the Business, in each case wherever the same may be located.
1.1.31 "Leased Real Property" shall mean all real property listed on
--------------------
Schedule 4.8 leased by the Company or Metroquip and which is used in the conduct
- ------------
of the Business, including without limitation, all rights, easements and
privileges appertaining or relating thereto, all buildings, fixtures, and
improvements located thereon and all Facilities thereon, if any.
1.1.32 "Material Adverse Effect" or "Material Adverse Change" shall
----------------------- -----------------------
mean with respect to the Company, Metroquip, Business or the Assets any
significant and substantial adverse effect or change in the condition (financial
or other), business, results of operations, prospects, assets, liabilities,
customer, supplier or employee relations or operations of the Business or the
Assets or on the ability of Seller or the Company to consummate the transactions
contemplated hereby, or any event or condition which would, with the passage of
time, constitute a "Material Adverse Effect" or "Material Adverse Change."
1.1.33 "Parent" shall have the meaning specified in the first paragraph
------
of this Agreement.
4
<PAGE>
1.1.34 "Permits" shall mean all licenses, permits, franchises,
-------
approvals, authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, state or local, or any other
person, necessary for the past or present conduct of, or relating to the
operation of, the Business.
1.1.35 "Related Entity" shall mean any corporation, partnership, trust
--------------
or other organization in which the Company, Metroquip or Seller has a material
interest.
1.1.36 "Rental and Non-Rental Asset Listing" shall mean the asset
-----------------------------------
listing attached as Schedule 2.4.3 hereto, listing all Assets as of the
--------------
Effective Date.
1.1.37 "Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
1.1.38 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
1.1.39 "Seller" shall have the meaning specified in the first paragraph
------
of this Agreement.
1.1.40 "Shareholder Net Worth" shall be as set forth in the Con-
---------------------
solidated December 31 Balance Sheet excluding the net carrying value or book
value of the Transferred Assets and other adjustments mutually agreed to.
1.1.41 "Shares" shall mean all of the issued and outstanding shares of
------
capital stock of the Company.
1.1.42 "Tax or Taxes" shall mean any federal, state, provincial, local,
------------
foreign, or other income, alternative, minimum, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits, windfall
profits, gross receipts, value added, privilege, sales, use, goods and services,
excise, customs duties, transfer, conveyance, mortgage, registration, stamp,
documentary, recording, premium, severance, environmental (including taxes under
Section 59A of the Code), real property, personal property, transfer, ad
valorem, intangibles, rent, occupancy, license, occupational, employment,
unemployment insurance, social security, disability, workers' compensation,
payroll, health care, registration, withholding, estimated, or other similar
tax, duty, or other governmental charge or assessment or deficiencies thereof
(including all interest and penalties thereon and additions thereto, whether
disputed or not).
1.1.43 "Tax Return" shall mean any return, report, declaration, form,
----------
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
5
<PAGE>
1.1.44 "Year-End Financial Statements" shall mean the Balance Sheets
-----------------------------
and the related statement of operations for the fiscal years then ended.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
<TABLE>
<S> <C>
Actions................................ 4.13
Benefit Arrangement.................... 4.2.1.1
Cash Purchase Price.................... 2.2.1
CERCLA................................. 4.24.5
Claim.................................. 11.3.4
Claim Notice........................... 11.3.4
Closing................................ 3.1
Consultant............................. 6.3.1
Damages................................ 11.3.1
Debt................................... 2.2.1
Employee Plans......................... 4.22.1
Environmental Conditions............... 4.24.14
Environmental Laws..................... 4.24.5
Environmental Assessments.............. 6.3.1
ERISA Affiliate........................ 4.22.1
GAAP................................... 4.11
General Holdback Amount................ 2.3.1
Governmental Consents.................. 5.1.4
Hazardous Substance.................... 4.24.4
Metroquip Shares....................... 4.4.2
Multiemployer Plan..................... 4.22.1
NYSE................................... 2.2.1
Parent Common Stock.................... 2.2.1
PBGC................................... 4.22.1
Pension Plan........................... 4.22.1
Performance Purchase Price............. 2.2.2
Post-Closing Environmental Liability... 11.3.1
Proprietary Rights..................... 4.8.1
Purchase Price......................... 2.2.1
RCRA................................... 4.24.5
Release................................ 4.24.3
Rental Ready........................... 2.4.3(c)
Required Remediation................... 6.3.2
Retained Employees..................... 6.2
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
RSC Material Adverse Effect............ 5.2.3
SEC.................................... 5.2.6
SEC Documents.......................... 5.2.6
Short-term Holdback Amount............. 2.3.1
Stock Purchase Price................... 2.2.1
Tax Adjustment......................... 2.4.5
</TABLE>
ARTICLE II
SALE AND TRANSFER OF SHARES
---------------------------
2.1 Transfer of Shares. Upon the terms and subject to the conditions
------------------
contained herein, at the Closing, Seller will sell, convey, transfer, assign,
and deliver to Buyer, and Buyer will acquire from Seller, the Shares, for the
consideration specified in Section 2.2 and subject to the Holdback Amount
specified in Section 2.3.
2.2 Purchase Price.
--------------
2.2.1 Purchase Price. At the Closing, upon the terms and subject to
--------------
the conditions set forth herein, Buyer shall pay to Seller in consideration for
the Shares, the aggregate amount of Fifty-Five Million Four Hundred Thousand
Seventeen and 90/100 Dollars ($55,400,017.90) less the principal amount of that
certain debt listed on Schedule 2.2.1 (the "Debt") (the "Purchase Price"), of
--------------
which Fifty-One Million Four Hundred Thousand and no/100 Dollars
($51,400,000.00) less the cash portion of the Debt (the "Cash Purchase Price")
shall be paid to Seller by wire transfer of immediately available funds to an
account designated by Seller and Four Million Seventeen and 90/100 Dollars
($4,000,017.90) shall be paid by delivery to Seller of 182,337 shares of Common
Stock, par value $.01 per share, of Parent (the "Parent Common Stock") less the
stock portion of the Debt (the "Stock Purchase Price"). The number of shares of
Parent Common Stock to be issued to Seller as part of the Stock Purchase Price
was determined by dividing Four Million Seventeen and 90/100 Dollars
($4,000,017.90) by the closing price of a share of Parent Common Stock on the
New York Stock Exchange ("NYSE") on January 20, 1998, which was $21.9375 per
share. The Purchase Price shall be subject to adjustment as set forth in
Section 2.4, and the Short-term Holdback Amount as described in Section 2.4,
which amounts shall be deducted first from the Cash Purchase Price, and subject
to an upward adjustment as set forth in Section 2.2.2 below.
2.2.2 Should the "performance targets" as described in the
Performance Incentive Agreement attached as Exhibit 8.7 be met, Buyer shall pay
Seller a performance incentive amount of up to Two Million One Hundred Thousand
Eleven and 00/100 Dollars ($2,100,011.00) in Parent Common Stock ("Performance
Purchase Price"). The maximum number of shares of Parent Common Stock to be
issued to Seller as part of the Performance Purchase Price shall be the result
of dividing Two Million One Hundred Thousand Eleven and no/100 Dollars
($2,100,011.00) by the closing price of a share of Parent Common Stock on the
NYSE on January 20, 1998, which was
7
<PAGE>
$21.9375 per share; therefore, the maximum number of shares to be issued is
95,727. The Parent Common Stock representing the Performance Purchase Price will
vest and be issued, equally over a three-year period based on performance
targets as set forth in the Performance Incentive Agreement.
2.2.3 If between the date of this Agreement or the date of issuance
of Parent Common Stock pursuant to the Performance Incentive Agreement, the
outstanding shares of Parent Common Stock shall be changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, stock dividend, stock combination, exchange of
shares or readjustment, the Performance Purchase Price shares shall be
proportionately adjusted.
2.2.4 No fractional shares of Parent Common Stock shall be issued,
but in lieu thereof Seller who would otherwise be entitled to receive a fraction
of a share of Parent Common Stock shall receive from Buyer an amount of cash
equal to the product of the fraction of a share of Parent Common Stock to which
such holder would otherwise be entitled, multiplied by $21.9375.
2.3 Holdback and Escrow Agreement.
-----------------------------
2.3.1 The Holdback Amount shall consist of cash and Parent Common
Stock in the amount of $5,075,000. Of such Holdback Amount in cash, (i) $0 shall
be allocated to the resolution of the Tax Adjustment pursuant to Section 2.4.5;
(ii) $25,000 shall be allocated to the resolution of the Equipment adjustment
pursuant to Section 2.4.3; (iii) $0 shall be allocated to the resolution of the
Inventory adjustment pursuant to Section 2.4.4; (iv) $50,000 shall be allocated
to the resolution of the Required Remediation pursuant to Section 6.3;
(collectively items (i) - (iv) shall be referred to as the "Short-term Holdback
Amount"), and $5,000,000.00, consisting of $2,425,766 in cash and 117,344 shares
of Parent Common Stock, will be allocated to any other obligations under this
Agreement ("General Holdback Amount"). Buyer shall remit to Seller the Short-
term Holdback Amount, except for the amount allocated to the Required
Remediation, thirty (30) days after the Closing Date, less any amounts necessary
to cover undisputed claims or unresolved adjustments pursuant to Section 2.4
hereof.
The General Holdback Amount shall be placed in escrow subject to the
terms and conditions set forth in the Escrow Agreement attached hereto as
Exhibit 8.8. Notwithstanding anything in this Agreement to the contrary, if any
portion of the Holdback Amount specified in this Section 2.3.1 proves to be
insufficient for resolution of the matter subject to adjustment therein, Buyer
may, in its sole discretion, elect to transfer a portion of the Holdback Amount
allocated to another matter to resolve such deficiency. Seller shall be
entitled to all stock and cash dividends and interest earned on investments held
in escrow and voting rights on the Parent Common Stock. In the event of any
disagreement between Buyer and Seller regarding the dollar amount of any such
adjustment, Buyer and Seller shall submit such dispute to a nationally
recognized accounting firm for resolution pursuant to Section 2.4.1 (in the case
of a disagreement relating to a Purchase Price
8
<PAGE>
adjustment) or to a third-party arbitrator for binding arbitration pursuant to
Section 12.13 of this Agreement for indemnification claims.
2.3.2 Buyer and the Seller shall enter into the Escrow Agreement, in
substantially the form attached hereto as Exhibit 8.8, pursuant to which Buyer
shall deposit with the Escrow Agent the General Holdback Amount. All costs of
the escrow shall be paid one-half by Buyer, on the one hand, and one-half by the
Seller, on the other hand, all as further provided in the Escrow Agreement.
2.4 Purchase Price Adjustments.
--------------------------
2.4.1 Closing Balance Sheet. Seller has delivered to Buyer the
---------------------
Consolidated December 31 Balance Sheet. On or before the Closing Date, the
Seller shall deliver to Buyer the Effective Date Balance Sheet. The Effective
Date Balance Sheet will become final and binding on the parties unless within
ten business days following delivery of the Effective Date Balance Sheet to
Buyer, the Buyer notifies Seller in writing that the Buyer objects thereto,
which objection shall be solely on the basis of mathematical errors in the
calculation thereof or the failure to present the Company's financial position
consistent with mutually previously agreed upon adjustments. If the Buyer so
objects, Buyer and the Seller shall use their best efforts to resolve any
differences with respect to the Effective Date Balance Sheet. If, within ten
business days following such notice by the Buyer, such differences have been
resolved, the Effective Date Balance Sheet, as revised to reflect changes agreed
to by Buyer and the Seller, shall be final, binding and conclusive. If by such
date such differences have not been resolved, then the Seller and Buyer shall
jointly select a nationally recognized accounting firm not currently engaged by
Buyer, Seller or any Affiliate of either of them, to perform a review of the
Effective Date Balance Sheet. Such reviewing firm's conclusions shall be final,
binding and conclusive as to such matters. Seller and Buyer will share equally
the fees and expenses of such review.
2.4.2 Shareholder Net Worth Adjustment. At Closing, the Purchase
--------------------------------
Price shall be subject to a dollar for dollar reduction if and to the extent
that the Shareholder Net Worth set forth in the Effective Date Balance Sheet is
less than the Consolidated December 31 Shareholder Net Worth as adjusted. The
amount of the Shareholder Net Worth adjustment is set forth on Schedule 2.4.2.
--------------
2.4.3 Rental Ready, Missing or Non-Operating Equipment Adjustment.
-----------------------------------------------------------
(a) The Rental and Non-Rental Asset Listing, attached as Schedule
--------
2.4.3, sets forth the asset description, make, model, original cost and book
- -----
value on the Effective Date of all Equipment. On or prior to the 10th business
day following the Closing Date, personnel of Buyer and Seller jointly shall
complete a physical inventory of each item of Equipment comprising Schedule
--------
2.4.3, including by visiting renters' locations as necessary to inspect such
- -----
equipment using
9
<PAGE>
Metroquip's equipment file as a basis for the inventory. Based
upon such inventory, Buyer in consultation with Seller will develop a schedule
of reconciling such inventory to Schedule 2.4.3. Within thirty (30) calendar
--------------
days after the Closing, the Purchase Price shall be adjusted. To determine the
adjustment of the Purchase Price, the aggregate book value of missing or
inoperative equipment will be divided by the aggregate original cost of such
equipment and the resulting factor applied to the aggregate original cost of
missing or inoperative equipment in excess of $35,000.
(b) In the event of a Purchase Price reduction under the foregoing
provisions, Buyer shall be entitled to a prompt distribution of the amount of
such reduction from the Holdback Amount. Any disputes as to the physical count
or Rental Readiness of any item of equipment will, if possible, be resolved
while the physical inventory of such equipment is being taken by Buyer and
Seller. Any disputes regarding the foregoing not resolved by the 30th business
day following the Closing Date will be separately listed and settled pursuant to
the procedures set forth in Section 2.4 hereof, and the Buyer and Seller will
attempt to resolve any dispute no later than the 45th day following the Closing.
(c) Within thirty (30) calendar days after the Closing, the
Purchase Price shall be reduced by the aggregate cost necessary to render all
items of Equipment listed on Schedule 2.4.3 Rental Ready. For purposes of this
--------------
Agreement, an item of equipment is "Rental Ready" only if it is free of deferred
maintenance and it does not require any repairs in excess of $100 per item for
items with a cost of less than $5,000 or $200 per item for items with a cost
greater than or equal to $5,000, subject to a cumulative $25,000 deductible for
repairs in excess of these amounts. Repairs shall not include cosmetic matters
(e.g., paint).
2.4.4 Inventory Adjustment. The Cash Purchase Price shall be reduced
--------------------
within thirty (30) calendar days of the Closing, on a dollar-for-dollar basis
pursuant to the procedures set forth below, by the amount, if any, by which the
cost of Inventory as of the Effective Date is less than the cost stated on the
Consolidated December 31 Balance Sheet, subject to a deductible of $15,000. In
the event of a Purchase Price reduction as contemplated hereby, Buyer shall be
entitled to a prompt distribution of the amount of such reduction from the
Short-term Holdback Amount. Any disputes as to the physical count, condition,
salability or obsolescence of any item of Inventory will, if possible, be
resolved while such physical inventory is being taken. Any disputes regarding
the foregoing not resolved by the 30th business day following the Closing Date
will be separately listed and settled pursuant to the procedures set forth in
Section 2.4 hereof, and the Buyer and Seller will attempt to resolve any dispute
no later than the 45th calendar day following the Closing.
2.4.5 Tax Adjustment. The Holdback Amount shall include an amount
--------------
sufficient to satisfy all liabilities of the Company and Metroquip relating to
Taxes for each tax year of the Company and Metroquip ending on or prior to the
Effective Date that is not reflected and accounted for on the Consolidated
December 31 Balance Sheet or Effective Balance Sheet (the "Tax
10
<PAGE>
Adjustment"). The intent of this provision is that Seller shall bear all
economic responsibility for Taxes relating to pre-Effective Date periods by
accruing a sufficient amount to pay such Taxes.
2.4.6 Transfer Taxes and Fees. Seller shall be responsible for any
-----------------------
documentary and transfer taxes and any sales, use or other taxes imposed by
reason of the transfer of Shares provided hereunder and any deficiency, interest
or penalty asserted with respect thereto. Seller shall pay the fees and costs of
recording or filing all UCC termination statements and other releases of
Encumbrances.
2.4.7 Closing of Books; Benefits and Risks of Ownership. The
-------------------------------------------------
transactions contemplated by this Agreement shall be deemed effective as of the
Effective Date, and all profits and losses of the Company and Metroquip from and
after March 1, 1998, shall be solely for the account of, and inure solely to the
benefit or detriment of, Buyer, except as otherwise set forth in this Agreement.
The accounting books and records of the Company and Metroquip will be closed as
of the close of business on February 28, 1998. Seller shall operate the Company
and Metroquip subject to and pursuant to the requirements of this Agreement by,
from and after March 1, 1998, until such time as this Agreement is terminated or
closed. Without the consent of Buyer, until the Closing Date, the Company and
Metroquip or Seller shall not repurchase, sell or transfer any Shares, make or
declare any dividends or make other distributions to shareholders or otherwise
take any action restricted under this Agreement. If this transaction does not
close for any reason on or prior to April 15, 1998, and is not extended by
agreement of the parties, then (i) the Buyer shall pay to Seller a fee of
$10,000 provided that the failure to close the transaction is not due to
Seller's failure to perform his obligations under the Agreement and (ii) either
(A) the Company and Metroquip shall pay within ten days to Buyer net after tax
profits accumulated during the period from March 1, 1998 to the date this
Agreement is terminated or (B) the Buyer shall within ten days pay to the
Company and Metroquip all losses accumulated (offset by any non-refundable
contributions made by Buyer to the Company and Metroquip) by the Company and
Metroquip during the period from March 1, 1998 to the date that the Closing is
deemed not to occur.
2.4.8 Employment and Non-Competition Agreement. Buyer shall enter
----------------------------------------
into (i) an Employment and Non-Competition Agreement with Seller, in
substantially the form attached hereto as Exhibit 8.9.
2.4.9 Hayden and Nicolay Payments. Contemporaneous with the Closing
---------------------------
of the transactions contemplated by this Agreement, Company shall have paid and
satisfied any and all obligations to H. B. Hayden, Jr. and Metroquip shall have
satisfied any and all obligations to Mark Nicolay as set forth in Schedule
--------
2.2.1.
- -----
ARTICLE III
CLOSING
-------
11
<PAGE>
3.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held on the Closing Date at a time and place as the parties
shall mutually agree.
3.2 Conveyances at Closing
----------------------
3.2.1 Seller's Delivery Obligations. To effect the sale and transfer
-----------------------------
referred to in Section 2.1 hereof, Seller will, at the Closing, execute and
deliver to Buyer:
3.2.1.1 certificates evidencing the Shares, free and clear of
any Encumbrances of any nature whatsoever, duly endorsed in blank for transfer
or accompanied by stock powers duly executed in blank;
3.2.1.2 all Ancillary Agreements required to be executed by
Seller;
3.2.1.3 all certificates, opinions of counsel and other
documents described in Article VIII; and
3.2.1.4 all Permits and any other third party consents required
for the valid transfer of the Shares as contemplated by this Agreement, or for
the continued operation of the Business following such transfer.
3.2.1.5 evidence that the Metroquip shares are free and clear
of any Encumbrances of any nature whatsoever.
3.2.2 Buyer's Delivery Obligations. To effect the sale and transfer
----------------------------
referred to in Section 2.1 hereof, Buyer will, at the Closing, execute and
deliver to Seller:
3.2.2.1 all Ancillary Agreements required to be executed by
Buyer;
3.2.2.2 all certificates, opinions of counsel and other
documents described in Article VII;
3.2.2.3 the Purchase Price subject to the Holdback Amount; and
3.2.2.4 the General Holdback to the Escrow Agent, (provided,
however, Buyer may deliver the Stock Purchase Price up to ten days after
Closing).
12
<PAGE>
3.2.3 Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to the recipient.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
--------------------------------------------------------
Seller and the Company hereby, jointly and severally, represent and warrant
to Buyer as follows, which representations and warranties are, as of the date
hereof, and will be, as of the Closing Date, true and correct.
4.1 Organization of the Company
---------------------------
4.1.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota. Copies of the
Articles of Incorporation and Bylaws of the Company, and all amendments thereto,
heretofore delivered to Buyer are accurate and complete as of the date hereof.
The Company is not qualified or licensed to do business as a foreign corporation
in any state other than Minnesota. Except as set forth in Schedule 4.1, the
------------
Company has no subsidiaries and no direct or indirect stock or other equity or
partnership, joint venture or other entity which engages in the equipment rental
business.
4.1.2 Metroquip is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota. Copies of the
Articles of Incorporation and Bylaws of Metroquip, and all amendments thereto,
heretofore delivered to Buyer are accurate and complete as of the date hereof.
Metroquip is duly qualified or licensed to do business as a foreign corporation
in good standing in the jurisdictions set forth on Schedule 4.1, which are the
------------
only jurisdictions in which ownership of property or the conduct of its business
requires such qualification. Except as set forth in Schedule 4.1, Metroquip has
------------
no subsidiaries and no direct or indirect stock or other equity or ownership
interest (whether controlling or not) in any corporation, association,
partnership, joint venture or other entity which engages in the equipment rental
business.
4.2 Authorization
-------------
4.2.1 Each of Seller and the Company has full power and authority
(corporate or other) to enter into this Agreement and the Ancillary Agreements
to which he or it is a party and to carry out the transactions contemplated
hereby and thereby, and each of the Board of Directors of the Company and Seller
has taken all action required by law, its charter documents, as the case may be,
or otherwise, to be taken by it to authorize the execution, delivery and
performance of this Agreement and the Ancillary Agreements, as the case may be,
and the consummation of the transactions contemplated hereby and thereby. This
Agreement and the Ancillary Agreements, as
13
<PAGE>
the case may be, (following the execution and delivery by Buyer and Parent) are
the legal, valid and binding obligations of Seller and the Company, enforceable
against each of them in accordance with their respective terms.
4.2.2 The Seller possesses the legal capacity to execute and deliver
this Agreement and each Ancillary Agreement to which he is a party, to perform
his obligations thereunder, and to consummate the transactions contemplated
hereby and thereby. Except as set forth on Schedule 4.2, the Seller is not
------------
subject to or obligated under, any provision of any agreement, arrangement or
understanding or any law, regulation, order, judgment or decree, which would be
breached or violated by the execution, delivery, performance of this Agreement
and the consummation by the Seller of the transactions contemplated hereby or
which would result in any Encumbrance on the Assets of the Company or Metroquip.
Except as set forth on Schedule 4.2, no authorization, consent or approval to or
------------
filing with, any public body, court or authority is necessary on the part of the
Seller for the consummation by the Seller of the transaction contemplated by
this Agreement and each Ancillary Agreement and each other document to which
Seller is a party. At the Closing, (following the execution and delivery by
Buyer and Parent) each agreement and document delivered by Seller will be a
legal, valid, and binding obligation of the Seller enforceable against him in
accordance with its terms. The Seller owns 100% of the Shares, in the amounts
set forth on Schedule 4.2, and except as set forth on Schedule 4.2 the capital
------------ ------------
stock is free and clear of all Encumbrances, and there are no warrants, options
or rights in any third party to acquire any capital stock of Company.
4.3 No Violation. None of the execution, delivery and performance of this
------------
Agreement and the Ancillary Agreements nor the consummation of the transactions
contemplated hereby and thereby will (i) violate any provision of the Articles
of Incorporation or Bylaws of the Company or Metroquip, (ii) violate, result in
a breach of, conflict with, or constitute a default (or an event which, with the
giving of notice or lapse of time or both, would constitute a default) under,
require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of any note,
bond, mortgage, or indenture, contract, agreement, lease, sublease, license,
permit, franchise or other instrument or arrangement to which Seller, Company or
Metroquip is a party or by which any of the Shares or any of the assets or
properties of the Company, Metroquip or Seller are bound or affected except as
set forth on Schedule 4.3, (iii) result in the creation or imposition of any
------------
Encumbrance upon any of the Shares or any property or Assets of the Company,
Metroquip or Seller under, any agreement or commitment to which the Company,
Metroquip or Seller is a party or by which the Company, Metroquip or Seller is
bound or affected, or to which the property of the Company, Metroquip or Seller
is subject, or (iv) violate, conflict with or result in the breach of (or cause
an event which could have a Material Adverse Effect as a result of) any statute
or law or any judgment, decree, order, regulation or rule of any court or
governmental authority to which Seller, the Company, Metroquip, the Business or
any of the properties or Assets of any of the foregoing is subject. Except as
set forth on Schedule 4.3, no action, consent, approval or authorization by or
------------
filing with any person or entity, including, without limitation, any
governmental authority, is required in connection with the execution, delivery
and performance by
14
<PAGE>
each of the Seller and the Company of this Agreement and the Ancillary
Agreements to which he or it is a party, or the consummation by Seller and the
Company of the transactions respectively contemplated by each of them herein and
therein.
4.4 Capitalization
--------------
4.4.1 (a) The authorized equity securities of the Company consist
solely of 1000 shares of common stock, no par value, of which 500 shares are
issued and outstanding and constitute the Shares. Seller is and will be on the
Closing Date the record and beneficial owner and holder of all of the issued and
outstanding Shares as set forth on Schedule 4.4 (which schedule also sets forth
------------
the address of Seller and the certificate numbers of the certificates
representing the Shares), free and clear of all Encumbrances (other than a
legend indicating only that the Shares have not been registered under the
Securities Act.
(b) There are no other shares of capital stock of the Company
issued and outstanding and no shares of treasury stock. All Shares are validly
issued, fully paid and nonassessable. None of the Shares was issued in violation
of any preemptive rights. There are no outstanding (i) securities convertible
into or exchangeable or exercisable for any of the Company's capital stock; (ii)
options, warrants, calls or other rights, including, without limitation, rights
to demand registration or to sell in connection with any registration by the
Company under the Securities Act, with respect to the issued capital stock of
the Company, or to purchase or subscribe to capital stock of the Company or
securities convertible into or exchangeable or exercisable for capital stock of
the Company; (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale, transfer, and/or
assignment of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights; or (iv) Shares
pledged as collateral to secure any agreement or obligation. There are no voting
trust agreements or other contracts, agreements, arrangements, commitments,
plans, proxies or understanding restricting or otherwise relating to conveyance,
voting or dividend rights with respect to the Shares. Upon consummation of the
transactions contemplated by this Agreement and registration of the Shares in
the name of Buyer in the stock records of the Company, the Buyer will own all of
the issued and outstanding equity securities of Company of every sort
whatsoever, free and clear of all Encumbrances.
4.4.2 (a) The authorized equity securities of Metroquip consist
solely of 250,000 shares of common stock, par value $.10 per share, of which
57,401 shares are issued and outstanding ("Metroquip Shares"). Company is and
will be on the Closing Date the record and beneficial owner and holder of all of
the issued and outstanding stock as set forth on Schedule 4.4 (which schedule
------------
also sets forth the address of Company and the certificate numbers of the
certificates representing the Metroquip Shares), free and clear of all
Encumbrances (other than a legend indicating only that the shares have not been
registered under the Securities Act and other than as set forth on Schedule
--------
4.2).
- ---
15
<PAGE>
(b) There are no other shares of capital stock of Metroquip
issued and outstanding and no shares of treasury stock. The Metroquip Shares are
validly issued, fully paid and nonassessable. None of the Metroquip Shares was
issued in violation of any preemptive rights. There are no outstanding (i)
securities convertible into or exchangeable or exercisable for any of
Metroquip's capital stock; (ii) options, warrants, calls or other rights,
including, without limitation, rights to demand registration or to sell in
connection with any registration by Metroquip under the Securities Act, with
respect to the issued capital stock of Metroquip, or to purchase or subscribe to
capital stock of Metroquip or securities convertible into or exchangeable or
exercisable for capital stock of Metroquip; (iii) except as set forth in
Schedule 4.2, contracts, commitments, agreements, understandings or arrangements
- ------------
of any kind relating to the issuance, sale, transfer, and/or assignment of any
capital stock of Metroquip, any such convertible or exchangeable securities or
any such options, warrants or rights; or (iv) shares pledged as collateral to
secure any agreement or obligation. There are no voting trust agreements or
other contracts, agreements, arrangements, commitments, plans, proxies or
understanding restricting or otherwise relating to conveyance, voting or
dividend rights with respect to the Metroquip Shares.
4.5 No Changes to the Assets. Since the Consolidated December 31 Balance
------------------------
Sheet Date:
4.5.1 there has been no actual or threatened adverse change in the
financial condition or results of operation of the Company, Metroquip, the
Business or the Assets or any event, condition or state of facts, in either case
that is, or would result in a Material Adverse Change in the Company, Assets or
the Business or the prospects for the Business, including without limitation the
loss of any material customers;
4.5.2 Except in the ordinary course, there has not been any sale or
other disposition of any Assets, or any Encumbrance placed on the Assets;
4.5.3 Seller has operated the Company, Metroquip and Business in the
ordinary course consistent with Company's and Metroquip's past practice so as to
preserve the Business intact, to keep available to the Business the services of
Company's and Metroquip's employees, and to preserve the Business and the
goodwill of Company's and Metroquip's suppliers, customers, distributors and
others having business relations with them;
4.5.4 Except as set forth on Schedule 4.5.4, neither Company nor
--------------
Metroquip has purchased, or entered into any agreement to purchase (i) any item
of Inventory with a cost in excess of $10,000, or (ii) any item of Equipment
with a cost in excess of $20,000, in each case without the consent of Buyer; and
16
<PAGE>
4.5.5 Except as set forth on Schedule 4.5.5 neither Company nor
--------------
Metroquip has changed its accounting methods or practices (including any change
in depreciation or amortization policies or rates) or revalued any of its
assets.
4.6 Related Entities.
----------------
4.6.1 Schedule 4.6(a) sets forth a complete and accurate list of all
---------------
of the Related Entities, all of which are, directly or indirectly, wholly-owned
by the Company, Metroquip, Seller, or some combination thereof. Schedule 4.6(a)
---------------
also sets forth the jurisdiction of incorporation of each of the Related
Entities, each jurisdiction in which each such Related Entity is qualified to do
business, the number of shares of such Related Entities outstanding, and the
ownership thereof.
4.6.2 Schedule 4.6(b) sets forth a list of all agreements among the
---------------
Company, Metroquip, Seller, and the Related Entities.
4.7 Equipment and Other Assets; Absence of Encumbrances. (a) The Rental
---------------------------------------------------
and Non-Rental Asset Listing attached as Schedule 2.4.3 sets forth the asset
--------------
description, make, model, original cost and net book value of all Equipment
which, on the Effective Date, will be fully operable, accounted for and Rental
Ready. (b) Except as set forth in Schedule 4.7 all of the Assets are owned by
------------
the Company or Metroquip free and clear of all Encumbrances, other than (i)
Encumbrances reflected or reserved against on the Consolidated December 31
Balance Sheet or (ii) Encumbrances that do not materially affect the value of
the Assets, the Company's or Metroquip's ability to conduct the Business.
4.8 Facilities
----------
4.8.1 Leased Real Property. Except as set forth on Schedule 4.8,
-------------------- ------------
neither the Company nor Metroquip own any real property. Schedule 4.8 sets
------------
forth a complete and accurate list and description of all real property leased
by the Company, Metroquip or Seller and used in the Business. The Seller and
the Company have delivered to Buyer an accurate copy of the Leases covering the
Leased Real Property. Neither the Company, Metroquip nor, to the best of
Seller's knowledge, any lessor under the Leases, is in material breach or
default of its obligations thereunder. The Company and Metroquip enjoy peaceful
and undisturbed possession of the Leased Real Property.
To the best of Seller's and the Company's knowledge, there are no
leases, subleases, licenses, occupancy agreements, options, rights, concessions
or other agreements or arrangements, written or oral, granting to any person the
right to purchase, use or occupy the Facilities or any portion thereof. The
Facilities are supplied with utilities and other services necessary for the
operation of the Business.
17
<PAGE>
4.8.2 Improvements, Fixtures and Equipment. The Facilities and the
------------------------------------
improvements thereon, including without limitation all Equipment (including all
fixtures) and other tangible assets owned, leased or used by the Company or
Metroquip at the Facilities are (i) insured to the extent required by the
Company or Metroquip under third party leases and in a manner customary in the
industry, (ii) to the best of Seller's knowledge structurally sound with no
known material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) not in need of maintenance or repair except for
ordinary routine maintenance and repair, the cost of which would not be
material, (v) sufficient for the operation of the Business as presently
conducted and (vi) as to their use by the Company and Metroquip, in conformity
with all applicable laws, ordinances, orders, regulations and other requirements
relating thereto currently in effect. None of the improvements is subject to
any commitment or other arrangement for their sale or use by any Affiliate of
the Company, Metroquip or to the best knowledge of Seller and Company, third
parties.
4.8.3 Conformity. All Facilities have received all required
----------
approvals of governmental authorities (including without limitation, Permits and
a certificate of occupancy or other similar certificate permitting lawful
occupancy of the Facilities) required in connection with Metroquip's operation
thereof. The Facilities are (and have been) operated and maintained by Metroquip
in accordance with applicable laws, rules, regulations and state, county,
municipal or other local ordinances, and conform to all other conditions
necessary for the lawful conduct of the Business as currently conducted at each
such Facility.
4.9 Permits and Consents. The Company or Metroquip has all Permits
--------------------
required to conduct the Business, except where the failure to obtain such
Permits would not have a Material Adverse Effect on the Assets or the Business.
All Permits of the Company or Metroquip related to the Business are valid and in
full force and effect and are listed on Schedule 4.9.
------------
4.10 Contracts and Commitments
-------------------------
4.10.1 Contracts. Schedule 4.10 sets forth a complete and accurate
--------- -------------
list of all Contracts of the following categories:
4.10.1.1 Contracts not made in the ordinary course of the
Company's or Metroquip's conduct of the Business;
4.10.1.2 Employment contracts, bonus agreements and severance
agreements;
4.10.1.3 Supply, purchase, distribution, franchise, license,
sales or commission contracts related to the Business;
18
<PAGE>
4.10.1.4 Contracts involving expenditures or liabilities,
actual or potential, in excess of $5,000 or otherwise material to the Business,
and not cancelable (without liability) within 30 calendar days;
4.10.1.5 Contracts or commitments relating to commission
arrangements with others;
4.10.1.6 Promissory notes, loans, agreements, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating to an
obligation to pay money, whether the Company or Metroquip shall be the borrower,
lender or guarantor thereunder or whereby any Equipment or Inventory are pledged
(excluding credit provided by the Company or Metroquip in the ordinary course of
the Business to its customers);
4.10.1.7 Leases of real and personal property not cancelable
(without liability) within 30 calendar days; and
4.10.1.8 Contracts containing covenants limiting the freedom of
the Company or Metroquip or any officer, director or shareholder of the Company
or Metroquip to engage in any line of business or compete with any person.
Seller has delivered or made available to Buyer true, correct, and complete
copies of all of the Contracts listed on Schedule 4.10, including all amendments
-------------
and supplements thereto.
4.10.2 Absence of Breaches or Defaults. All of the Contracts are
-------------------------------
valid and in full force and effect. The Company or Metroquip has duly performed
all of its obligations under the Contracts to the extent those obligations to
perform have accrued, and no violation of, or default or breach under any
Contracts by the Company or Metroquip or to the best knowledge of the Seller and
Company any other party has occurred and neither the Company or Metroquip nor to
the best knowledge of Seller and Company has any other party repudiated any
provisions thereof. All of the Contracts will be enforceable by the Company or
Metroquip, as the case may be, after the Closing to the same extent as if the
transactions contemplated by this Agreement had not been consummated.
4.11 Financial Statements. Attached hereto as Schedule 4.11 are the
-------------------- -------------
Financial Statements of the Company and Metroquip. The Financial Statements (a)
are true, correct and complete, (b) are in accordance with the underlying books
and records of the Company and Metroquip, (c) have been prepared in accordance
with generally accepted accounting principals ("GAAP") consistently applied
throughout the periods covered thereby (except as otherwise described in
Schedule 4.11) and (d) fairly and accurately present the assets, liabilities
- -------------
(including all reserves) and financial position of the Business as of the
respective dates thereof and the results of operations and changes in cash flows
for the periods then ended. At the respective dates of the Financial Statements,
there were no liabilities of the Company or Metroquip, which, in accordance with
GAAP, should have been shown
19
<PAGE>
or reflected in the Financial Statements or the notes thereto, which are not
shown or reflected in the Financial Statements or the notes thereto.
4.12 Books and Records. The Company and Metroquip have made and kept
-----------------
(and given Buyer access to) Books and Records and accounts, which, in reasonable
detail, accurately and fairly reflect the activities of the Company. The minute
books of the Company and Metroquip previously delivered to Buyer accurately and
adequately reflect all action previously taken by the shareholders, board of
directors and committees of the board of directors of the Company and Metroquip.
The stock book records of the Company and Metroquip previously delivered to
Buyer are true, correct, and complete, and accurately reflect all transactions
effected in the Company's and Metroquip's stock through and including the date
hereof.
4.13 Litigation. Except as set forth on Schedule 4.13, there is no
---------- -------------
action, order, writ, injunction, judgment or decree outstanding or any claim,
suit, litigation, proceeding, labor dispute, arbitral action, governmental audit
or investigation (collectively, "Actions") pending, or to the best of the
Company's or Seller's knowledge, threatened or anticipated (a) against, related
to or affecting the Company, Metroquip or the Business or (b) seeking to delay,
limit or enjoin the transactions contemplated by this Agreement. Neither the
Company nor Metroquip is in default with respect to or subject to any judgment,
order, writ, injunction or decree of any court or governmental agency, and there
are no unsatisfied judgments against the Company, Metroquip or the Business.
4.14 Labor Matters. Neither the Company nor Metroquip is a party to any
-------------
labor agreement with respect to its employees with any labor organization,
union, group or association and there are no employee unions (nor any other
similar labor or employee organizations) under local statutes, custom or
practice which represent the Company's or Metroquip's employees. In the last
five years, neither the Company nor Metroquip has experienced any attempt by
organized labor or its representatives to make the Company and Metroquip conform
to demands of organized labor relating to its employees or to enter into a
binding agreement with organized labor that would cover the employees of the
Company or Metroquip.
4.15 Compliance with Law. Except as set forth on Schedule 4.15, the
------------------- -------------
Company, Metroquip, and the conduct of the Business and the operation of the
Facilities by Metroquip have not violated and are in compliance with all laws,
statutes, ordinances, regulations, rules and orders of any foreign, federal,
state or local government and any other governmental department or agency, and
any judgment, decision, decree or order of any court or governmental agency,
department or authority, including without limitation Environmental Laws,
relating to the Assets, Facilities or Business or operations of the Company or
Metroquip and the conduct of the Business and the operation of the Facilities by
Metroquip are in conformity with all energy, public utility, zoning, building
and health codes, regulations and ordinances, the Americans with Disabilities
Act, ERISA, OSHA, and Environmental Laws, and all other foreign, federal, state,
and local governmental and regulatory requirements, except where the failure to
conform would not have a Material Adverse Effect, individually or in the
aggregate, on Metroquip, the Business or the Assets. Neither the
20
<PAGE>
Company nor Metroquip has received any notice to the effect that, or otherwise
been advised that, it is not in compliance with any such statutes, regulations,
rules, judgments, decrees, orders, ordinances, or other laws, and neither the
Company nor Metroquip has any reason to anticipate that any existing
circumstances are likely to result in violations of any of the foregoing.
4.16 Brokers. Seller and Company represent that except for the
-------
engagement of Goldsmith, Agio, Helms, neither they nor Metroquip have employed
or made any agreement with any other broker, finder, or similar agent or any
person or firm which will result in an obligation on the part of the Seller,
Company, Metroquip or Buyer to pay any finder's fee, brokerage fees, or
commission, or similar payment in connection with the transactions contemplated
hereby.
4.17 No Other Agreements to Sell the Company. Seller has no commitments
---------------------------------------
or legal obligations, absolute or contingent, to effect a sale of any of the
Shares or the Assets or to effect any merger, consolidation, liquidation,
dissolution, or other reorganization of the Company or Metroquip.
4.18 Proprietary Rights
------------------
4.18.1 Proprietary Rights. Schedule 4.18 lists all of the
------------------ -------------
Company's or Metroquip's federal, state, and foreign registrations of
trademarks, service marks, and other marks, trade names or other trade rights,
and all pending applications for any such registrations, all other trademarks
and other marks, trade names and other trade rights or in which the Company or
Metroquip has any interest whatsoever, and all other trade secrets and other
proprietary rights, whether or not registered, and all computer software created
or used by or on behalf of the Company or Metroquip, in each case relating to
the Business (collectively, "Proprietary Rights"). The Proprietary Rights listed
in Schedule 4.18 are all those used by the Company or Metroquip in connection
-------------
with the Business.
4.18.2 Royalties and Licenses. No person has a right to receive
----------------------
a royalty or similar payment in respect of any Proprietary Rights. Except as set
forth in Schedule 4.18 neither the Company nor Metroquip has any licenses
-------------
granted, sold, or otherwise transferred by or to it or other agreements to which
it is a party, relating in whole or in part to any of the Proprietary Rights.
4.18.3 Ownership and Protection of Proprietary Rights. Except as
----------------------------------------------
set forth in Schedule 4.18, the Company or Metroquip owns or licenses, and has
-------------
the sole right to use or (if it so elects) to sublicense each of the Proprietary
Rights. None of the Proprietary Rights is involved in any pending or to the
best of Company's or Seller's knowledge, threatened litigation. Neither the
Company nor Metroquip has received any notice of invalidity or infringement of
any rights of others with respect to such Proprietary Rights. The Company has
taken all reasonable and prudent steps to protect the Proprietary Rights from
infringement by any other firm, corporation, association, or person. To the
best knowledge of Seller and the Company, the Company's and Metroquip's use of
the Proprietary Rights is not infringing upon or otherwise violating the rights
of any third party in
21
<PAGE>
or to such Proprietary Rights, nor has such infringement been alleged by any
third party. All of the Proprietary Rights are valid and enforceable rights of
the Company and Metroquip and will not cease to be valid and in full force and
effect by reason of the execution, delivery, and performance of this Agreement
or the consummation of the transactions contemplated by this Agreement.
4.19 Tax Matters.
-----------
4.19.1 Filing of Tax Returns, Payment of Taxes. Except as set forth
---------------------------------------
in Schedule 4.19.1 , the Company and Metroquip have filed all Tax Returns that
----------------
the Company or Metroquip was required to file prior to the date hereof. All such
Tax Returns were correct and complete and were prepared and filed in accordance
with applicable law. Except as set forth in Schedule 4.19.1, all Taxes owed by
---------------
or with respect to the Company (whether or not shown on any Tax Return) with
respect to Tax Returns the due date of which preceded the date hereof have been
paid. Except as set forth in 4.19.1, all other Taxes due and payable by the
------
Company or Metroquip with respect to periods ending on or as of the Effective
Date or in respect of transactions entered into or any state of facts existing
as of the date of the Effective Date (whether or not a Tax Return is due on such
date) have been or will be paid on or before the date of the Effective Date or
have been or will be accrued on or before the date of the Effective Date as set
forth in Section 2.4.5. For purposes of the preceding sentence, in determining
the amount of Taxes due and payable by the Company with respect to periods
ending on or as of the Effective Date or in respect of transactions entered into
or any state of facts existing as of the Effective Date, the date of the
Effective Date shall be deemed to be the last day of any applicable tax period.
Except as set forth in Schedule 4.19.1, all Tax Returns the due date of which
---------------
(determined without extensions) shall be on or after the date hereof but on or
before the date of the Effective Date will be correct and complete and filed in
accordance with applicable law.
4.19.2 Taxing Jurisdictions. Schedule 4.19.2 lists (i) all
-------------------- ---------------
countries, states, cities, or other jurisdictions in which the Company or
Metroquip is currently subject to an obligation to file Tax Returns or to
collect sales or use Taxes, (ii) all elections for income Taxes made by the
Company or Metroquip that are currently in force or to which the Company or
Metroquip is bound, and (iii) (x) all countries, states, cities, or other
jurisdictions in which the Company or Metroquip is a beneficiary of any real
or personal property Tax exemptions or concessions, reduced rates, or Tax
credits, (y) the annual benefit of each such item, and (z) the terms
governing expiration or phase-out of each such item.
4.19.3 General Tax matters. Except as set forth in Schedule 4.19.3
------------------- ---------------
(which sets forth the open taxable periods of the Company and Metroquip for
sales, payroll, personal property, and federal and state income taxes), with
respect to each taxable period for the Company or Metroquip ending on or prior
to the date hereof or as of the Effective Date (or as of such other date as set
forth below), (i) either such taxable period has been audited by the relevant
taxing authority or the time for assessing or collecting Taxes with respect to
each such taxable period has
22
<PAGE>
closed and each taxable period is not subject to review by a relevant taxing
authority; (ii) no deficiency or proposed adjustment that has not been settled
or otherwise resolved for any amount of Taxes has been asserted or assessed by
any taxing authority against the Company or Metroquip; (iii) neither the Company
nor Metroquip has consented to extend the time in which any Taxes may be
assessed or collected by any taxing authority; (iv) the Company or Metroquip has
not requested or been granted an extension of the time for filing any Tax
Return; (v) there is no action, suit, taxing authority proceeding, or audit or
claim for refund now in progress, pending, or to the knowledge of Seller or the
Company, threatened against or with respect to the Company or Metroquip
regarding Taxes; (vi) neither the Company nor Metroquip has made an election or
filed a consent under Section 341(f) of the Code (or any corresponding provision
of state, local or foreign law) or agreed to have Section 341(f)(2) of the Code
(or any corresponding provision of state, local or foreign law) apply to any
disposition of subsection (f) assets (as defined in Section 341(f)(4) of the
Code) owned by the Company or Metroquip; (vii) there are no liens, pledges,
charges, claims, security interests, or other encumbrances on the assets of the
Company or Metroquip relating or attributable to Taxes (other than liens for
sales and payroll Taxes not yet due and payable) and the Company, Metroquip and
the Seller have no knowledge of any reasonable basis for the assertion of any
claim relating or attributable to Taxes which, if adversely determined, would
result in any lien, pledge, charge, claim, security interest, or other
encumbrance on the assets of the Company or Metroquip; (viii) neither the
Company nor Metroquip will be required (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the Effective Date, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local, or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Effective Date or (B) as a
result of any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local, or foreign law) to include any item
of income or exclude any item of deduction from any taxable period (or portion
thereof) beginning after the Effective Date; (ix) neither the Company nor
Metroquip has been a member of an affiliated group (as defined in Section 1504
of the Code) or filed or been included in a combined, consolidated, or unitary
income Tax Return; (x) neither the Company nor Metroquip is a party to or bound
by any tax allocation or tax sharing agreement and has no current or potential
contractual or other obligation to indemnify any other Person with respect to
any Tax or pay the Taxes of any other Person under Treasury Regulations Section
1.1502-6 (or any similar provisions of state, local, or foreign law) as a
transferee or successor, by contract or otherwise; (xi) no claim has ever been
made by a taxing authority in a jurisdiction where the Company or Metroquip does
not file Tax Returns that the Company or Metroquip is or may be subject to Taxes
assessed by such jurisdiction; (xii) the Company does not have a permanent
establishment in any foreign country, as defined in the relevant tax treaty
between the United States of America and such foreign country; (xiii) neither
the Company nor Metroquip has been a "U.S. real property holding corporation"
(within the meaning of Code Section 897(c)(2)) during the applicable period
specified in Code Section 897(c)(1)(A)(ii); (xiv) the Company and Metroquip have
disclosed on each Tax Return filed by them all positions taken thereon that
could give rise to a substantial understatement of penalty of federal income
Taxes within the meaning of Code Section 6662; (xv) neither the Company nor
Metroquip acquired in a qualified stock purchase under Code Section 338(d)(3)
and no elections under Code Section 338(g), protective carryover basis
elections, or offset
23
<PAGE>
prohibition elections are applicable to the Company or Metroquip; (xvi) neither
the Company nor Metroquip has made any payments, is not obligated to make any
payments, and is not a party to any agreement that under any circumstances could
obligate it to make any payments in the nature of compensation, that will not be
deductible under Code Sections 280G or 162; (xvii) no sales or use tax will be
payable by the Company or Metroquip as a result of the transactions contemplated
by this Agreement, and there will be no non-recurring intangible tax,
documentary stamp tax, or other excise tax (or comparable tax imposed by an
governmental entity) as a result of the transactions contemplated by this
Agreement; (xviii) Buyer will not be required to deduct and withhold any amount
with respect to Taxes upon consummation of the transactions contemplated by this
Agreement; (xix) none of the Company's or Metroquip's assets is property
required to be treated as being owned by any other Person under the "safe harbor
lease" provisions of former Section 168(f)(8) of the Internal Revenue Code of
1954, as amended, or (B) has been financed with or directly or indirectly
secures any bond or debt the interest of which is tax-exempt under Section
103(a) of the Code; (xx) the Company and Metroquip has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to an employee, independent contractor, shareholder, or other third party;
(xxi) no income under any arrangement or understanding to which the Company or
Metroquip is a party will be attributed to the Company or Metroquip which is not
represented by income to which the Company or Metroquip is legally entitled; and
(xxii) the Company owns no interest in any "controlled foreign corporation"
(within the meaning of Code Section 957), "passive foreign investment company"
(within the meaning of Code Section 1296) or other entity the income of which is
required to be included in the income of the Company or Metroquip whether or not
distributed
4.19.4 Tax Attributes. Set forth at Schedule 4.19.4 is a list
-------------- ---------------
reflecting the following information with respect to the Company and Metroquip
as of the date hereof as well as on an estimated pro forma basis as of the date
of the Effective Date (except as otherwise noted): (i) the basis of the Company
or Metroquip in its assets as of December 31, 1997, (ii) the amount of any net
operating loss, net capital loss, unused investment or other tax credit, unused
foreign tax or tax credit, or excess charitable contribution allocable to the
Company or Metroquip assets, and (iii) with respect to the preceding clause (ii)
any limitations on use of any of such attributes including any limitations
arising by reason of the transaction contemplated by this Agreement.
4.19.5 Copies of Tax Returns. Except as otherwise set forth in
---------------------
Schedule 4.19.5 the Company has furnished Buyer or Parent with copies of all
- ---------------
income and sales Tax Returns filed by or with respect to the Company or
Metroquip relating to the period encompassing the three taxable years of the
Company and Metroquip preceding the date hereof.
4.19.6 Definition. Any reference to the term "the Company" in this
----------
Section 4.19 shall refer to the Company, any predecessor entity, and any
subsidiary of the Company (whether or not such subsidiary entity qualifies as a
"qualified subchapter S subsidiary" within the meaning of Code Section
1361(b)(3)(B)). Further, any reference to any action of "the Company" in this
Section 4.19 shall encompass any action or actions taken by or at the direction
of the
24
<PAGE>
Company or Metroquip whether or not such actions taken by or at the direction of
the Company or Metroquip were properly authorized.
4.20 Accounts Receivable. Except as set forth on Schedule 4.20, the
------------------- -------------
accounts receivable reflected in the Consolidated December 31 Balance Sheet, and
all accounts receivable arising since the Consolidated December 31 Balance Sheet
Date, represent bona fide claims of the Company or Metroquip against debtors for
sales, services performed, or other charges arising on or before the date
hereof, and all the goods delivered and services performed which gave rise to
said accounts were delivered or performed in accordance with the applicable
orders, Contracts, or customer requirements. All of such accounts receivables
are collectible in the ordinary course of business except to the extent reserved
against on the Consolidated December 31 Balance Sheet or as will be reserved
against on the Effective Date Balance Sheet. Except as set forth on Schedule
--------
4.7 the Company or Metroquip owns all such accounts receivable, free and clear
- ---
of all Encumbrances.
4.21 Inventory. Except as set forth on Schedule 4.21 all the Inventory
--------- -------------
is located at the Facilities. There has been no material decrease in the book
value or fair value of the Inventory since the Consolidated December 31 Balance
Sheet Date. The values at which the Inventory is shown on the Consolidated
December 31 Balance Sheet has been determined at lower of cost or market in
accordance with GAAP, consistently applied throughout the periods covered by the
Financial Statements, with adequate provisions or adjustments for excess
Inventory, slow-moving Inventory, and Inventory obsolescence and shrinkage.
Schedule 4.21 sets forth a complete and accurate list of all Inventory as of the
- -------------
Effective Date.
4.22 Employees and Employee Benefits.
-------------------------------
4.22.1 As used in this Section 4.22, the following terms have the
meanings set forth below.
"Benefit Arrangement" shall mean any employment, consulting,
severance, or other similar contract, arrangement, or policy and each plan,
arrangement (written or oral), program, agreement, or commitment providing for
insurance coverage (including without limitation any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability, or accident
benefits (including without limitation any "voluntary employees' beneficiary
association" as defined in Section 501(c)(9) of the Code providing for the same
or other benefits) or for deferred compensation, profit sharing bonuses, stock
options, stock appreciation rights, stock purchases or other forms of incentive
compensation or postretirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan, or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or Metroquip or an ERISA Affiliate or under which the Company or
Metroquip or any ERISA Affiliate may incur any liability, and (C) covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities).
25
<PAGE>
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"ERISA Affiliate" shall mean any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, the Company or
Metroquip as defined in Section 414(b), (c), (m) or (o) of the Code, or under
"common control" with the Company or Metroquip, within the meaning of Section
4001(b)(1) of ERISA.
"Multiemployer Plan" shall mean any "multiemployer plan," as defined
in Section 4001(a)(3) of ERISA, (A) which the Company, Metroquip or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Company or any ERISA Affiliate
may incur any liability and (B) which covers any employee or former employee of
the Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan" as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which (A) the
Company, Metroquip or any ERISA Affiliate maintains, administers, contributes to
or is required to contribute to, or, within the five years prior to the
Effective Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company, Metroquip or any ERISA Affiliate may
incur any liability; (B) covers any employee or former employee of the Company
or any ERISA Affiliate (with respect to their relationship with such entities);
and (C) is not a Multiemployer Plan.
"Welfare Plan" shall mean any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (A) the Company, Metroquip or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or under which the Company, Metroquip or any ERISA Affiliate may incur any
liability; (B) covers any employee or former employee of the Company or any
ERISA Affiliate (with respect to their relationship with such entities); and (C)
is not a Multiemployer Plan.
4.22.2 Schedule 4.22(a): (i) contains a list of all employees of
----------------
the Company and Metroquip, and their wage rates or salaries, as of the Closing
Date, and (ii) sets forth the dates of employment for such employees.
4.22.3 Disclosure; Delivery of Copies of Relevant Documents and
--------------------------------------------------------
Other Information. Schedule 4.22(b) contains a complete list of Employee Plans.
- ----------------- ----------------
True and complete copies of each of the following documents have been delivered
by the Company to Buyer: (i) each
26
<PAGE>
Welfare Plan, Pension Plan and Multiemployer Plan (and, if applicable, related
trust agreements) and all amendments thereto, all written interpretations
thereof and written descriptions thereof which have been distributed to the
Company's or Metroquip's employees and all annuity contracts or other funding
instruments; (ii) each Benefit Arrangement including written interpretations
thereof and written descriptions thereof which have been distributed to the
Company's or Metroquip's employees (including descriptions of the number and
level of employees covered thereby) and a complete description of any Benefit
Arrangement which is not in writing; (iii) the most recent determination or
opinion letter issued by the Internal Revenue Service with respect to each
Pension Plan and each Welfare Plan; (iv) for the three most recent plan years,
Annual Reports on Form 5500 Series required to be filed with any governmental
agency for each Pension Plan and each Welfare Plan; (v) all actuarial reports
prepared for the last three plan years for each Pension Plan; (vi) a description
of complete age, salary, service and related data as of the last day of the last
plan year for employees and former employees of the Company and Metroquip; and
(vii) a description setting forth the amount of any liability of the company as
of the Closing Date for payments more than thirty (30) calendar days past due
with respect to each Welfare Plan.
4.23 Representations.
---------------
4.23.1 Pension Plans. No Pension Plan is subject to the
-------------
minimum funding requirements of Title IV of ERISA or Section 412 of the Code.
Neither the Company, Metroquip nor any ERISA Affiliate is required to provide
security to a Pension Plan under Section 401(a)(29) of the Code. Each Pension
Plan which is intended to be qualified (and each related trust agreement,
annuity contract or other funding instrument) is qualified and tax-exempt under
the provisions of Code Sections 401(a) (or 403(a), as appropriate) and 501(a)
and has been so qualified during the period from its adoption to date. Neither
the Company, Metroquip nor any ERISA Affiliate has engaged in, or is a successor
or parent corporation to an entity that has engaged in, a transaction described
in Section 4069 of ERISA. There has been no "reportable event" (as defined in
Section 4043(c) of ERISA and the PBGC regulations under such Section) with
respect to any Pension Plan and neither the Company nor any ERISA Affiliate is
subject to Section 4043(b) of ERISA.
4.23.2 Multiemployer Plans. Neither the Company, Metroquip nor any
-------------------
ERISA Affiliate has any Multiemployer Plans.
4.23.3 Welfare Plans. None of the Company, Metroquip, any ERISA
-------------
Affiliate or any Welfare Plan has any present or future obligation to make any
payment to, or with respect to any present or former employee of the Company,
Metroquip or any ERISA Affiliate pursuant to, any retiree medical benefit plan,
or other retiree Welfare Plan, and no condition exists which would prevent the
Company or Metroquip from amending or terminating any such benefit plan or
Welfare Plan. Each Welfare Plan which is a "group health plan," as defined in
Section 607(1) of ERISA, has been operated in compliance with provisions of Part
6 of Title I, Subtitle B of ERISA and Section 4980B of the Code at all times.
27
<PAGE>
4.23.4 Compliance with Law. Each Employee Plan has been maintained
-------------------
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Employee
Plan, including without limitation ERISA and the Code.
4.23.5 Employment at Will. Except as provided by law, the
------------------
employment of all persons presently employed or retained by the Company and
Metroquip is terminable at will.
4.23.6 Unrelated Business Taxable Income. No Employee Plan (or
---------------------------------
trust or other funding vehicle pursuant thereto) is subject to any tax under
Code Section 511.
4.23.7 Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company or
Metroquip (with respect to its relationship with such entities) that,
individually or collectively, provides for the payment by the Company or
Metroquip of any amount (i) that is not deductible by the Company or Metroquip
under Section 162(a)(1) or 404 of the Code, whichever is applicable, (ii) for
which the deduction by the Company would be disallowed under Section 162(m) of
the Code, or (iii) that is an "excess parachute payment" pursuant to Section
280G of the Code.
4.23.8 Fiduciary Duties and Prohibited Transactions. Neither the
--------------------------------------------
Company, Metroquip nor any plan fiduciary of any Welfare Plan or Pension Plan
has engaged in any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code, for
which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code, or has otherwise violated the provisions of Part 4 of Title I,
Subtitle B of ERISA. Neither the Company nor Metroquip has knowingly
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any Welfare Plan or Pension Plan (or other employee benefit
plan subject to ERISA) and has not been assessed any civil penalty under Section
502(l) of ERISA.
4.23.9 Validity and Enforceability. Each Welfare Plan, Pension
---------------------------
Plan, related trust agreement, annuity contract or other funding instrument and
Benefit Arrangement is legally valid and binding and in full force and effect.
4.23.10 Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding, arbitral
action, governmental audit or investigation relating to or seeking benefits
under any Employee Plan that is pending, or to the best of Company's or Seller's
knowledge, threatened or anticipated against the Company, Metroquip, any ERISA
Affiliate or any Employee Plan.
28
<PAGE>
4.23.11 No Amendments. Neither the Company, Metroquip nor any ERISA
-------------
Affiliate has any announced plan or legally binding commitment to create any
additional Employee Plans or to amend or modify any existing Employee Plan.
4.23.12 No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company, Metroquip or any ERISA Affiliate or any
Employee Plan, directly or indirectly, could be subject to any material
liability (A) under any statute, regulation or governmental order relating to
any Employee Plans or (B) pursuant to any obligation of the Company or Metroquip
to indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
4.23.13 Unpaid Contributions. Neither the Company, Metroquip nor any
--------------------
ERISA Affiliate has any liability for unpaid contributions under Section 515 of
ERISA with respect to any Pension Plan or Welfare Plan.
4.23.14 Insurance Contracts. Neither the Company, Metroquip nor any
-------------------
Employee Plan holds as an asset of any Employee Plan any interest in any annuity
contract, guaranteed investment contract or any other investment or insurance
contract issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings.
4.23.15 No Acceleration or Creation of Rights. Except as set forth in
-------------------------------------
Schedule 4.23.15, neither the execution and delivery of this Agreement by the
- ----------------
Company or Seller nor the consummation of the transactions contemplated hereby
will result in the acceleration or creation of any rights of any person to
benefits under any Employee Plan (including, without limitation, the
acceleration of the vesting or exercisability of any stock options, the
acceleration of the vesting of any restricted stock, the acceleration of the
accrual or vesting of any benefits under any Pension Plan or the acceleration or
creation of any rights under any severance, parachute or change in control
agreement).
4.24 Compliance With Environmental Laws.
----------------------------------
4.24.1 Definitions. The following terms, when used in this Section
-----------
4.24, shall have the following meanings. Unless the context otherwise requires,
any of these terms may be used in the singular or the plural depending on the
reference.
4.24.2 "Company". For purposes of this Section 4.24 only, the term
-------
"Company" shall include (i) all Related Entities of the Company including
Metroquip, including, without limitation Seller, (ii) all partnerships, joint
ventures and other entities or organizations in which the Company was at any
time or is a partner, joint venturer, member or participant and (iii) all
predecessor or former corporations, partnerships, joint ventures, organizations,
businesses or other entities, whether in existence as of the date hereof or at
any time prior to the date hereof, the
29
<PAGE>
assets or obligations of which have been acquired or assumed by the Company or
to which the Company has succeeded.
4.24.3 "Release" shall mean and include any spilling, leaking,
-------
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
migrating, leaching, dumping or disposing into the environment or the work place
of any Hazardous Substance, and otherwise as defined in any Environmental Law.
4.24.4 "Hazardous Substance" shall mean any quantity of asbestos in
-------------------
any form, urea formaldehyde, PCBs, radon gas, crude oil or any fraction thereof,
all forms of natural gas, petroleum products or by-products, any radioactive
substance, any toxic, infectious, reactive, corrosive, ignitible or flammable
chemical or chemical compound and any other hazardous substance, material or
waste (as defined in or for purposes of any Environmental Law), whether solid,
liquid or gas.
4.24.5 Compliance With Environmental Laws. Except as set forth on
----------------------------------
Schedule 4.24, the Facilities have been leased, operated and maintained by the
- -------------
Company or Metroquip in compliance with all federal, state, local or foreign
laws, statutes, ordinances, regulations, rules, judgments, orders, notice
requirements, court decisions, agency guidelines or principles of law,
restrictions or licenses, which (i) regulate or relate to the protection or
clean-up of the environment, the use, treatment, storage, transportation,
handling or disposal of hazardous, toxic or otherwise dangerous substances,
wastes or materials (whether gas, liquid or solid), the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants or
other natural resources, or the health and safety of persons or property,
including without limitation protection of the health and safety of employees or
(ii) impose liability with respect to any of the foregoing, including without
limitation the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.),
Resource Conservation & Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), Safe
Drinking Water Act (21 U.S.C. (S) 349, 42 U.S.C. (S)(S) 201, 300f), Toxic
Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C.
(S) 7401 et seq.), the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), or any other similar
federal, state or local law of similar effect, each as amended (collectively,
"Environmental Laws").
4.24.6 Facilities. Except as set forth in Schedule 4.24 the
---------- -------------
Facilities are, and at all times have been, owned, leased and operated by the
Company or Metroquip in compliance with all Environmental Laws and in a manner
that will not give rise to any liability under any Environmental Laws.
4.24.7 Permits. The Company and Metroquip have, and at all times
-------
have had, all Permits required under any Environmental Law to be obtained by the
Company or Metroquip and the Facilities are, and at all times have been, in
compliance with all such Permits.
30
<PAGE>
4.24.8 Permits Required. Except as set forth in Schedule 4.24 the
---------------- -------------
consummation of any of the transactions contemplated by this Agreement will not
require an application for issuance, renewal, transfer or extension of, or any
other administrative action regarding, any Permit required under any
Environmental Law.
4.24.9 Notice of Violation. Neither the Company nor Metroquip has
-------------------
received any notice at any time that it or the Facilities is or were claimed to
be in violation of the provisions of any Environmental Law or in non-compliance
with the conditions of any Permit, and there is no pending or to the best of
Company's or Seller's knowledge, threatened lawsuit, governmental or other legal
action to that effect.
4.24.10 Pending Actions. There is not now pending or to the best of
---------------
Company's or Seller's knowledge, threatened, nor any basis for, nor has there
ever been, any Action against the Company or Metroquip, nor any basis for any
Action, under any Environmental Law or otherwise with respect to any Release or
mishandling of any Hazardous Substance.
4.24.11 Judgments. There are no consent decrees, judgments, judicial
---------
or administrative orders or agreements with, or liens by, any governmental
authority or quasi-governmental entity relating to any Environmental Law which
regulate, obligate, bind or in any way affect the Company, Metroquip or to the
best knowledge of Seller or the Company, the Facilities.
4.24.12 Hazardous Substances. There is not and has not been any
--------------------
Hazardous Substance used, generated, treated, stored, transported, disposed of,
handled or otherwise existing on, under, about or from any Facility while
operated by the Company or Metroquip, except for quantities of any such
Hazardous Substances stored or otherwise held on, under or about any such
Facility in full compliance with all Environmental Laws and necessary for the
operation of the Business.
4.24.13 Handling of Hazardous Substances. Except as set forth in
--------------------------------
Schedule 4.24 the Company and Metroquip have at all times used, generated,
- -------------
treated, stored, transported, disposed of or otherwise handled its Hazardous
Substances in compliance with all Environmental Laws and in a manner that will
not result in liability of the Company, Metroquip or Buyer under any
Environmental Law. Schedule 4.24 sets forth a complete list of all contractors
-------------
and other third parties who at any time have hauled, handled, stored,
transported or disposed of any Hazardous Substance (i) on behalf of the Company,
Metroquip or the Business, or (ii) generated by the Company, Metroquip or the
Business, together with a complete list of all dumpsites and other off-site
locations at which such Hazardous Substances have been disposed of.
4.24.14 Environmental Conditions. There are no present or past
------------------------
Environmental Conditions (as defined below) in any way relating to the Business
or Facilities while operated by the Company or Metroquip. "Environmental
Conditions" means the introduction into the soil, groundwater or environment of
the Facilities (through leak, spill, release, discharge, escape, emission,
dumping, disposal or otherwise) of any pollution, including without limitation
any
31
<PAGE>
contaminant, irritant or pollutant or Hazardous Substance (whether or not
upon the property of the Business and whether or not such pollution constituted
at the time thereof a violation of any Environmental Law) as a result of which
either the Company, Metroquip or, after the Closing, Buyer has or may become
liable to any federal, state or local governmental authority or person or by
reason of which any of the Assets may suffer or be subjected to any lien.
4.24.15 CERCLA or RCRA. No current or past use, generation,
--------------
treatment, transportation, storage, disposal or handling practice of the Company
or Metroquip with respect to any Hazardous Substance has or will result in any
liability under the CERCLA or RCRA or any state or local law of similar effect.
4.24.16 Storage Tank or Pipeline. Except as set forth on Schedule
------------------------ --------
4.24, there is not now and to the best of the Company's or Seller's knowledge
- ----
has not been at any time in the past any underground or above-ground storage
tank or pipeline at any Facility where the installation, use, maintenance,
repair, testing, closure or removal of such tank or pipeline was not in
compliance with all Environmental Laws and to the best knowledge of the Company
or Seller, there has not been any Release from or rupture of any such tank or
pipeline, including without limitation any Release from or in connection with
the filling or emptying of such tank.
4.24.17 Environmental Audits or Assessments. True, complete and
-----------------------------------
correct copies of the written reports, and all parts thereof, including any
drafts of such reports if such drafts are in the possession or control of the
Company or Metroquip, of all environmental audits or assessments which have been
conducted at any Facility within the past five years, either by the Company,
Metroquip or any attorney, environmental consultant or engineer engaged for such
purpose, have been delivered to Buyer and a list of all such reports, audits and
assessments and any other similar report, audit or assessment of which the
Company or Seller has knowledge is included on Schedule 4.24.
-------------
4.24.18 Indemnification Agreements. Except as set forth in Schedule
-------------------------- --------
4.24 neither the Company nor Metroquip is a party, whether as a direct signatory
- ----
or as successor, assign or third party beneficiary, or otherwise bound, to any
lease or other Contract under which the Company or Metroquip is obligated by or
entitled to the benefits of, directly or indirectly, any representation,
warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions.
4.24.19 Releases or Waivers. Neither the Company nor Metroquip has
-------------------
released any other person from any claim under any Environmental Law or waived
any rights concerning any Environmental Condition.
4.24.20 Notices, Warnings and Records. The Company and Metroquip has
-----------------------------
given all notices and warnings, made all reports, and has kept and maintained
all records required by and in compliance with all Environmental Laws.
32
<PAGE>
4.25 Liabilities. Neither the Company nor Metroquip has any liabilities
-----------
or obligations (absolute, accrued, contingent or otherwise) except (i)
liabilities which are reflected on the Consolidated December 31 Balance Sheet or
which are not required under GAAP to be reflected on the Consolidated December
31 Balance Sheet, (ii) liabilities incurred in the ordinary course of the
Business and consistent with past practice since the Consolidated December 31
Balance Sheet Date, (iii) liabilities arising under Contracts identified in
Schedule 4.10 to which the Company or Metroquip is a party, and (iv) liabilities
- -------------
arising out of events arising prior to the Effective Date which have been
adequately reflected for, accounted for or reserved against on the Effective
Date Balance Sheet.
4.26 Insurance.
---------
4.26.1 Schedule 4.26 describes all policies of insurance (including
-------------
the insurer, type of insurance and period of coverage) to which the Company or
any Related Entity is a party or under which the Company, any Related Entity, or
any employee, officer, or director of the Company, or any Related Entity (in his
or her capacity as such) is or has been insured at any time within the five
years preceding the date of this Agreement; and any self-insurance arrangement
by or affecting the Company or any Related Entity, including any reserves
established thereunder. All such policies, together with such self-insurance,
(i) provide adequate insurance coverage for the Assets and the operations of the
Company or Metroquip for all risks normally insured against by a person or
entity carrying on the same business or businesses as the Company or Metroquip,
(ii) are sufficient for compliance with all legal requirements and Contracts to
which the Company or Metroquip is a party or by which it is bound, and (iii)
will continue in full force and effect following the Closing.
4.26.2 Schedule 4.26 sets forth, by year, for the current policy
-------------
year and each of the five preceding policy years, a summary of the loss
experience under each policy, and summary of the loss experience for all claims
that were self-insured, including the number and aggregate cost of such claims.
4.26.3 None of the Seller, the Company or a Related Entity has
received (i) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (ii) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder.
4.26.4 The Company and any Related Entity has paid all premiums
due, and has otherwise performed all of its respective obligations, under each
insurance policy described above.
4.27 Conduct of the Business. Except as set forth on Schedule 4.27 since
----------------------- -------------
the Consolidated
33
<PAGE>
December 31 Balance Sheet Date, the Company and Metroquip has conducted its
operations in the ordinary course of the Business and substantially in
accordance with past practice, and has not taken any action that, if taken after
the date hereof, would violate Section 9.1.
4.28 Securities Law Matters.
----------------------
4.28.1 Seller confirms that it is acquiring the Parent Common Stock
for its own account as principal, for investment purposes only, and not with a
view to, or for, resale or distribution thereof, and no other person has or will
have a direct or indirect beneficial interest in such Parent Common Stock.
4.28.2 Seller understands that the offering and sale of the Parent
Common Stock is intended to be a transaction by an issuer not involving any
public offering exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and the rules and regulations of the
Commission thereunder;
4.28.3 Seller represents that he is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act;
4.28.4 Seller understands and acknowledges that there are
substantial risks of loss of investment involved in an investment in the Parent
Common Stock, and that the investment in the Parent Common Stock is an illiquid
investment subject to transfer restrictions, and Seller represents and warrants
that he has the financial ability to bear the economic risk of such investment;
4.28.5 Seller has such knowledge and experience in financial and
business matters, including investments of the type represented by the Parent
Common Stock, as to be capable of evaluating the merits of investment in
therein;
4.28.6 Seller has been furnished with a copy of the recent periodic
reports filed by Parent with the Commission and any documents that may have been
made available otherwise or upon its request, have carefully read and understand
such materials and have evaluated the risks of an acquisition of the Parent
Common Stock;
4.28.7 Seller has been given the opportunity to ask questions of,
and receive answers from, representatives of Parent in order for it to evaluate
the merits and risks of investment in the Parent Common Stock; and
4.28.8 Seller has not been furnished with nor has Seller relied
upon any oral or written representation, warranty or information in connection
with the offering of the Parent Common Stock except for that set forth in this
Agreement.
34
<PAGE>
4.28.9 The instruments evidencing the Parent Common Stock shall
bear a restrictive legend in substantially the following form: "The securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended (the "Act"). These securities have been acquired for
investment and not with a view to distribution or resale, and may not be sold,
offered for sale, pledged or hypothecated in the absence of an effective
registration statement for such shares under the Act or an opinion of counsel
satisfactory in form and content to the issuer that such registration is not
required under such Act."
4.29 Affiliate Transactions. Except as set forth on Schedule 4.6, neither
---------------------- ------------
Seller, or any officer or director of the Company or any member of the immediate
family of any such officer, director, or neither Company or Metroquip, or any
entity in which any of such persons owns any beneficial interest (other than a
publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 1% of the stock of
which is beneficially owned by any of such persons) has any agreement with the
Company or Metroquip or any interest in any property (real, personal, or mixed,
tangible or intangible) used in or pertaining to the Company, Metroquip or
Business or the Assets to be acquired hereunder. For purposes of the preceding
sentence, the members of the immediate family of an officer, director, or,
Seller shall consist of the spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
such officer, director, or Seller.
4.30 Disclosure. Neither this Agreement nor any of the Schedules or
----------
Exhibits hereto contains or shall contain when delivered at Closing any untrue
statement of a material fact or shall omit to state a material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they were made, not misleading, and to the best of Seller's knowledge
there is no fact which has not been disclosed to Buyer which Materially
Adversely Affects or could reasonably be anticipated to Materially Adversely
Affect the Shares being transferred, Assets, Business or financial condition of
the Company or Metroquip.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
--------------------------------------------------
5.1 Representation and Warranties of Buyer. Buyer hereby represents and
--------------------------------------
warrants to Seller as follows, which representations and warranties are, as of
the date hereof, and will be, as of the Closing Date, true and correct:
5.1.1 Organization of Buyer. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the State of Mississippi
and is qualified in each jurisdiction in which the failure to do so would have a
Material Adverse Effect on its business or its assets.
5.1.2 Authorization. Buyer has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and the Ancillary
35
<PAGE>
Agreements to which it is a party, to consummate the transactions contemplated
hereby and thereby, and to perform its respective obligations hereunder and
thereunder. This Agreement and the Ancillary Agreements to which Buyer is a
party have been duly executed and delivered by Buyer and is, and (following its
execution and delivery by Parent, the Company, or the Seller, as applicable,
each of the Ancillary Agreements will be) a legal, valid, and binding obligation
of Buyer, as applicable, enforceable against Buyer, in accordance with its
terms.
5.1.3 No Conflict or Violation. Neither the execution, delivery, or
------------------------
performance of this Agreement or the Ancillary Agreements nor the consummation
of the transactions contemplated hereby or thereby, nor compliance by Buyer with
any of the provisions hereof or thereof, will (i) violate or conflict with any
provision of the Certificate of Incorporation or Bylaws of Buyer, or (ii)
violate any applicable provision of law or regulation, order, injunction, or
decree, or any other requirement of any governmental body or court relating to
Buyer, its property or business, or (iii) (subject to Buyer obtaining any
consent or approval required as a condition of Closing) violate conflict with,
result in the breach or termination of, constitute default under, or result in
the creation of any material lien, charge, or encumbrance upon any of the
properties or assets of Buyer pursuant to any agreement or instrument to which
it is a party, which would have a Material Adverse Effect in the business or
financial condition of Buyer.
5.1.4 Consents and Approvals. No notice to, declaration, filing or
----------------------
registration with, or authorization, consent or approval of, or permit
(collectively "Governmental Consents") from, any governmental or regulatory body
or authority, or any other person or entity, is required to be made or obtained
by Buyer in connection with the execution, delivery, and performance of this
Agreement or the Ancillary Agreements and the consummation of the transactions
contemplated hereby or thereby, except (a) as required by the HSR Act and except
for those Governmental Consents the failure of which to make or obtain would not
have a Material Adverse Effect or (b) as set forth in Schedule 5.1.4.
--------------
5.1.5 No Brokers. Neither Buyer nor any of its respective officers,
----------
directors, employees or, to its knowledge, shareholders have employed or made
any agreement with any broker, finder or similar agent or any person or firm
which will result in an obligation to pay any finders fees, brokerage fees or
commission or similar payment in connection with the transactions contemplated
hereby for which Seller will bear any responsibility.
5.2 Representations and Warranties of RSC. RSC hereby represents and
-------------------------------------
warrants to Company and the Seller which representations and warranties are, and
as of the Closing Date shall be, true and correct:
5.2.1 Organization of RSC. RSC is a corporation duly organized,
-------------------
validly existing, and in good standing under the laws of the State of Delaware.
5.2.2 Authorization. At the Closing, RSC shall have all requisite
-------------
corporate power
36
<PAGE>
and authority, and shall have taken all corporate action necessary, to execute
and deliver this Agreement and the Ancillary Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby, and to
perform its respective obligations hereunder and thereunder. This Agreement and
the Ancillary Agreements to which RSC is a party have been duly executed and
delivered by RSC and is (and following their execution and delivery by Buyer and
Seller or the Company, as applicable, will be) a legal, valid and binding
obligation of RSC, enforceable against RSC in accordance with its terms.
5.2.3 No Conflicts or Violations. The execution and delivery of
--------------------------
this Agreement and the Ancillary Agreements to which RSC is a party and the
consummation of the transactions contemplated hereby will not (i) violate any
provision of the Certificate of Incorporation or Bylaws of RSC, (ii) violate any
applicable provision of law or regulation, order, injunction, or decree, or any
other requirement of any governmental body or court relating to RSC or its
securities, property, or business, or (iii) (subject to RSC obtaining any
consent or approval required as a condition of Closing), violate, conflict with,
result in the breach or termination of, constitute a default under, or result in
the creation of any material lien, charge, or encumbrance upon any of the
properties or assets of RSC or any of its subsidiaries pursuant to any agreement
or instrument to which it or any of its subsidiaries is a party, which would
have a material adverse effect on the business or financial condition of RSC and
it subsidiaries taken as a whole (an "RSC Material Adverse Effect").
5.2.4 Consents and Approvals. No Governmental Consent is required to
----------------------
be made or obtained by RSC in connection with the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, except as required by the HSR Act and except for
those Governmental Consents the failure of which to make or obtain would not
have an RSC Material Adverse Effect or as set forth on Schedule 5.1.4.
--------------
5.2.5 RSC Common Stock. The Shares of Parent Common Stock to be
----------------
issued pursuant to this Agreement, when issued and delivered in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully
paid, and nonassessable and free of preemptive rights.
5.2.6 SEC Information Furnished Concerning RSC. For the period from
----------------------------------------
January 1, 1997 to December 31, 1997, RSC has filed with the Securities and
Exchange Commission ("SEC") those filings and reports required pursuant to the
Securities Exchange Act of 1934, as amended (the "SEC Documents"). The audited
consolidated financial statements for the year ended December 31, 1996,
contained within the SEC Documents have been prepared in accordance with GAAP
consistently applied (except as may be otherwise noted therein) and fairly
present the consolidated financial position of RSC and its subsidiaries as of
such date and the consolidated results of operations of RSC and its subsidiaries
for the year then ended. To RSC's knowledge, as of their respective dates, the
SEC Documents, including, but not limited to, the financial statements contained
therein, did not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under
37
<PAGE>
which they were made, not misleading.
5.2.7 Litigation. As of the date hereof, except as set forth in the
----------
SEC Documents, there are, and as of the Closing Date, except as set forth
therein or pursuant to an SEC report or filing made prior to the Closing Date,
no suits, actions or administrative, arbitration, or other proceedings
(including proceedings concerning labor disputes or grievances) or governmental
investigations pending or, to the knowledge of RSC, threatened against RSC or
its properties or business that could reasonably be expected to have an RSC
Material Adverse Effect.
5.2.8 No Brokers. Neither RSC nor any of its respective officers,
----------
directors, employees or, to its knowledge, shareholders have employed or made
any agreement with any broker, finder or similar agent or any person or firm
which will result in an obligation to pay any finders fees, brokerage fees or
commission or similar payment in connection with the transactions contemplated
hereby for which Seller will bear any responsibility.
ARTICLE VI
COVENANTS OF BUYER, THE COMPANY AND SELLER
------------------------------------------
Buyer, the Company, and Seller each covenant with the others as follows:
6.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from third parties;
provided, however, that Buyer shall not be required to make any payments,
commence litigation or agree to modifications of the terms of Contracts or
Leases in order to obtain any such waivers, consents or approvals, (B) to obtain
all necessary Permits as are required to be obtained under any federal, state,
local or foreign law or regulations, (C) to effect all necessary registrations
and filings, including without limitation required filings under the HSR Act and
all other submissions of information requested by governmental authorities, and
(D) to fulfill all conditions to this Agreement.
6.2 Employee Matters. Buyer shall retain only those employees of the
----------------
Company or Metroquip who pass a physical examination and drug and alcohol
screening in compliance with Minnesota law, by a licensed laboratory chosen by
Buyer and who otherwise meet Buyer's customary criteria for employment, and
Seller shall reasonably cooperate with Buyer in retaining all such employees
(the "Retained Employees"). Buyer agrees to give Retained Employees credit for
their time of employment with Company or Metroquip with respect to their
seniority as an employee of Buyer for the purpose of determining benefits
eligibility. All Retained Employees will
38
<PAGE>
be at-will employees of Buyer and may be terminated by Buyer in its sole
discretion, subject to the requirements of applicable laws governing employers
and employees.
6.3 Environmental Assessments and Remediation.
-----------------------------------------
6.3.1 Buyer has retained Environmental Risk Management Services (the
"Consultant") to perform Phase I environmental assessments with respect to each
of the Facilities. Upon its availability, Consultant will deliver such
assessments to Buyer and the Company. In the event any such assessment
recommends the performance of additional investigation (including, without
limitation, Phase II environmental assessments), such additional investigation
shall, if requested by Buyer, be undertaken promptly and delivered to each of
the Seller and Buyer. The environmental assessments and investigations
undertaken pursuant to this Section 6.3.1 are collectively referred to herein as
the "Environmental Assessments." Buyer shall be solely responsible for the cost
of the Environmental Assessments.
6.3.2 In the event any of the Environmental Assessments reveals any
remediation work which must be completed in order to bring the Facilities into
compliance with applicable Environmental Laws at the Effective Date, Seller
shall engage a reliable environmental engineering firm reasonably acceptable to
Buyer and authorized by any applicable federal, state, or local law, policy, or
regulation, to perform any required remediation. For the purposes of Section
6.3, "Required Remediation" shall mean any action necessary to (i) comply with
any governmental order, or (ii) comply with any Environmental Law effective at
the Effective Date identified in the Environmental Assessments or (iii) install
any wash-racks, as applicable to the Facilities or the operation thereof by the
Company or Metroquip as of the Effective Date. Seller shall be responsible for
all costs and expenses related to Required Remediation.
6.3.3 Promptly upon completion of the Consultant's report referred to
in Section 6.3.2 but in any event, within 60 days thereof, the Seller shall
engage a reliable environmental engineering firm reasonably acceptable to Buyer
to perform any Required Remediation, as well as to remove any underground
storage tanks and perform all Required Remediation in connection therewith. The
Seller shall use its best efforts to cause such Required Remediation to be
completed on or before the Closing Date, and the Seller shall bear all costs of
such Required Remediation; provided that the completion of all such Required
Remediation shall be a condition to Buyer's obligations to consummate the
transactions contemplated by this Agreement. Buyer may, in its sole discretion,
authorize Seller to defer any portion of the Required Remediation which the
Seller and its contractors are unable to complete prior to Closing, in which
case Seller shall cause the portion of the Required Remediation so deferred to
be completed as promptly as practicable, but in no event later than 60 days
following Closing, at Seller's sole expense (which may be satisfied from the
Holdback Amount). Buyer may monitor the performance of the Required
Remediation, and at its election may cause the Consultant to review the
performance of the Required Remediation. If Buyer directs the Consultant to
undertake such review, the Required Remediation shall be deemed completed only
upon certification of its completion by the Consultant. If, however, there is a
dispute
39
<PAGE>
as to the performance of the Required Remediation any such dispute shall be
settled by a mutually agreed-upon environmental expert not otherwise involved in
the Required Remediation, whose determination shall be final and binding on the
parties.
6.3.4 The Holdback Amount shall secure the completion by Seller of any
Required Remediation which has not been resolved by the Closing Date pursuant to
this Section 6.3. Upon the completion of the Required Remediation,
certification of such completion by the Consultant or mutually agreed-upon third
party expert, and payment by Seller of all expenses of such remediation and
certification, all in accordance with the standards set forth in this Section
6.3, no further claims may be made against the Holdback Amount on account of
Seller's obligations under this Section 6.3, and Buyer will promptly remit to
Seller any remaining portion of the Short-term Holdback Amount which was
allocated to the resolution of the Required Remediation. However, if such
Required Remediation has not been completed by Seller and so certified on or
prior to the date which is 60 days following the Closing Date, and Buyer
reasonably believes remediation is not progressing satisfactorily, then Buyer
shall be entitled to engage its own environmental engineering firm to complete
such Required Remediation, and to distribute from the Holdback Amount that
portion as is necessary to pay the fees and costs of such firm, or other costs
incurred, in completing such Required Remediation.
6.4 Registration Rights. In the event that, at any time prior to the
-------------------
first anniversary of the receipt of Parent Common Stock (including the Parent
Common Stock which may be issued pursuant to the Performance Incentive
Agreement), Parent files a registration statement under the Securities Act
covering shares of Parent Common Stock, other than a registration statement on
Form S-4 or Form S-8, or a registration statement filed pursuant to "demand" or
similar contractual registration rights of any other stockholders of Parent,
then Seller shall have the right to include in such registration statement (on a
"piggyback" basis) any or all of its shares of Parent Common Stock, and to
receive the benefit of any representations, indemnities, opinions, or comfort
letters given by Parent (or its counsel or underwriters) to any underwriter in
connection with such registration, subject to the obligations of Seller to (i)
cooperate with Parent in preparing each such registration and executing all such
agreements as any representative of the underwriters may deem reasonably
necessary in favor of the underwriters, (ii) promptly supply Parent with all
information, documents, representations and agreements as the underwriters or
Parent may deem reasonably necessary in connection with such registration and
(iii) confirm in writing not to sell or transfer any shares of the capital stock
of Parent not included in such registration during the period beginning ten (10)
days prior to the filing and ending ninety (90) days from the effective date of
such registration without the underwriters' or Parent's consent; provided,
--------
however, that if the managing underwriter or underwriters in the registered
- -------
offering advise Parent that the inclusion in the offering of shares of Parent
Common Stock owned by Seller would have a material adverse effect on the
marketability or price of the offering, then the number of shares of Parent
Common Stock to be included by Seller shall be reduced on a pro rata basis in
proportion to the number of shares of Parent Common Stock requested to be
included by Seller.
40
<PAGE>
6.5 Key Man Life Insurance; Transferred Assets. Prior to the Closing
------------------------------------------
Date, the Company shall transfer to the insured parties thereunder all life
insurance policies owned by the Company or Metroquip as set forth on Schedule
--------
1.1.4 and transfer the Transferred Assets identified in Schedule 1.1.4 without
- ----- --------------
giving rise to any tax liability to the Company or Metroquip.
6.6 Stock Options. Buyer shall grant at Closing, to the key team members
-------------
of Metroquip's strategy team the incentive options for Parent Common Stock set
forth opposite such member's name as listed on Schedule 6.6, based on Parent's
------------
formula for similar positions with Parent.
6.7 Tax Attributes. The Seller recognizes that in connection with the
--------------
sale of the Shares, that all tax attributes of Company and Metroquip, including
but not limited to tax net operating losses, tax credits and other similar items
generated through and subsequent to the Effective Date, will remain as tax
attributes of Company, Metroquip or its successors. Accordingly, any refunds or
benefits obtained via the carryback, carryforward or realization of such tax
attributes of Company or Metroquip or its successors shall remain the sole
property of Company or Metroquip or its successors with no amount being
transferred to the Seller as additional consideration for the purchase of the
Shares.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
The obligations of Seller to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived by Seller:
7.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Buyer and Parent contained in this Agreement shall be true and
correct in all material respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Buyer or
Parent, as may be the case, shall have performed and satisfied all agreements
and covenants required hereby to be performed by either of them prior to or on
the Closing Date.
7.2 No Proceedings, Litigation or Laws. No Action by any governmental
----------------------------------
authority or other person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to materially damage Seller if the
transactions contemplated hereunder are consummated. The waiting period under
the HSR Act shall have expired or been terminated, and there shall not be any
statute, rule or regulation that makes the purchase and sale of the Company,
Business or the Assets contemplated hereby illegal or otherwise prohibited.
41
<PAGE>
7.3 Ancillary Agreements. Buyer and Parent, where applicable, shall have
--------------------
executed the Ancillary Agreements.
7.4 Certificates. Buyer and Parent shall furnish Seller with such
------------
certificates of Buyer and Parent to evidence compliance with the conditions set
forth in this Article VII as may be reasonably requested by Seller.
7.5 No Cessation of Trading. There shall have been no cessation of
-----------------------
trading of RSC's Common Stock on the New York Stock Exchange or a national
securities exchange, and there shall be no action, order or proceeding pending
or, to RSC's knowledge, threatened, by any regulatory agency to stop the public
trading of RSC's Common Stock.
7.6 Opinion Letter of Buyer's Attorneys. Seller shall receive an opinion
-----------------------------------
of Snell & Wilmer L.L.P., counsel for Buyer and RSC, dated as of the Closing
Date, in form and substance reasonably satisfactory to Seller, in the form of
Exhibit 7.6 attached hereto. For the purpose of the opinions relating to Buyer,
Buyer's counsel may assume that the laws of Mississippi and Minnesota,
including the corporate laws of such states, are the same as the law of Arizona.
7.7 Buyer and RSC Corporate Documents. Buyer and RSC shall each have
---------------------------------
delivered to Seller a copy of its articles of incorporation certified by the
Mississippi Secretary of State or a copy of its certificate of organization
certified by the Delaware Secretary of State, as the case may be, a good
standing certificate dated not more than ten days prior to Closing by the
Mississippi Secretary of State or the Delaware Secretary of State and a copy of
the resolutions adopted by Buyer and RSC in connection with this Agreement,
certified in each case by its corporate secretary or assistant secretary.
ARTICLE VIII
CONDITIONS TO BUYER'S AND PARENT'S OBLIGATIONS
----------------------------------------------
The obligations of Buyer and Parent to consummate the transactions provided
for hereby are subject, in the discretion of Buyer, to the satisfaction, on or
prior to the Closing Date, of each of the following conditions, any of which may
be waived by Buyer:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Seller and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the date of this Agreement and
at and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Seller
and the Company shall have performed and satisfied all agreements and covenants
required hereby to be performed by them prior to or on the Closing Date.
8.2 Consents. All Permits and waivers necessary to the consummation of
--------
the transactions
42
<PAGE>
contemplated hereby and for the operation of the Business by Buyer shall have
been obtained including, without limitation, (a) all required third party
waivers or consents to the assignment of the Assumed Contracts to be assumed by
Buyer (b) all required approvals of Buyer's lenders, and (c) the waiting period
under the HSR Act shall have expired or been terminated.
8.3 Board Approval. Each of RSC and Buyer shall have received the consent
--------------
of its Board of Directors to consummate the transactions, subject to the terms
and conditions set forth herein.
8.4 No Proceedings or Litigation. No Action by any governmental authority
----------------------------
or other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage Buyer materially if the transactions
contemplated hereby are consummated, including without limitation any Material
Adverse Effect on the right or ability of the Company to own, operate, possess
or transfer the Assets after the Closing. The waiting period under the HSR Act
shall have expired or been terminated, and there shall not be any statute, rule
or regulation that makes the purchase and sale of the Business or the Assets
contemplated hereby illegal or otherwise prohibited.
8.5 Opinion of Counsel. Seller and the Company shall have delivered to
------------------
Buyer an opinion of Fredrikson & Byron, P.A., counsel to the Company, Metroquip
and Seller, dated as of the Closing Date, in form and substance reasonably
satisfactory to Buyer's counsel in the form attached hereto as Exhibit 8.5.
In rendering such opinions, such counsel may rely as to factual
matters upon certificates and assurances of public officials, Seller, and
officers of the Company. In addition, such opinions may be subject to such
additional qualifications and exceptions as are reasonably acceptable to counsel
to Buyer, lenders to Buyer shall be entitled to rely upon the opinion of
Seller's counsel.
8.6 Certificates. Seller and the Company shall furnish Buyer with such
------------
certificates of Seller, the officers of the Company and others to evidence
compliance with the conditions set forth in this Article VIII as may be
reasonably requested by Buyer.
8.7 Performance Incentive Agreement. The Seller, Buyer and Parent shall
-------------------------------
have entered into the Performance Incentive Agreement substantially in the form
attached as Exhibit 8.7.
8.8 Escrow Agreement. The Company, Seller, and Buyer shall have entered
----------------
into the Escrow Agreement substantially in the form attached as Exhibit 8.8.
8.9 Employment and Non-Competition Agreements. Buyer and Seller shall
-----------------------------------------
have entered into an Employment and Non-Competition Agreement in the form
attached as Exhibit 8.9 hereto.
8.10 Release of Encumbrances. The Company shall have filed (where
-----------------------
necessary) and/or
43
<PAGE>
delivered to Buyer all documents (such as payoff letters) necessary to release
the Assets from all Encumbrances which documents shall be in a form reasonably
satisfactory to Buyer's counsel.
8.11 Material Changes. Since the Consolidated December 31 Balance Sheet
----------------
Date, there shall not have been any Material Adverse Change with respect to the
Business.
8.12 Corporate Documents. Buyer shall have received from the Company
-------------------
resolutions adopted by its board of directors approving this Agreement and the
Ancillary Agreements to which it will be a party, and the transactions
contemplated hereby and thereby.
8.13 Due Diligence Review. Buyer and its Representatives shall have
--------------------
conducted a due diligence review of the Company's and Metroquip's Books and
Records, Financial Statements, and other records and accounts of the Business,
and in the sole discretion of Buyer, Buyer shall be satisfied with such review.
Such review shall have no effect whatsoever on the liability of Seller or prior
to Closing, the Company to Buyer under this Agreement or otherwise for breach
of any representations, warranties, or covenants of Seller or the Company or
hereunder.
8.14 Completion of Environmental Remediation. Seller or his agents shall
---------------------------------------
have completed any Required Remediation within the meaning of Section 6.3,
subject to the procedures set forth in Section 6.3 with respect to the
certification of such completion and the resolution of any disputes relating
thereto.
8.15 Financing. Buyer shall have obtained all lender approvals and
---------
financing to pay the cash portion of the Purchase Price.
8.16 Tax Clearance Certificate. Company shall have provided to Buyer with
-------------------------
a clearance certificate or similar document(s) that may be required by any state
taxing authority in order to relieve Buyer of any obligation to withhold any
portion of the Purchase Price other than the Holdback.
8.17 Audit. Virchow, Krause & Company, L.L.P. shall have completed their
-----
audit of Company's financial statements for the year ended December 31, 1997 and
shall have issued an unqualified opinion for 1997 and consent to Buyer that it
may include such audit in its SEC filings.
ARTICLE IX
CONDUCT OF SELLER AND BUYER PENDING THE CLOSING
-----------------------------------------------
9.1 Seller Covenants. Company and Seller hereby covenant and agree that
----------------
from the Effective Date to the Closing Date:
9.1.1 Conduct of Business Pending the Closing. Except as specifically
---------------------------------------
contemplated in this Agreement or as disclosed in any Schedule hereto, the
Business of Company
44
<PAGE>
and Metroquip shall be conducted only in, and Company and Metroquip shall take
no action except in, the ordinary course, on an arm's length basis, and in
accordance with all applicable laws, rules, and regulations and past custom and
practice, including, without limitation, making any loans or any cash payments,
or transferring any other assets or properties of Company or Metroquip to any
employee, officer, shareholder, or director of Company or Metroquip; and Company
and Metroquip shall maintain its Facilities in good operating condition,
ordinary wear and tear excepted; and Company will not, directly or indirectly,
do or permit to occur any of the following:
(i) Cancel or terminate or permit to be canceled or terminated its
current insurance (or reinsurance) policies or permit any of the coverage
thereunder to lapse, unless simultaneous with such termination, cancellation, or
lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated, or lapsed policies are in full force
and effect;
(ii) Default under any material contract, agreement, commitment, or
undertaking;
(iii) Knowingly violate or fail to comply with any laws applicable to
it or the Business;
(iv) Commit any act or permit the occurrence of any event or the
existence of any condition of the type described in Section 4.3 hereof;
(v) Fail to maintain and repair its assets and properties in
accordance with good standards of maintenance and as required in any leases or
other agreements pertaining thereto;
(vi) Except in the ordinary course of business consistent with
historical practices enter into or modify any employment, severance, or similar
agreements or arrangements with, or grant any bonuses, salary increases, or
severance or termination pay to, any officers, directors, employees, or
consultants, or adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment, or other benefit
plan, trust, fund, or group arrangement for the benefit or welfare of any
officers, directors, or employees;
(vii) Directly or indirectly enter into or modify any contract,
agreement, or understanding or enter into any transaction in either case not in
the ordinary course of business;
(viii) Cancel, without full payment, any note, loan, or other
obligation owing to Seller relating to the Business except in the ordinary
course of business;
(ix) Acquire (by merger, exchange, consolidation, acquisition of
stock or assets, or otherwise) any corporation, partnership, joint venture, or
other business organization or division or material assets thereof;
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(x) Issue any additional shares of its capital stock or (except
with Buyer's reasonable consent) permit the transfer of any outstanding shares
of capital stock or declare any dividends or distributions other than in cash;
(xi) Issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any additional
or effect any transfer outstanding shares of its capital stock of any class
might be directly or indirectly authorized, issued, or transferred from
treasury, or incur any indebtedness for borrowed money or issue any debt
securities except the borrowing of working capital in the ordinary course of
business and consistent with past practice;
(xii) Pay any obligation or liability, fixed or contingent, except in
the ordinary course of business;
(xiii) Waive or compromise any right or claim except in the ordinary
course of business (other than as required to resolve any pending or threatened
litigation disclosed in the Schedules attached hereto);
(xiv) Participate in any discussions or approve any extensions of the
Penske Logistics Agreement; or
(xv) Agree to do any of the actions described in the preceding
clauses (i) through (xiv).
9.1.2 Business Relationships. Company will exercise its best efforts
----------------------
to preserve intact its business organization and goodwill, keep available the
services of its officers and employees as a group, and maintain satisfactory
relationships with suppliers, distributors, customers, and others having
business relationships with it.
9.1.3 Notification of Certain Matters. Seller and Company shall (i)
-------------------------------
confer on a regular basis with representatives of Buyer and report operational
matters and the general status of ongoing operations, (ii) notify Buyer of any
Material Adverse Change in the normal course of its business or in the operation
of its properties and of any governmental or third party complaints,
investigations, or hearings (or communications indicating that the same may be
contemplated); and (iii) promptly notify Buyer if Seller shall discover that
any representation or warranty made by it in this Agreement was when made, or
has subsequently become, untrue.
9.1.4 Closing. Company shall use its best efforts to cause the
-------
conditions specified in Article VIII hereof to be satisfied at or prior to the
Closing Date hereof.
9.1.5 Seller Covenants. Seller shall exercise best efforts to ensure
----------------
compliance with all covenants and agreements hereunder.
46
<PAGE>
9.2 No Negotiations. Neither Company nor Seller shall, directly or
---------------
indirectly, through any officer, director, agent, or otherwise, solicit,
initiate, or encourage submission of any proposal or offer from any person or
entity (including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation, or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in, Seller or other similar transaction or business combination
involving Seller, or participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in any
way with, or assist, participate in, facilitate, or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing.
Seller or any Seller Stockholder shall promptly notify Buyer if any such
proposal or offer, or any inquiry from or contact with any person with respect
thereto, is made and shall promptly provide Buyer with such information
regarding such proposal, offer, inquiry, or contact as Buyer may request.
9.3 Public Announcements. The parties hereto shall not issue any
--------------------
press release or public announcement, including announcements by any party for
general reception by or dissemination to employees, agents, or customers, with
respect to this Agreement and the other transactions contemplated by this
Agreement without the prior written consent of the other parties hereto (which
consent shall not be withheld unreasonably); provided, however, that Buyer may
-----------------
make any disclosure or announcement of information, it is obligated to make
pursuant to applicable law or regulation, including any applicable law or
regulation of the New York Stock Exchange or any other national securities
exchange, as applicable.
9.4 Confidentiality. Each party hereto, and its officers, directors,
---------------
agents, and affiliates, will hold in strict confidence, and will not divulge,
communicate, use to the detriment of any other party hereto or for the benefit
of any other person or persons, or misuse in any way, any financial information
or other data obtained in connection with this Agreement, including, without
limitation, any confidential information or trade secrets of such other party,
personnel information, secret processes, know how, customer lists, formulas, or
other technical data; and if the transactions contemplated by this Agreement are
not consummated, each party hereto, and its officers, directors, agents, and
affiliates, will return to each other party all such data and information,
including, without limitation, work sheets, test reports, manuals, lists,
memoranda, and other documents prepared by or made available in connection with
this transaction (and all copies of same). The parties hereto may disclose such
information to their respective attorneys, accountants and other agents so long
as they agree to keep such information confidential.
47
<PAGE>
ARTICLE X
[INTENTIONALLY OMITTED]
-----------------------
ARTICLE XI
ACTIONS BY SELLER AND BUYER AFTER THE CLOSING
---------------------------------------------
11.1 Books and Records; Tax Examinations.
-----------------------------------
11.1.1 Books and Records. Each party agrees that it will cooperate
-----------------
with and make available to the other party, during normal business hours, all
Books and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
11.1.2 Cooperation and Records Retention. Seller and Buyer shall (i)
---------------------------------
each provide the other with such assistance as may reasonably be requested by
any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return of
the other for any period. Without limiting the generality of the foregoing,
Seller and the Company shall each retain, until the applicable statutes of
limitations (including any extensions) have expired, copies of all tax returns,
supporting work schedules, and other records or information that may be relevant
to such returns for all tax periods or portions thereof ending on or before the
Closing Date and shall not destroy or otherwise dispose of any such records
without first providing the other parties with a reasonable opportunity to
review and copy the same.
11.2 Survival of Representations, Etc. All written statements contained
--------------------------------
in any certificate, schedule, exhibit, instrument or conveyance delivered by or
on behalf of the parties pursuant to this Agreement and the agreements
identified in Schedule 11.2 shall be deemed to be representations and warranties
-------------
by the parties hereunder. The representations, warranties, covenants and
agreements of Seller, the Company, Parent and Buyer contained herein shall
survive the consummation of the transactions contemplated hereby and the Closing
Date, without regard to any investigation made by any of the parties hereto;
provided, however, the representations and warranties of the Company shall
terminate as of the Closing. All such representations and warranties and all
Claims and causes of action with respect thereto (other than the provisions of
Sections 4.4, 4.19 and 4.24 and all Claims and causes of action with respect
thereto and other than any Claims and causes of action based on fraud or
intentional misrepresentation of the Seller) shall terminate upon expiration of
two years after the Closing Date. The representations and warranties in Sections
4.4, 4.19 and 4.24 shall survive
48
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until the expiration of the applicable statute of limitations (with extensions)
with respect to the matters addressed in such sections and the representations
and warranties in Section 4.4 and those based on fraud and intentional
misrepresentation shall survive indefinitely. The termination of the
representations and warranties provided herein shall not affect the rights of a
party in respect of any Claim made by such party in a Claim Notice received by
the other party prior to the expiration of the applicable survival period
provided herein.
11.3 Indemnifications.
----------------
11.3.1 By Seller. Seller shall indemnify, defend, save and hold
---------
harmless Buyer, its Affiliates and subsidiaries (including the Company from and
after the Closing Date), and its and their respective Representatives, from and
against any and all claims, damages, costs, losses (including without limitation
diminution in value), Taxes, liabilities, judgments, penalties, fines,
obligations, lawsuits, deficiencies, demands and expenses (whether or not
arising out of third-party claims), including without limitation interest,
penalties, costs of mitigation, losses in connection with any Environmental Law
(including without limitation any clean-up or remedial action), lost profits and
other losses resulting from any shutdown or curtailment of operations, damages
to the environment, attorneys' fees, experts' fees and all amounts paid in
investigation, defense or settlement of any of the foregoing (herein,
"Damages"), incurred in connection with, arising out of, resulting from or
incident to (i) any breach of any representation or warranty, or the inaccuracy
of any representation or warranty, made by the Company or Seller in or pursuant
to this Agreement; (ii) any breach of any covenant or agreement made by the
Company or Seller in or pursuant to this Agreement; (iii) any Post-Closing
Environmental Liability or (iv) any claim or contingent liability disclosed in
any schedule to this Agreement which arises out of events prior to the Effective
Date which has not been adequately reflected for, accounted for or reserved
against in the Effective Date Balance Sheet. Without limiting the generality of
the foregoing, the indemnification provided herein, insofar as it relates to any
Environmental Law or Environmental Condition, shall specifically cover costs
incurred in connection with any investigation of site conditions (excepting the
cost of the Environmental Assessments) or any Required Remediation pursuant to
Section 6.3 hereof. For purposes of this Section 11.3.1, "Post-Closing
Environmental Liability" shall mean any liability imposed on Buyer, the Company
or Metroquip arising out of or related to events occurring on or after the
Effective Date and prior to the completion of all Required Remediation in
accordance with Section 6.3 hereof, and resulting from any Environmental
Condition described in the Environmental Assessments, including without
limitation those Environmental Conditions described therein but not identified
as being in violation of any Environmental Law and those related to the absence
of any Permits, but excluding any liability to the extent such liability results
from the negligent acts or willful misconduct of Buyer or its Representatives.
11.3.2 By Parent and Buyer. Parent and Buyer shall indemnify and
-------------------
save and hold harmless Seller, his Affiliates and his Representatives from and
against any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any representation or warranty,
or the inaccuracy of any representation or warranty, made by Parent or
49
<PAGE>
Buyer in or pursuant to this Agreement; or (ii) any breach of any covenant or
agreement made by Parent or Buyer in or pursuant to this Agreement; or (iii) any
obligations or liabilities of the Company or Metroquip or Buyer arising from
actions occurring from and after the Closing Date.
11.3.3 Cooperation. The indemnified party shall cooperate in all
-----------
reasonable respects with the indemnifying party and such attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the indemnified party may, at its own
cost, participate in the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
11.3.4 Defense of Claims. If a claim for Damages (a "Claim") is to be
-----------------
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall, subject to Section 11.2,
give written notice (a "Claim Notice") to the indemnifying party and the Escrow
Agent pursuant to the Escrow Agreement as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition, or event which
may give rise to Damages for which indemnification may be sought under this
Section 11.3. The Claim Notice shall include the amounts the party entitled to
indemnification hereunder believes in good faith are subject to indemnification
(of which it shall notify Escrow Agent) and a brief description of the Claim
describing in reasonable detail the nature of such Claim and the facts upon
which it is based. The party claiming indemnification may reasonably revise its
estimate of any Claim by notice to the indemnifying party and Escrow Agent. If
any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to
indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects, (i) to take control of the defense and
investigation of such lawsuit or action, (ii) to employ and engage attorneys of
its own choice (which shall be reasonably acceptable to the indemnified party)
to handle and defend the same, at the indemnifying party's cost, risk and
expense unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, and (iii) to compromise or settle
such Claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld;
provided, however, if the remediation or resolution of any such Claim will occur
on or at any Facility or is reasonably expected to have a Material Adverse
Effect on the indemnified party's business operations, then, notwithstanding the
foregoing, the indemnified party shall be entitled to control such remediation
or resolution, including without limitation to take control of the defense and
investigation of such lawsuit or action, to employ and engage attorneys of its
own choice to
50
<PAGE>
handle and defend the same, at the indemnifying party's cost, risk and expense,
and to compromise or settle such Claim. If the indemnifying party fails to
assume the defense of such Claim within fifteen (15) calendar days after receipt
of the Claim Notice, the indemnified party against which such claim has been
asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such Claim on behalf of and for the account
and risk of the indemnifying party. In the event the indemnified party assumes
the defense of the Claim, the indemnified party will keep the indemnifying party
reasonably informed of the progress of any such defense, compromise or
settlement. The indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 11.3 and for any
final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment.
11.3.5 Buyer's Right to Distribution of Holdback Amount. Buyer must
------------------------------------------------
first collect any amount due from Seller pursuant to Seller's indemnification
obligations under this Section 11.3 by distribution of an applicable portion of
the Holdback Amount from the Escrow Agreement, in accordance with the procedures
set forth therein.
11.3.6 Limitations.
-----------
(i) Seller shall not be liable to Buyer under this Section
11.3 for any Damages until the amount otherwise due Buyer exceeds One Hundred
Fifty Thousand $150,000 in the aggregate; in which case the Seller will be
liable to the Buyer for all such amounts, in excess of $150,000 provided such
claims aggregate $10,000 or more. Notwithstanding the preceding sentence, this
limitation shall not apply with respect to Damages arising out of a breach of a
representation or warranty contained in Sections 4.4, 4.19 or 4.24 or fraud or
intentional misrepresentation.
(ii) Notwithstanding any other provision of this Agreement to
the contrary, the parties agree that the indemnification obligations of Seller
shall be capped at $5,000,000, provided, however, the indemnification limitation
set forth in this Section 11.3.6 shall not apply to the title to the Shares
(Section 4.4); any breach of Section 4.19 (Taxes), any breach of Section 4.24
(Environmental) or fraud or intentional misrepresentation, in each case for
which there shall be no limitation as to Seller's indemnification obligation or
the purchase price adjustments of Section 2.4, which are separate matters.
11.3.7 Liability and Remedies, etc. Except as set forth below, no
----------------------------
individual Representative of any party shall be personally liable for any
Damages under the provisions contained in this Section 11.3 provided, however,
Seller shall remain personally liable. Nothing herein shall relieve either
party of any liability to make any payment expressly required to be made by such
party pursuant to this Agreement. The term "Damages" as used in this Section
11.3 is not limited to matters asserted by third parties against Seller or
Buyer, but includes Damages incurred or sustained by an indemnified party in the
absence of third party claims. Payments by an
51
<PAGE>
indemnified party of amounts for which such party is indemnified hereunder shall
not be a condition precedent to recovery but a legally binding obligation to
make such payments shall be a condition to recovery. Buyer's rights to indemnity
under Section 11.3 hereof shall be its sole remedy with respect to any Damages
it may suffer arising out of, resulting from, or incident to any of the matters
set forth in clauses (i) through (iv) of Section 11.3.1. Seller's rights to
indemnity under Section 11.3 hereof shall be his sole remedy with respect to any
Damages he may suffer arising out of, resulting from, or incident to any of the
matters set forth in clauses (i) through (iii) of Section 11.3.2; provided,
however, nothing herein shall limit Buyer's or Seller's right to injunctive
relief or specific performance. Buyer and Seller agree and acknowledge that
collection under the Escrow Agreement shall be Buyer's first, but not exclusive
method of receiving indemnification from Seller pursuant to Section 11.3.
11.3.8 Further Action. After the Closing, Seller shall take all
--------------
actions reasonably necessary to effect the conveyance of the Shares to Buyer
free and clear of all Encumbrances and otherwise required by Buyer's lenders.
11.3.9 Tax Audits. After the Closing, in the event that any tax
----------
audits arise which cover only tax years of the Company or Metroquip prior to the
Effective Date, Seller shall be responsible for the reasonable costs and
expenses of all professional fees in connection with such audits. After the
Closing, in the event any tax audits arise which cover only tax years of the
Company or Metroquip after the Effective Date, Seller shall have no
responsibility for the costs and expenses of professional fees in connection
with such audit. After the Closing, in the event any tax audits arise for tax
years of the Company or Metroquip both prior to and following the Effective
Date, Seller shall be responsible for a portion of the reasonable costs and
expenses of all professional fees in connection with such audits. Such portion
will be based upon a fraction, the numerator of which is the additional taxes
payable pursuant to such audits for years of the Company or Metroquip prior to
the Effective Date and the denominator of which is the additional taxes payable
pursuant to such audits for all years covered by such audits.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Termination. This Agreement may be terminated at any time prior to
-----------
Closing:
12.1.1 By mutual written consent of Buyer and Seller;
12.1.2 By Buyer or Seller if the Closing shall not have occurred on
or before April 15, 1998; provided, however, that this provision shall not be
-------- -------
available to Buyer if Seller has the right to terminate this Agreement under
Section 12.1.4, and this provision shall not be available to Seller if Buyer has
the right to terminate this Agreement under Section 12.1.3;
52
<PAGE>
12.1.3 By Buyer if there is a material breach of any representation
or warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by Seller or the Company pursuant to the terms of
this Agreement or the failure of a condition set forth in Article VIII to be
satisfied (and such condition is not waived in writing by Buyer) on or prior to
the Closing Date, or the occurrence of any event which results or would result
in the failure of a condition set forth in Article VIII to be satisfied on or
prior to the Closing Date, provided that Buyer may not terminate this Agreement
prior to the Closing if either Seller or the Company have not had an adequate
opportunity to cure such failure; or
12.1.4 By Seller if there is a material breach of any representation
or warranty set forth in Article V hereof or of any covenant or agreement to be
complied with or performed by Buyer pursuant to the terms of this Agreement or
the failure of a condition set forth in Article VII to be satisfied (and such
condition is not waived in writing by Seller) on or prior to the Closing Date,
or the occurrence of any event which results or would result in the failure of a
condition set forth in Article VII to be satisfied on or prior to the Closing
Date; provided that Seller may not terminate this Agreement prior to the Closing
Date if Buyer has not had an adequate opportunity to cure such failure.
12.2 In the Event of Termination. In the event of termination of this
---------------------------
Agreement:
12.2.1 Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same; and
12.2.2 No party hereto shall have any liability or further
obligation to any other party to this Agreement, except as stated in Sections
2.4.6, 12.8, 12.11, 12.2.1 or this Section 12.2.2, and except for any willful
breach of this Agreement occurring prior to the proper termination of this
Agreement. The foregoing provisions shall not limit or restrict the availability
of specific performance or other injunctive relief to the extent that specific
performance or such other relief would otherwise be available to a party
hereunder.
12.3 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Parent or Buyer may, without such
consent, assign all such rights to any lender as collateral security, and Buyer
may assign all such rights and obligations to a wholly-owned subsidiary or
subsidiaries of Parent or Buyer (or a partnership controlled by Parent or Buyer)
which shall assume all obligations and liabilities of Buyer under this
Agreement. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, and no other person shall have any right, benefit or
obligation under this Agreement as a third party beneficiary or otherwise.
53
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12.4 Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to the Company, addressed to:
James Peterson Enterprises, Inc.
2440 Xenuim Lane North
Minneapolis, Minnesota 55441
Attn.: James S. Peterson
with a copy to:
Neil A. Weikart
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
If to Seller, addressed to:
James S. Peterson
18430 Fifth Avenue, North
Plymouth, MN 55447
with a copy to:
Neil A. Weikart
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3397
If to Parent or Buyer, addressed to:
Rental Service Corporation
6929 East Greenway Parkway, Suite 200
Scottsdale, Arizona 85254
Attention: Chief Executive Officer
54
<PAGE>
with a copy to:
Steven D. Pidgeon, Esq.
Maria Nutile, Esq.
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.5 Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Minnesota (without reference to the choice of law provisions thereof), except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
12.6 Entire Agreement; Amendments and Waivers. This Agreement, together
----------------------------------------
with all exhibits and schedules hereto and the Ancillary Agreements, constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.7 Multiple Counterparts. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.8 Expenses. Except as otherwise specified in this Agreement, each
--------
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect. The legal, accounting, and
other related expenses of this transaction after December 31, 1997 and up to the
Closing Date, will not be accrued on the Effective Balance Sheet of, or become
an obligation of the Company or Metroquip in any manner.
12.9 Invalidity. In the event that any one or more of the provisions
----------
contained in this
55
<PAGE>
Agreement or in any other instrument referred to herein, shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, then to the
maximum extent permitted by law, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement or any other such
instrument.
12.10 Titles. The titles, captions or headings of the Articles, Sections
------
and subsections herein are inserted for convenience of reference only and are
not intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.11 Publicity; Confidentiality. None of Parent, Buyer, Seller, the
--------------------------
Company or their respective Affiliates or Representatives shall issue any press
release or make any public statement regarding, or disclose to any third party
(except as required by law or legal process, and except to each party's lenders
if such lenders so require) any of the terms of, the transactions contemplated
hereby, without prior written approval of the other party, provided that Parent,
Buyers, Seller, and the Company may, if they mutually agree, issue or make an
appropriate press release or public announcement after the Closing Date. In the
event that this Agreement is terminated prior to Closing, Buyer agrees to return
to Seller and the Company all correspondence and documents furnished by Seller
or the Company's Representatives, and agrees not to disclose or use for its own
purposes any confidential or proprietary information of Seller that has been
furnished to it by Seller or the Company's Representatives.
12.12 Cumulative Remedies. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
12.13 Arbitration. Any controversy arising after the Closing out of or
-----------
relating to this Agreement (including, without limitation, pursuant to Section
2.4 except as otherwise set forth in Section 2.4.1 or 11.3, but excluding for
purposes of this Section 12.13, the employment and non-competition agreements
attached as Exhibit hereto), or relating to the breach hereof, shall be settled
by arbitration conducted in Minneapolis, Minnesota in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect (except as otherwise expressly provided in this Agreement). The award
rendered by the arbitrator(s) shall be final and judgment upon the award
rendered by the arbitrator(s) may be entered upon it in any court having
jurisdiction thereof. The arbitrator(s) shall possess the powers to issue
mandatory orders and restraining orders in connection with such arbitration.
The expenses of the arbitration shall be borne by the losing party unless
otherwise allocated by the arbitrator(s). The agreement to arbitrate shall be
specifically enforceable under the prevailing arbitration law. During the
continuance of any arbitration proceedings, the parties shall continue to
perform their respective obligations under this Agreement.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
JAMES S. PETERSON ENTERPRISES, INC.
By: /s/ James S. Peterson
_________________________________________
Name: James S. Peterson
Its: President
(the "Company")
WALKER JONES EQUIPMENT, INC.
By: /s/ Douglas A. Waugaman
_________________________________________
Name: Douglas A. Waugaman
Its: Assistant Secretary
("Buyer")
SELLER
By: /s/ James S. Peterson
_________________________________________
Name: James S. Peterson
("Seller")
RENTAL SERVICE CORPORATION
for the limited purpose set forth herein
By: /s/ Douglas A. Waugaman
_________________________________________
Name: Douglas A. Waugaman
Its: Assistant Secretary
("Parent")
57
<PAGE>
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
by and among
Mark S. Mosak and Thomas A. Mosak,
as "Sellers,"
Walker Jones Equipment, Inc.
as "Buyer,"
Rental Service Corporation
as "Parent"
and
T&M Rental, Inc.
as the "Company"
April 2, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS.......................................... 1
1.1 Defined Terms............................................. 1
1.2 Other Defined Terms....................................... 6
ARTICLE II SALE AND TRANSFER OF SHARES.......................... 7
2.1 Transfer of Shares........................................ 7
2.2 Purchase Price............................................ 7
2.3 Employment and Non-Competition Agreements................. 8
2.4 Holdback and Escrow Agreement............................. 8
2.5 Purchase Price Adjustment................................. 9
2.6 Vesting...................................................11
ARTICLE III CLOSING.............................................11
3.1 Closing...................................................11
3.2 Conveyances at Closing....................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
SELLERS AND THE COMPANY.........................................12
4.1 Organization of the Company...............................13
4.2 Related Entities..........................................13
4.3 Authorization.............................................13
4.4 No Violation..............................................13
4.5 Capitalization............................................14
4.6 No Change in the Assets...................................15
4.7 Equipment and Other Assets; Absence of Encumbrances.......15
4.8 Facilities................................................15
4.9 Contracts and Commitments.................................16
4.10 Financial Statements......................................18
4.11 Books and Records.........................................18
4.12 Litigation................................................18
4.13 Labor Matters.............................................18
4.14 Compliance with Law.......................................18
i
<PAGE>
4.15 No Brokers................................................19
4.16 No Other Agreements to Sell the Company...................19
4.17 Proprietary Rights........................................19
4.18 Tax Matters...............................................20
4.19 Accounts Receivable.......................................21
4.20 Inventory.................................................21
4.21 Employees and Employee Benefits...........................21
4.22 Representations...........................................23
4.23 Compliance With Environmental Laws........................25
4.24 Liabilities...............................................29
4.25 Insurance.................................................29
4.26 Conduct of the Business...................................30
4.27 Securities Law Matters....................................30
4.28 Affiliate Transactions....................................31
4.29 HSR Act...................................................31
4.30 Disclosure................................................31
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT....31
5.1 Representations and Warranties of Buyer...................32
5.2 Representations and Warranties of Parent..................32
ARTICLE VI COVENANTS OF BUYER, THE COMPANY AND SELLERS..........34
6.1 Further Assurances........................................34
6.2 Employee Matters..........................................35
6.3 Environmental Assessments and Remediation.................35
6.4 Registration Rights.......................................36
6.5 Tax Attributes............................................37
6.6 Seller Notes..............................................37
ARTICLE VII CONDITIONS TO SELLERS' OBLIGATIONS..................37
7.1 Representations, Warranties and Covenants.................37
7.2 No Proceedings, Litigation or Laws........................37
7.3 Certificates..............................................38
7.4 No Cessation of Trading...................................38
7.5 Opinion Letter of Buyer's Attorneys.......................38
7.6 Buyer and Parent Corporate Documents......................39
ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS..................39
ii
<PAGE>
8.1 Representations, Warranties and Covenants.................39
8.2 Consents..................................................39
8.3 Board Approval............................................39
8.4 No Proceedings or Litigation..............................39
8.6 Certificates..............................................41
8.7 Escrow Agreement..........................................42
8.8 Employment and Non-Competition Agreements.................42
8.9 New Lease.................................................42
8.10 Release of Encumbrances...................................42
8.11 Material Changes..........................................42
8.12 Corporate Documents.......................................42
8.13 Due Diligence Review......................................42
8.14 Completion of Environmental Remediation...................42
8.15 Financing.................................................42
8.16 Financial Statement Deliveries............................42
ARTICLE IX CONDUCT OF COMPANY AND BUYER PENDING THE CLOSING.....43
9.1 Company and Seller Covenants..............................43
9.2 No Negotiations...........................................45
9.3 Public Announcements......................................45
9.4 Confidentiality...........................................45
ARTICLE X RISK OF LOSS; CONSENTS TO ASSIGNMENT..................46
10.1 Intentionally Omitted.....................................46
ARTICLE XI ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING.......46
11.1 Books and Records; Tax Examinations.......................46
11.2 Survival of Representations, Etc..........................46
11.3 Indemnifications..........................................47
11.4 Employee Benefits.........................................51
ARTICLE XII MISCELLANEOUS.......................................51
12.1 Termination...............................................51
12.2 In the Event of Termination...............................52
12.3 Assignment................................................52
12.4 Notices...................................................52
12.5 Choice of Law.............................................54
12.6 Entire Agreement; Amendments and Waivers..................54
iii
<PAGE>
12.7 Multiple Counterparts.....................................54
12.8 Expenses..................................................54
12.9 Invalidity................................................55
12.10 Titles....................................................55
12.11 Publicity; Confidentiality................................55
12.12 Cumulative Remedies.......................................55
12.13 Arbitration...............................................55
12.14 Seller Representative.....................................56
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of April 2, 1998 (the
"Agreement") to be effective March 1, 1998 by and among Walker Jones Equipment,
Inc., a Mississippi corporation ("Buyer"), Rental Service Corporation, a
Delaware corporation ("Parent"), Mark Mosak and Thomas A. Mosak, (Mark Mosak and
Thomas A. Mosak are referred to herein individually as a "Seller" and
collectively, the "Sellers") and T&M Rental, Inc., an Indiana corporation (the
"Company").
RECITALS
--------
A. The Company is engaged in the business of equipment rental and sales.
B. Sellers own, of record and beneficially, all of the issued and
outstanding shares of capital stock of the Company (the "Shares") and, as of the
Closing Date (as defined below), will own, of record and beneficially, all of
the Shares.
C. Buyer desires to purchase from Sellers, and Sellers desire to sell to
Buyer, all of the Shares upon the terms and subject to the conditions of this
Agreement, whereupon Buyer will own all of the equity interests in the Company.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
1.1.1 "Affiliate" shall have the meaning set forth in the Exchange
---------
Act.
<PAGE>
1.1.2 "Agreement" shall have the meaning specified in the first
---------
paragraph of this Agreement.
1.1.3 "Ancillary Agreements" shall mean the Employment and
--------------------
Noncompetition Agreement of Mark Mosak, and Noncompetition Agreement of Thomas
A. Mosak hereto as Exhibits 8.8.1, and 8.8.2, respectively, the Escrow Agreement
in the form of Exhibit 8.7, the New Lease for the Facility in the form of
Exhibit 8.9, and the Performance Incentive Agreement in the form of Exhibit 2.6,
each attached hereto.
1.1.4 "Assets" shall mean the assets of the Company as reflected
------
on the Interim Balance Sheet dated November 30, 1997, together with those assets
acquired (less those assets disposed of) in the ordinary course of business
since the Interim Balance Sheet Date.
1.1.5 "Balance Sheets" shall mean the unaudited balance sheets of the
--------------
Company at each of February 28, 1994, 1995, 1996 and 1997.
1.1.6 "Books and Records" shall mean (a) all records and lists
-----------------
pertaining to the Business, customers, suppliers or personnel of the Company,
(b) all product, business and marketing plans of the Company and (c) all books,
ledgers, subledgers, trial balances, files, reports, plans, drawings and
operating records of every kind maintained by the Company.
1.1.7 "Business" shall mean the Company's equipment rental and sales
--------
business, operating under the "T&M Rental" name or otherwise.
1.1.8 "Buyer" shall have the meaning specified in the first paragraph
-----
of this Agreement.
1.1.9 "Closing Date" shall mean April 2, 1998 or such other date as
------------
Buyer and Sellers shall mutually agree upon.
1.1.10 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and the rules and regulations promulgated thereunder.
1.1.11 "Commission" shall mean the Securities and Exchange
----------
Commission.
1.1.12 "Company" shall have the meaning specified in the first
-------
paragraph of this Agreement.
1.1.13 "Contract" shall mean any agreement, contract, note, loan,
--------
evidence of indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to
<PAGE>
compete, employment agreement, license, instrument, obligation or commitment to
which the Company is a party or is bound and which relates to the Business or
Assets, whether oral or written.
1.1.14 "Effective Date" shall mean March 1, 1998 (for certain purpose
--------------
the transaction contemplated by this Agreement shall be deemed to have occurred
on the Effective Date).
1.1.15 "Effective Date Balance Sheet" shall mean the unaudited balance
----------------------------
sheet of the Company as of February 28, 1998 attached hereto as Schedule 1.1.15.
---------------
1.1.16 "Encumbrance" shall mean any claim, lien, pledge, option,
-----------
charge, easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
1.1.17 "Equipment" shall mean all of the furniture, fixtures,
---------
furnishings, rental fleet, machinery, automobiles, trucks, spare parts, tools,
supplies, equipment, telephones, office equipment, signs and other tangible
personal property owned by the Company and used in connection with the Business.
1.1.18 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
1.1.19 "Escrow Agent" shall mean the entity designated by Buyer and
------------
the Seller Representative to act as escrow agent under the Escrow Agreement.
1.1.20 "Escrow Agreement" shall mean that certain Escrow Agreement,
----------------
dated as of the Closing Date, by and among Buyer, Seller Representative and the
Escrow Agent, substantially in the form of Exhibit 8.7 attached hereto.
1.1.21 "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended, and the rules and regulations promulgated thereunder.
1.1.22 "Facilities" shall mean the rental yards, stores, offices,
----------
maintenance and storage facilities, shops, warehouses, improvements and other
structures, together with all related fixtures and improvements, located at or
on the Leased Real Property.
3
<PAGE>
1.1.23 "Financial Statements" shall mean the Year-End Financial
--------------------
Statements and the Interim Financial Statements.
1.1.24 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
-------
Improvements Act of 1976, as amended.
1.1.25 "Interim Balance Sheet" shall mean the unaudited balance sheet
---------------------
of the Company as of November 30, 1997 based upon mutually agreed upon
adjustment for depreciation and bonus expense.
1.1.26 "Interim Balance Sheet Date" shall mean November 30, 1997.
--------------------------
1.1.27 "Interim Financial Statements" shall mean the Interim Balance
----------------------------
Sheet of the Company for the nine months ended on the Interim Balance Sheet
Date.
1.1.28 "Inventory" shall mean all of the Company's inventory held for
---------
resale, serialized and nonserialized and all of the Company's repair or
replacement parts, supplies bulk items, packaging items and similar items with
respect to the Business, in each case wherever the same may be located.
1.1.29 "Leased Real Property" shall mean all real property listed on
--------------------
Schedule 4.8 leased by the Company and which is used in the conduct of the
- ------------
Business, including without limitation, all rights, easements and privileges
appertaining or relating thereto, all buildings, fixtures, and improvements
located thereon and all Facilities thereon, if any.
1.1.30 "Material Adverse Effect" or "Material Adverse Change" shall
----------------------- -----------------------
mean with respect to the Business or the Assets any significant and substantial
adverse effect or change in the condition (financial or other), business,
results of operations, assets, liabilities, customer, supplier or employee
relations or operations of the Business or the Assets or on the ability of the
Sellers or the Company to consummate the transactions contemplated hereby, or
any event or condition which would, with the passage of time, constitute a
"Material Adverse Effect" or "Material Adverse Change."
1.1.31 "New Lease" shall mean the lease between Buyer and Mark S.
---------
Mosak and Thomas A. Mosak for the real property located at 300 West Chicago
Avenue, East Chicago, Indiana 46312.
1.1.32 "Parent" shall have the meaning specified in the first
------
paragraph of this Agreement.
4
<PAGE>
1.1.33 "Permits" shall mean all licenses, permits, franchises,
-------
approvals, authorizations, consents or orders of, or filings with, any
governmental authority, whether foreign, federal, state or local, or any other
person, necessary or desirable for the past, present or anticipated conduct of,
or relating to the operation of, the Business.
1.1.34 "Permitted Encumbrance" shall have the meaning set forth in
---------------------
Section 4.7.
1.1.35 "Related Entity" shall mean any corporation, partnership,
--------------
trust or other organization in which the Company or any of the Sellers has a
material interest.
1.1.36 "Rental and Non-Rental Asset Listing" shall mean the asset
-----------------------------------
listing attached as Schedule 4.7 hereto, listing all assets, excluding
------------
Inventory, furniture and fixtures, as of November 30, 1997.
1.1.37 "Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
1.1.38 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
1.1.39 "Sellers" shall have the meaning specified in the first
-------
paragraph of this Agreement.
1.1.40 "Shareholder Net Worth" shall be as set forth in the Interim
---------------------
Balance Sheet as adjusted based upon mutually agreed upon adjustments for
depreciation and certain bonus expenses and as adjusted for the net carrying
value or book value of the Transferred Assets.
1.1.41 "Seller Representative" shall mean Mark S. Mosak, whom Sellers
---------------------
have irrevocably made, constituted and appointed their agent pursuant to Section
12.14 hereof.
1.1.42 "Shares" shall mean all of the issued and outstanding shares
------
of capital stock of the Company.
1.1.43 "Tax" shall mean any federal, state, local, foreign or other
---
tax, levy, impost, fee, assessment or other government charge, including without
limitation income, estimated income, business, occupation, franchise, property,
payroll, personal property, sales, transfer, use, employment, commercial rent,
occupancy, franchise or withholding taxes, and any premium, including without
limitation interest, penalties and additions in connection therewith.
5
<PAGE>
1.1.44 "Transferred Assets" shall mean the assets set forth on
------------------
Schedule 1.1.44 which are being distributed to the Sellers.
- ---------------
1.1.45 "Year-End Financial Statements" shall mean the Balance Sheets
-----------------------------
and income statements dated as of February 28, 1994, 1995, 1996, 1997 and 1998
of the Company for the fiscal years then ended.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
defined for such terms in the Sections set forth below:
Act....................................4.27.9
Actions..................................4.12
Average Share Price.....................2.2.2
Benefit Arrangement....................4.21.1
Cash Purchase Price.....................2.2.1
CERCLA.................................4.23.5
Claim..................................11.3.4
Claim Notice...........................11.3.4
Closing...................................3.1
Company................................4.23.2
Consultant..............................6.3.1
Contingent Purchase Price...............2.2.1
Damages................................11.3.1
Employee Plans.........................4.21.1
Environmental Conditions..............4.23.14
Environmental Laws.....................4.23.5
Environmental Assessments...............6.3.1
ERISA Affiliate........................4.21.1
GAAP.....................................4.10
General Holdback........................2.4.1
Governmental............................5.2.4
Hazardous Substance....................4.23.4
Holdback Amount.........................2.4.1
Insiders.................................4.28
Inventory Value.........................2.5.5
Multiemployer Plan.....................4.21.1
Parent Common Stock.....................2.2.1
Parent Material Adverse Effect..........5.2.3
PBGC...................................4.21.1
6
<PAGE>
Pension Plan...........................4.21.1
Post-Closing Environmental Liability...11.3.1
Proprietary Rights.....................4.17.1
Purchase Price..........................2.2.1
RCRA...................................4.23.5
Release................................4.23.3
Rental Ready............................2.5.4
Required Remediation....................6.3.2
Retained Employees........................6.2
SEC Documents...........................5.2.6
Seller Representative.................12.14.1
Welfare Plan...........................4.21.1
ARTICLE II
SALE AND TRANSFER OF SHARES
---------------------------
2.1 Transfer of Shares. Upon the terms and subject to the conditions
------------------
contained herein, at the Closing, Sellers will sell, convey, transfer, assign
and deliver to Buyer, and Buyer will acquire from Sellers, the Shares, for the
consideration specified in Section 2.2.1 subject to the Holdback Amount
specified in Section 2.4.1.
2.2 Purchase Price.
--------------
2.2.1 Purchase Price. At the Closing, upon the terms and subject to
--------------
the conditions set forth herein, Buyer shall pay to Sellers in consideration for
the Shares, the aggregate amount of Eighteen Million Nine Hundred Thousand
Twenty Five and 65/100 Dollars($18,900,025.65) (the "Purchase Price"), of which
Eighteen Million One Hundred Fifty Thousand Dollars ($18,150,000) (the "Cash
Purchase Price") shall be paid to Sellers by wire transfer of immediately
available funds to an account designated by Sellers and Seven Hundred Fifty
Thousand Twenty Five and 65/100 Dollars ($750,025.65) shall be paid in the form
of Common Stock, par value $.01 per share, of Parent (the "Parent Common Stock")
pursuant to the "vesting" provisions of Section 2.6 (the "Contingent Purchase
Price"), subject, however, to adjustment as set forth in Section 2.5 and the
------- -------
Holdback Amount as described below. The number of shares of Parent Common Stock
to be issued to Sellers shall be determined as set forth in Section 2.2.2. The
Purchase Price shall be subject, however, to adjustment as set forth in Section
2.5 and a cash amount of Two Million One Hundred Thousand Dollars ($2,100,000)
shall serve as the Holdback Amount as described in Section 2.4.1 below. The
Cash Purchase Price, the Parent Common Stock and the Holdback Amount (and any
remittance of the Holdback Amount pursuant to the Escrow Agreement) shall be
allocated among the Sellers pro rata in accordance with their respective
ownership interests in the Company, as set forth on Schedule 4.5.
-------------
7
<PAGE>
2.2.2 The number of shares of Parent Common Stock pursuant to the
Contingent Purchase Price which may be issued to Sellers shall be the result of
dividing Seven Hundred Fifty Thousand Twenty Five and 65/100 Dollars
($750,025.65) by the average closing price of Parent Common Stock on the New
York Stock Exchange during the five trading days beginning five trading days
prior to the Closing Date (the "Average Share Price").
2.2.3 If between the date of this Agreement and the date shares of
Parent Common Stock are issued pursuant to the terms of the Performance
Incentive Agreement, the outstanding shares of Parent Common Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, stock dividend, stock
combination, exchange of shares or readjustment, the conversion ratio shall be
proportionately adjusted.
2.2.4 No fractional shares of Parent Common Stock shall be issued,
but in lieu thereof each Seller who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock shall receive from Buyer an amount of
cash equal to the product of the fraction of a share of Parent Common Stock to
which such holder would otherwise be entitled, multiplied by the Average Share
Price.
2.3 Employment and Non-Competition Agreements. Buyer shall enter into (i)
-----------------------------------------
an Employment and Non-Competition Agreement with Mark Mosak, in substantially
the form attached hereto as Exhibit 8.8.1, and (ii) a Non-Competition Agreement
with Thomas A. Mosak, in substantially the form attached hereto as Exhibit
8.8.2.
2.4 Holdback and Escrow Agreement.
-----------------------------
2.4.1 The "Holdback Amount" shall be a cash amount equal to Two
Million One Hundred Thousand Dollars ($2,100,000) which, at the Closing, Buyer
shall retain $-0- pending the determination of any purchase price adjustment
pursuant to Section 2.5, Sellers' indemnification obligations, if any, as set
forth in Section 11.3, and any remediation required under Section 6.3 hereof
which is not resolved by the Closing Date. Of such Holdback Amount, (i) $0 will
be allocated to the resolution of the Shareholder Net Worth adjustment pursuant
to Section 2.5.3 (ii) $100,000 will be allocated to the resolution of the
Equipment adjustment pursuant to Section 2.5.4, (iii) $-0- will be allocated to
the resolution of the Environmental obligations pursuant to Section 6.3, and
(iv) $2,000,000 will be allocated to any other obligations under this Agreement
(the "General Holdback"). The General Holdback shall be deposited in escrow
pursuant to the terms and conditions of the Escrow Agreement. The Escrow Agent
will remit to the Seller Representative 33.3% of the General Holdback on the
first anniversary of the Closing Date, an additional 33.3% on the second
anniversary of the Closing Date, and the final 33.4% on the third anniversary of
the
8
<PAGE>
Closing Date, in each case less any amounts necessary to cover undisputed
claims, unresolved adjustments, indemnification or environmental remediation
claims pursuant to Sections 2.5, 6.3 and/or 11.3, plus interest on the amount
remitted to the Seller Representative. Notwithstanding anything in the foregoing
to the contrary, if any portion of the Holdback Amount specified in this Section
2.4.1 proves to be insufficient for resolution of the matter subject to
adjustment therein, Buyer may in its sole discretion elect to transfer a portion
of the Holdback Amount allocated to another matter to resolve such deficiency.
Interest on the Holdback Account shall accrue to Sellers. Sellers shall be
entitled to all stock dividends and interest earned on investments held in
escrow. In the event of any disagreement between Buyer and Sellers regarding the
dollar amount of any such adjustment or indemnification or remediation
obligation, Buyer and Sellers shall submit such dispute to a nationally
recognized accounting firm for resolution pursuant to Section 2.5.1 (in the case
of a disagreement relating to the purchase price adjustment) or to a third-party
arbitrator for binding arbitration pursuant to Section 12.13 of this Agreement
in all other cases. Notwithstanding the foregoing, Buyer shall not be limited to
retention of the Holdback Amount as a sole remedy in the event that any purchase
price adjustment or indemnification or remediation obligation exceeds the
Holdback Amount; rather, in such event, Buyer shall have the right to collect
promptly from Sellers, in cash, the amount of such excess.
2.4.2 Buyer and the Seller Representative, acting on behalf of the
Sellers, shall enter into the Escrow Agreement, in substantially the form
attached hereto as Exhibit 8.7, pursuant to which Buyer shall deposit with the
Escrow Agent the Holdback Amount. All costs of the escrow shall be paid by the
Sellers as provided in the Escrow Agreement.
2.5 Purchase Price Adjustment.
-------------------------
2.5.1 Closing Balance Sheet. Sellers delivered to Buyer the Interim
---------------------
Balance Sheet on January 22, 1998. On or before the Closing Date, the Sellers
shall deliver to Buyer the Effective Date Balance Sheet. The Effective Date
Balance Sheet will become final and binding on the parties unless within ten
business days following delivery of the Effective Date Balance Sheet to Buyer,
the Buyer notifies Sellers in writing that the Buyer objects thereto, which
objection shall be solely on the basis of mathematical errors in the calculation
thereof or the failure to present the Company's financial position consistent
with Buyer's previously agreed upon adjustments. If the Buyer so objects, Buyer
and the Sellers shall use their best efforts to resolve any differences with
respect to the Effective Date Balance Sheet. If, within ten business days
following such notice by the Buyer, such differences have been resolved, the
Effective Date Balance Sheet, as revised to reflect changes agreed to by Buyer
and the Sellers, shall be final, binding and conclusive. If by such date such
differences have not been resolved, then the Sellers and Buyer shall jointly
select a nationally recognized accounting firm not currently engaged by Buyer,
any Seller or any Affiliate of any of them, to perform a review of the Effective
Date Balance Sheet. Such reviewing firm's conclusions
9
<PAGE>
shall be final, binding and conclusive as to such matters. Buyer will pay the
fees and expenses of such audit.
2.5.2 Intentionally Left Blank.
------------------------
2.5.3 Shareholder Net Worth Adjustment. The Purchase Price shall be
--------------------------------
subject to a dollar for dollar reduction if and to the extent that the
Shareholder Net Worth on the Effective Date, as reflected on the Effective Date
Balance Sheet, is less than the Shareholder Net Worth on the Interim Balance
Sheet. Buyer shall be entitled to a prompt distribution of the amount of such
reduction from the Holdback Amount. Schedule 2.5.3 sets forth the Shareholder
--------------
Net Worth adjustment.
2.5.4 Missing or Non-Operating Equipment.
----------------------------------
(a) The gross rental equipment plus capitalized equipment leases shall
be as set forth on the Balance Sheet of the Company dated February 28, 1998.
(b) The Rental and Non-Rental Asset Listing, attached as Schedule
--------
2.5.4, sets forth the asset description, make, model, original cost and book
- -----
value of all Equipment which, on the Closing Date, will be fully operable and
Rental Ready. On or prior to the 10th business day following the Closing Date,
personnel of Buyer and Sellers jointly shall complete a physical inventory of
each item of Equipment comprising Schedule 2.5.4, including by visiting renters'
--------------
locations as necessary to inspect such equipment using Company's equipment file
as a basis for the inventory, which shall separately list capitalized equipment
leases. Based upon such inventory, Buyer in consultation with Sellers will
develop a schedule of overages and shortages. Within thirty (30) calendar days
after the Closing, the Purchase Price shall be adjusted, upward or downward, to
the extent the aggregate of overages and shortages that are also on the
depreciation ledger exceeds $25,000 in original cost. With respect to
shortgages, the reduction in Purchase Price pursuant to the preceding sentence
shall be based upon the book value of the missing or unavailable equipment as
mutually agreed upon between Buyer and Sellers.
(c) In the event of a Purchase Price reduction under the foregoing
provisions, Buyer shall be entitled to a prompt distribution of the amount of
such reduction from the Holdback Amount and/or to pursue to the other remedies
set forth in, Section 2.4.1. Any disputes as to the physical count or Rental
Readiness of any item of equipment will, if possible, be resolved while the
physical inventory of such equipment is being taken by Buyer and Sellers. Any
disputes regarding the foregoing not resolved by the 30th business day following
the Closing Date will be separately listed and settled pursuant to the
procedures set forth in Section 12.13 hereof, and in any event the
10
<PAGE>
parties will attempt to resolve and pay out such disputes as appropriate no
later than the 45th day following the Closing.
(d) Within thirty (30) calendar days after the Closing, the Purchase
Price shall be reduced by the aggregate cost necessary to render all items of
Equipment listed on Schedule 2.5.4 Rental Ready. For purposes of this
--------------
Agreement, an item of equipment is "Rental Ready" only if it is free of deferred
maintenance and it does not require any repairs in excess of $250 per item for
items with a cost of less than $5,000 or $500 per item for items with a cost
greater than or equal to $5,000.
2.5.5 Intentionally Left Blank.
------------------------
2.5.6 Transfer Taxes and Fees. Sellers shall be responsible for any
-----------------------
documentary and transfer taxes and any sales, use or other taxes imposed by
reason of the transfer of Shares provided hereunder and any deficiency, interest
or penalty asserted with respect thereto. Sellers shall pay the fees and costs
of recording or filing all UCC termination statements and other releases of
Encumbrances.
2.5.7 Closing of Books; Benefits and Risks of Ownership. The
-------------------------------------------------
transactions contemplated by this Agreement shall be deemed effective as of the
Effective Date, and all profits and losses of the Company from and after March
1, 1998, shall be solely for the account of, and inure solely to the benefit or
detriment of, Buyer, except as otherwise set forth in this Agreement. The
accounting books and records of the company will be closed as of the close of
business on February 28, 1998. Sellers shall operate the Company subject to and
pursuant to the requirements of this Agreement by, from and after March 1, 1998,
until such time as this Agreement is terminated or closed. If this transaction
does not close for any reason on or prior to April 15, 1998, and is not extended
by agreement of the parties, then (i) the Buyer shall pay to Seller a fee of
$65,000 provided that the failure to close the transaction is not due to the
failure of any Seller to perform his obligations under the Agreement and (ii)
either (A) the Sellers and Company shall pay within seven (7) days to Buyer net
after tax profits accumulated during the period from March 1, 1998 to the date
this Agreement is terminated or (B) the Buyer shall within seven (7) days pay to
the Sellers and Company all losses accumulated (offset by any non-refundable
contributions made by Buyer to the Sellers and Company) by the Sellers and
Company during the period from March 1, 1998 to the date that the Closing is
deemed (not to occur). Without the consent of Buyer, until the Closing Date,
the Company or Sellers shall not repurchase, sell or transfer any Shares, make
or declare any dividends or make other distributions to shareholders or
otherwise take any action restricted under this Agreement.
2.6 Vesting. The Contingent Purchase Price shall consist of Parent Common
-------
Stock with a fair market value of up to $750,000, with the number of shares of
Parent Common Stock to be
11
<PAGE>
issued to Sellers determined as set forth in Section 2.2.2. Such Parent Common
Stock shall be issuable to Sellers over a three-year period, in accordance with
the performance targets as described in the Performance Incentive Agreement by
and among the Buyer and Sellers attached hereto as Exhibit 2.6. The Contingent
Purchase Price shall be paid to Sellers only to the extent that the performance
of the Business meets the agreed-upon targets (or a percentage thereof, as
applicable), and if such targets (or a percentage thereof, as applicable) are
not met, no portion (or a reduced portion, as applicable) of the Contingent
Purchase Price shall be paid in accordance with the Performance Incentive
Agreement.
ARTICLE III
CLOSING
-------
3.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held on the Closing Date at a time and place as the parties
shall mutually agree.
3.2 Conveyances at Closing.
----------------------
3.2.1 Sellers' Delivery Obligations. To effect the sale and transfer
-----------------------------
referred to in Section 2.1 hereof, Sellers will, at the Closing, execute and
deliver to Buyer:
3.2.1.1 certificates evidencing the Shares, free and clear of
any Encumbrances of any nature whatsoever, duly endorsed in blank for transfer
or accompanied by stock powers duly executed in blank;
3.2.1.2 all Ancillary Agreements required to be executed by
any of the Sellers;
3.2.1.3 all certificates, opinions of counsel and other
documents described in Article VIII; and
3.2.1.4 all Permits and any other third party consents
required for the valid transfer of the Shares as contemplated by this Agreement,
or for the continued operation of the Business following such transfer.
3.2.2 Buyer's Delivery Obligations. To effect the sale and transfer
----------------------------
referred to in Section 2.1 hereof, Buyer will, at the Closing, execute and
deliver to Sellers:
12
<PAGE>
3.2.2.1 all Ancillary Agreements required to be executed by
Buyer; and
3.2.2.2 all certificates, opinions of counsel and other
documents described in Article VII; and
3.2.2.3 the Purchase Price in accordance with Section 2.2
3.2.3 Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner,
reasonably satisfactory to the recipient.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY
---------------------------------------------------------
Sellers and the Company hereby, jointly and severally, represent and
warrant to Buyer as follows, which representations and warranties are, as of the
date hereof, and will be, as of the dates of delivery of the respective
Schedules and as of the Closing Date, true and correct:
4.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Indiana. Copies of the Articles of Incorporation and Bylaws of the Company, and
all amendments thereto, heretofore delivered to Buyer are accurate and complete
as of the date hereof. The Company is not required to be qualified or licensed
in any other State for the conduct of its business.
4.2 Related Entities.
----------------
4.2.1 Schedule 4.2(a) sets forth a complete and accurate list of all
---------------
of the Related Entities, all of which are, directly or indirectly, wholly-owned
by the Company, any or all of the Sellers, or some combination thereof. Schedule
--------
4.2(a) also sets forth the jurisdiction of incorporation of each of the Related
- ------
Entities, each jurisdiction in which each such Related Entity is qualified to do
business, the number of shares of such Related Entities outstanding, and the
ownership thereof .
4.2.2 Schedule 4.2(b) sets forth a list of all agreements among the
---------------
Company, any of the Sellers and the Related Entities.
4.2.3 Each Related Entity has been duly incorporated and is validly
existing and in good standing under the laws of the State of its incorporation
and is qualified to do business and is in good standing in each state in which
the character of its business requires it to do so.
13
<PAGE>
4.3 Authorization. Each of the Sellers and the Company has full power and
-------------
authority (corporate or other) to enter into this Agreement and the Ancillary
Agreements, as the case may be, and to carry out the transactions contemplated
hereby and thereby, and the Board of Directors of the Company and each of the
Sellers has taken all action required by law, its charter documents, as the case
may be, or otherwise, to be taken by it to authorize the execution, delivery and
performance of this Agreement and the Ancillary Agreements, as the case may be,
and the consummation of the transactions contemplated hereby and thereby. This
Agreement and the Ancillary Agreements, as the case may be, are the legal, valid
and binding obligations of each of the Sellers and the Company, enforceable
against each of them in accordance with their respective terms. A copy of the
resolutions of the Company's board of directors and authorizing this Agreement
and the related transactions is attached hereto as Schedule 4.3.
------------
4.4 No Violation. None of the execution, delivery and performance of this
------------
Agreement and the Ancillary Agreements nor the consummation of the transactions
contemplated hereby and thereby will (i) violate any provision of the Articles
of Incorporation or Bylaws of the Company, (ii) violate, result in a breach of,
conflict with, or constitute a default (or an event which, with the giving of
notice or lapse of time or both, would constitute a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of any note, bond,
mortgage, or indenture, contract, agreement, lease, sublease, license, permit,
franchise or other instrument or arrangement to which any Seller or the Company
is a party or by which any of the Shares or any of the assets or properties of
the Company or any Seller are bound or affected, (iii) result in the creation or
imposition of any Encumbrance upon any of the Shares or any property or Assets
of the Company or any Seller under, any agreement or commitment to which the
Company or any Seller is a party or by which the Company or any Seller is bound
or affected, or to which the property of the Company or any Seller is subject,
or (iv) violate, conflict with or result in the breach of (or cause an event
which could have a Material Adverse Effect as a result of) any statute or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority to which any Seller, the Company, the Business or any of the
properties or Assets of any of the foregoing is subject. Except as set forth on
Schedule 4.4, no action, consent, approval or authorization by or filing with
- ------------
any person or entity, including, without limitation, any governmental authority,
is required in connection with the execution, delivery and performance by each
of the Sellers and the Company of this Agreement and the Ancillary Agreements,
as the case may be, or the consummation by each of the Sellers and the Company
of the transactions respectively contemplated by each of them herein and
therein.
4.5 Capitalization.
--------------
4.5.1 The authorized equity securities of the Company consist of
solely of 1,000 shares of common stock, no par value per share, of which 150
shares are issued and outstanding and
14
<PAGE>
constitute the Shares. Sellers are and will be on the Closing Date the record
and beneficial owners and holders of the Shares as set forth on Schedule 4.5
------------
(which schedule also sets forth the address of each such Seller and the
certificate numbers of the certificates representing the Shares), free and clear
of all Encumbrances (other than a legend indicating only that the Shares have
not been registered under the Securities Act).
4.5.2 There are no other shares of capital stock of the Company
issued and outstanding and there are fifty shares of treasury stock. All Shares
are validly issued, fully paid and nonassessable. None of the issued and
outstanding shares of Common Stock was issued in violation of any preemptive
rights. There are no outstanding (i) securities convertible into or exchangeable
or exercisable for any of the Company's capital stock; (ii) options, warrants,
calls or other rights, including, without limitation, rights to demand
registration or to sell in connection with any registration by the Company under
the Securities Act, with respect to the issued capital stock of the Company, or
to purchase or subscribe to capital stock of the Company or securities
convertible into or exchangeable or exercisable for capital stock of the
Company; (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale, transfer, and/or
assignment of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights; or (iv) Shares
pledged as collateral to secure any agreement or obligation. There are no voting
trust agreements or other contracts, agreements, arrangements, commitments,
plans, proxies or understanding restricting or otherwise relating to conveyance,
voting or dividend rights with respect to the Shares. Upon consummation of the
transactions contemplated by this Agreement and registration of the Shares in
the name of Buyer in the stock records of the Company, the Buyer will own all of
the issued and outstanding equity securities of the Company of every sort
whatsoever, free and clear of all Encumbrances.
4.6 No Change in the Assets. Since the Interim Balance Sheet Date:
-----------------------
4.6.1 there has been no actual or, to the best of the Company's or
the Sellers' knowledge, threatened adverse change in the financial condition or
results of operation of the Company, the Business or the Assets or any event,
condition or state of facts, in either case that is, or would result in a
Material Adverse Change in the Assets or the Business or the prospects for the
Business, including without limitation the loss of any material customers;
4.6.2 Except in the ordinary course, there has not been any sale or
other disposition of any Assets, or any Encumbrance placed on the Assets;
4.6.3 The Company has operated the Business in the ordinary course
consistent with the Company's past practice so as to preserve the Business
intact, to keep available to the Business the services of the Company's
employees, and to preserve the Business and the goodwill of the Company's
suppliers, customers, distributors and others having business relations with it;
15
<PAGE>
4.6.4 Except as set forth on Schedule 4.6, the Company has not
------------
purchased, or entered into any agreement to purchase (i) any item of Inventory
with a cost in excess of $10,000, or (ii) any item of Equipment with a cost in
excess of $20,000, in each case without the consent of Buyer; and
4.6.5 The Company has not changed its accounting methods or practices
(including any change in depreciation or amortization policies or rates) or
revalued any of its assets.
4.7 Equipment and Other Assets; Absence of Encumbrances. (a) The Rental
---------------------------------------------------
and Non-Rental Asset Listing attached as Schedule 2.5.4 sets forth the asset
--------------
description, make, model, original cost or adjusted original cost of all
Equipment which, on the Closing Date, will be fully operable, accounted for and
Rental Ready. (b) All of the Assets are owned by the Company free and clear of
all Encumbrances, other than (i) Encumbrances reflected or reserved against on
the Interim Balance Sheet or (ii) Encumbrances set forth on Schedule 4.7 hereto
------------
(the "Permitted Encumbrances"). The Assets, including the Facilities,
constitute all assets necessary for the conduct of the Business as presently
conducted.
4.8 Facilities.
----------
4.8.1 Real Property. The Company does not own any real property. The
-------------
only real property leased by the Company is the parcel located at 300 West
Chicago Avenue, East Chicago, Indiana 46312, as described on Schedule 4.8. The
------------
Sellers and the Company have delivered to Buyer an accurate copy of the leases
covering the Leased Real Property. Neither the Company nor any lessor under the
leases for the Leased Real Property is in material breach or default of its
obligations thereunder. The Company enjoys peaceful and undisturbed possession
of the Leased Real Property.
There are no leases, subleases, licenses, occupancy agreements,
options, rights, concessions or other agreements or arrangements, written or
oral, granting to any person the right to purchase, use or occupy the Facilities
or any portion thereof. The Facilities are supplied with utilities and other
services necessary for the operation of the Business.
4.8.2 Improvements, Fixtures and Equipment. The Facilities and the
------------------------------------
improvements thereon, including without limitation all Equipment (including all
fixtures) and other tangible assets owned, leased or used by the Company at the
Facilities are (i) insured to the extent and in a manner customary in the
industry, (ii) structurally sound with no known material defects, (iii) in good
operating condition and repair, subject to ordinary wear and tear, (iv) not in
need of maintenance or repair except for ordinary routine maintenance and
repair, the cost of which would not be material, (v) sufficient for the
operation of the Business as presently conducted and (vi) in conformity with all
applicable laws, ordinances, orders, regulations and other requirements relating
thereto currently in effect except for violations which in the aggregate would
not have a Material Adverse Effect on
16
<PAGE>
the Company or the Business. None of the improvements is subject to any
commitment or other arrangement for their sale or use by any Affiliate of the
Company or third parties.
4.8.3 Conformity. All Facilities have received all required
----------
approvals of governmental authorities (including without limitation, Permits and
a certificate of occupancy or other similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof.
The Facilities are (and have been) operated and maintained in accordance with
applicable laws, rules, regulations and state, county, municipal or other local
ordinances, and conform to all other conditions necessary for the lawful conduct
of the Business as currently conducted at each such Facility.
4.9 Contracts and Commitments.
-------------------------
4.9.1 Contracts. Schedule 4.9 sets forth a complete and accurate
--------- ------------
list of all Contracts of the following categories:
4.9.1.1 Contracts not made in the ordinary course of the
Company's conduct of the Business;
4.9.1.2 Employment contracts, bonus agreements and severance
agreements;
4.9.1.3 Supply, purchase, distribution, franchise, license,
sales or commission contracts related to the Business;
4.9.1.4 Contracts involving expenditures or liabilities, in
excess of $5,000 or otherwise material to the Business, and not cancelable
(without liability) within 30 calendar days;
4.9.1.5 Contracts or commitments relating to commission
arrangements with others;
4.9.1.6 Promissory notes, loans, agreements, evidences of
indebtedness, letters of credit, guarantees, or other instruments relating to an
obligation to pay money, whether the Company shall be the borrower, lender or
guarantor thereunder or whereby any Equipment or Inventory are pledged
(excluding credit provided by the Company in the ordinary course of the Business
to its customers);
4.9.1.7 Leases of real and personal property not cancelable
(without liability) within 30 calendar days; and
17
<PAGE>
4.9.1.8 Contracts containing covenants limiting the freedom of
the Company or any officer, director or shareholder of the Company to engage in
any line of business or compete with any person.
Sellers have delivered to Buyer true, correct and complete copies of all of the
Contracts listed on Schedule 4.9, including all amendments and supplements
------------
thereto.
4.9.2 Absence of Breaches or Defaults. All of the Contracts are valid
-------------------------------
and in full force and effect. The Company has duly performed all of its
obligations under the Contracts to the extent those obligations to perform have
accrued, and no violation of, or default or breach under any Contracts by the
Company or, to the best of the Company's or the Sellers' knowledge, has any
other party occurred and neither the Company, nor, to the best of the Company's
or the Sellers' knowledge, any other party has repudiated any provisions
thereof. All of the Contracts will be enforceable by the Company after the
Closing to the same extent as if the transactions contemplated by this Agreement
had not been consummated.
4.9.3 Permits. The Company has all Permits required to conduct the
--------
Business, except where the failure to obtain such Permits would not have a
Material Adverse Effect on the Business. All Permits of the Company related to
the Business are valid and in full force and effect and are listed on Schedule
--------
4.9.
- ---
4.10 Financial Statements. Attached hereto as Schedule 4.10 are the
-------------------- -------------
Financial Statements of the Company. The Financial Statements (a) are true,
correct and complete, (b) are in accordance with the underlying books and
records of the Company, (c) have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods covered thereby (except as otherwise described in Schedule 4.10) and (d)
-------------
fairly and accurately present the assets, liabilities (including all reserves)
and financial position of the Business as of the respective dates thereof and
the results of operations and changes in cash flows for the periods then ended
(subject, in the case of the Interim Financial Statements, to normal year-end
adjustments). Except as otherwise described in Schedule 4.10 at the respective
-------------
dates of the Financial Statements, there were no liabilities of the Company,
which, in accordance with GAAP, should have been shown or reflected in the
Financial Statements or the notes thereto, which are not shown or reflected in
the Financial Statements or the notes thereto.
4.11 Books and Records. The Company has made and kept (and given Buyer
-----------------
access to) Books and Records and accounts, which, in reasonable detail,
accurately and fairly reflect the activities of the Company. The minute books
of the Company previously delivered to Buyer accurately and adequately reflect
all action previously taken by the shareholders, board of directors and
committees of the board of directors of the Company. The stock book records of
the Company
18
<PAGE>
previously delivered to Buyer are true, correct and complete, and accurately
reflect all transactions effected in the Company's stock through and including
the date hereof.
4.12 Litigation. Except as set forth on Schedule 4.12, there is no
---------- -------------
action, order, writ, injunction, judgment or decree outstanding or any claim,
suit, litigation, proceeding, labor dispute, arbitral action, governmental audit
or investigation (collectively, "Actions") pending, or to the best of the
Company's or Sellers' knowledge, threatened or anticipated (a) against, related
to or affecting the Company or the Business or (b) seeking to delay, limit or
enjoin the transactions contemplated by this Agreement. The Company is not in
default with respect to or subject to any judgment, order, writ, injunction or
decree of any court or governmental agency, and there are no unsatisfied
judgments against the Company or the Business.
4.13 Labor Matters. Except as disclosed on Schedule 4.13 the Company is
------------- -------------
not a party to any labor agreement with respect to its employees with any labor
organization, union, group or association and there are no employee unions (nor
any other similar labor or employee organizations) under local statutes, custom
or practice. Except as disclosed on Schedule 4.13 the Company has not
-------------
experienced any attempt by organized labor or its representatives to make the
Company conform to demands of organized labor relating to its employees or to
enter into a binding agreement with organized labor that would cover the
employees of the Company.
4.14 Compliance with Law. The Company, the conduct of the Business and
-------------------
the operation of the Facilities have not violated and are in compliance with all
laws, statutes, ordinances, regulations, rules and orders of any foreign,
federal, state or local government and any other governmental department or
agency, and any judgment, decision, decree or order of any court or governmental
agency, department or authority relating to the Assets, Facilities or Business
or operations of the Company, except where the violation or failure to comply,
individually or in the aggregate, would not have a Material Adverse Effect on
the Facilities, the Equipment, Inventory or the Business. The Company and the
conduct of the Business and the operation of the Facilities are in conformity
with all energy, public utility, zoning, building and health codes, regulations
and ordinances, the Americans with Disabilities Act, ERISA, OSHA and all other
foreign, federal, state, and local governmental and regulatory requirements,
except where any nonconformity would not have a Material Adverse Effect,
individually or in the aggregate, on the Facilities, Assets or the Business.
The Company has not received any notice to the effect that, or otherwise been
advised that, it is not in compliance with any such statutes, regulations,
rules, judgments, decrees, orders, ordinances or other laws, and the Company has
no reason to anticipate that any existing circumstances are likely to result in
violations of any of the foregoing, which non-compliance or violation could, in
any one case or in the aggregate, have a Material Adverse Effect on the
Facilities, the Assets or the Business.
19
<PAGE>
4.15 No Brokers. None of the Sellers, the Company or any of the Company's
----------
officers, directors, employees or Affiliates has employed or made any agreement
with any broker, finder or similar agent or any person or firm which will result
in an obligation on the part of the Company or Buyer to pay any finder's fee,
brokerage fees or commission or similar payment in connection with the
transactions contemplated hereby.
4.16 No Other Agreements to Sell the Company. None of the Sellers has any
---------------------------------------
commitment or legal obligation, absolute or contingent, to any other person or
firm other than the Buyer to sell, assign, transfer or effect a sale of any of
the Shares or the Assets or to effect any merger, consolidation, liquidation,
dissolution or other reorganization of the Company.
4.17 Proprietary Rights.
------------------
4.17.1 Proprietary Rights. Schedule 4.17 lists all of the Company's
------------------ -------------
federal, state and foreign registrations of trademarks, service marks and other
marks, trade names or other trade rights, and all pending applications for any
such registrations, all other trademarks and other marks, trade names and other
trade rights or in which the Company has any interest whatsoever, and all other
trade secrets and other proprietary rights, whether or not registered, and all
computer software created or used by or on behalf of the Company other than off
the shelf software, in each case relating to the Business (collectively,
"Proprietary Rights"). The Proprietary Rights listed in Schedule 4.17 are all
those used by the Company in connection with the Business.
4.17.2 Royalties and Licenses. No person has a right to receive a
----------------------
royalty or similar payment in respect of any Proprietary Rights. The Company
has no licenses granted, sold or otherwise transferred by or to it or other
agreements to which it is a party, relating in whole or in part to any of the
Proprietary Rights.
4.17.3 Ownership and Protection of Proprietary Rights. The
----------------------------------------------
Company owns or licenses, and has the right to use or (if it so elects) to
sublicense each of the Proprietary Rights. None of the Proprietary Rights is
involved in any pending or to the best of the Company's or Sellers' knowledge,
threatened litigation. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such Proprietary Rights.
The Company has taken all reasonable and prudent steps to protect the
Proprietary Rights from infringement by any other firm, corporation, association
or person. The Company's use of the Proprietary Rights is not infringing upon or
otherwise violating the rights of any third party in or to such Proprietary
Rights, nor has such infringement been alleged by any third party. All of the
Proprietary Rights are valid and enforceable rights of the Company and will not
cease to be valid and in full force and effect by reason of the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated by this Agreement.
4.18 Tax Matters.
-----------
20
<PAGE>
4.18.1 Filing of Tax Returns. The Company has timely filed with the
---------------------
appropriate taxing authorities all returns (including without limitation,
information returns and supporting schedules) in respect of Taxes required to be
filed through the date hereof and will timely file any such returns required to
be filed on or prior to the Closing Date. The returns including supporting
schedules filed are complete and accurate in all material respects. Except as
specified in Schedule 4.18, neither the Company, nor any group of which the
-------------
Company now or was a member, has requested any extension of time within which to
file returns (including without limitation information returns) in respect of
any taxes. The Company has delivered to Buyer complete and accurate copies of
the Company's federal, state and local income tax returns for its fiscal years
ended February 28, 1994, 1995, and 1996 and will deliver to Buyer copies of the
Company's federal, state and local tax returns for the fiscal year ended
February 28, 1998 when completed.
4.18.2 Payment of Taxes. All Taxes, in respect of taxable periods
----------------
ending on or before the Closing Date, have been timely paid, or will be timely
paid prior to Closing, or to the extent not paid prior to Closing, the Company's
liability for such Taxes will be fully reserved against in the Tax Reserve
included on the Effective Date Balance Sheet. Any liability of the Company for
Taxes in excess of the amounts so paid or the Tax Reserve so established will be
subject to indemnification by Sellers in accordance with Section 11.3 hereof.
4.18.3 Audits, Investigations or Claims. Except as set forth in
--------------------------------
Schedule 4.18, the consolidated federal income tax returns and any required
- -------------
state tax returns of the Company have not been examined by the Internal Revenue
Service and any applicable state taxing authority for all periods to and
including those set forth in Schedule 4.18, and except to the extent shown
-------------
therein, no deficiencies for Taxes, have been claimed, proposed or assessed by
any taxing or other governmental authority against the Company. Except as set
forth in Schedule 4.18, there are no pending or, to the best of the Company's or
-------------
Sellers' knowledge, threatened audits, investigations or claims for or relating
to any additional liability in respect of Taxes, and there are no matters under
discussion with any governmental authorities with respect to Taxes that in the
reasonable judgment of the Company, or its counsel, is likely to result in
additional liability for Taxes. Audits of federal, state, and local returns for
Taxes by the relevant taxing authorities have been completed for each period as
set forth in Schedule 4.18 and, except as set forth therein, the Company has not
-------------
been notified that any taxing authority intends to audit a return for any other
period. Except as set forth in Schedule 4.18, no extension of a statute of
-------------
limitations relating to Taxes is in effect with respect to the Company.
4.18.4 Lien. There are no liens for Taxes (other than as could be
----
asserted for current Taxes not yet due and payable) on the Assets.
4.18.5 Tax Reserve. The Company shall reserve a sufficient cash
-----------
amount on its Interim Balance Sheet and Effective Date Balance Sheet to satisfy
all liabilities of the Company
21
<PAGE>
relating to Taxes for each tax year of the Company ending on or prior to the
Effective Date provided, however, to the extent any additional tax liability
arises on behalf of the Company solely as a result of the reserve for doubtful
accounts of the Company in the amount of $75,000, the Company is not required to
set aside amounts to satisfy such liability and Sellers are not liable for such
amount.
4.19 Accounts Receivable. The accounts receivable reflected in the
-------------------
Interim Balance Sheet, and all accounts receivable arising since the Interim
Balance Sheet Date, represent bona fide claims of the Company against debtors
for sales, services performed or other charges arising on or before the date
hereof, and all the goods delivered and services performed which gave rise to
said accounts were delivered or performed in accordance with the applicable
orders, Contracts or customer requirements. All of such accounts receivables are
collectible in the ordinary course of business except to the extent reserved
against on the Interim Balance Sheet or as will be reserved against on the
Effective Date Balance Sheet. The Company owns all such accounts receivable,
free and clear of all Encumbrances.
4.20 Inventory. Except as set forth on Schedule 4.20, all the Inventory
--------- -------------
of the Company is located at the Facility. The Company owns the Inventory free
and clear of all liens and Encumbrances except for Permitted Encumbrances.
4.21 Employees and Employee Benefits.
-------------------------------
4.21.1 As used in this Section 4.21, the following terms have the
meanings set forth below.
"Benefit Arrangement" shall mean any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or accident
benefits (including without limitation any "voluntary employees' beneficiary
association" as defined in Section 501(c)(9) of the Code providing for the same
or other benefits) or for deferred compensation, profit sharing bonuses, stock
options, stock appreciation rights, stock purchases or other forms of incentive
compensation or postretirement insurance, compensation or benefits which (A) is
not a Welfare Plan, Pension Plan or Multiemployer Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case may be,
by the Company or an ERISA Affiliate or under which the Company or any ERISA
Affiliate may incur any liability, and (C) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
22
<PAGE>
"Employee Plans" shall mean all Benefit Arrangements, Multiemployer
Plans, Pension Plans and Welfare Plans.
"ERISA Affiliate" shall mean any entity which is (or at any relevant
time was) a member of a "controlled group of corporations" with, under "common
control" with, or a member of an "affiliated service group" with, the Company as
defined in Section 414(b), (c), (m) or (o) of the Code, or under "common
control" with the Company, within the meaning of Section 4001(b)(1) of ERISA.
"Multiemployer Plan" shall mean any "multiemployer plan," as defined
in Section 4001(a)(3) of ERISA, (A) which the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
after September 25, 1980, maintained, administered, contributed to or was
required to contribute to, or under which the Company or any ERISA Affiliate may
incur any liability and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with such
entities).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean any "employee pension benefit plan" as
defined in Section 3(2) of ERISA which (A) the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or,
within the five years prior to the Closing Date, maintained, administered,
contributed to or was required to contribute to, or under which the Company or
any ERISA Affiliate may incur any liability; (B) covers any employee or former
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities); and (C) is not a Multiemployer Plan.
"Welfare Plan" shall mean any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA, which (A) the Company or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or under
which the Company or any ERISA Affiliate may incur any liability; (B) covers any
employee or former employee of the Company or any ERISA Affiliate (with respect
to their relationship with such entities); and (C) is not a Multiemployer Plan.
4.21.2 Schedule 4.21(a): (i) contains a list of all employees of the
----------------
Company, and their wage rates or salaries, as of the date of this Agreement, and
(ii) sets forth the dates of employment for such employees.
4.21.3 Disclosure; Delivery of Copies of Relevant Documents and Other
--------------------------------------------------------------
Information. Schedule 4.21(b) contains a complete list of Employee Plans. True
- ----------- ----------------
and complete copies of each of the following documents have been delivered by
the Company to Buyer: (i) each Welfare Plan and Pension Plan (and, if
applicable, related trust agreements) and all amendments
23
<PAGE>
thereto, all written interpretations thereof and written descriptions thereof
which have been distributed to the Company's employees and all annuity contracts
or other funding instruments; (ii) each Benefit Arrangement including written
interpretations thereof and written descriptions thereof which have been
distributed to the Company's employees (including descriptions of the number and
level of employees covered thereby) and a complete description of any Benefit
Arrangement which is not in writing; (iii) the most recent determination or
opinion letter issued by the Internal Revenue Service with respect to each
Pension Plan and each Welfare Plan; and (iv) for the three most recent plan
years, Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Pension Plan and each Welfare Plan.
4.22 Representations.
---------------
4.22.1 Pension Plans. Except as provided in Schedule 4.22 (a), no
------------- -----------------
Pension Plan is subject to the minimum funding requirements of Title IV of ERISA
or Section 412 of the Code. Neither the Company nor any ERISA Affiliate is
required to provide security to a Pension Plan under Section 401(a)(29) of the
Code. Each Pension Plan which is intended to be qualified (and each related
trust agreement, annuity contract or other funding instrument) is qualified and
tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a) and has been so qualified during the period from its
adoption to date. Neither the Company nor any ERISA Affiliate has engaged in,
or is a successor or parent corporation to an entity that has engaged in, a
transaction described in Section 4069 of ERISA.
4.22.2 Multiemployer Plans. Except as provided in Schedule 4.22 (b),
------------------- -----------------
the Company nor any ERISA Affiliate has any Multiemployer Plans. The Company
only contributes to the Midwest Operating Engineers Welfare Fund and the Midwest
Operating Engineers Pension Fund.
4.22.3 Welfare Plans. Neither the Company, nor any ERISA Affiliate
-------------
has any present or future obligation to make available to any present or former
employee of the Company or any ERISA Affiliate, any retiree medical benefit
plan, or other retiree Welfare Plan. No condition exists which would prevent
the Company from amending or terminating any Welfare Plan. Each Welfare Plan
which is a "group health plan," as defined in Section 607(1) of ERISA, has been
operated in compliance with provisions of Part 6 of Title I, Subtitle B of ERISA
and Section 4980B of the Code at all times.
4.22.4 Compliance with Law. Each Employee Plan maintained by the
-------------------
Company has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Employee Plan, including without limitation ERISA
and the Code.
24
<PAGE>
4.22.5 Employment at Will. Except as provided by law, the
------------------
employment of all persons presently employed or retained by the Company is
terminable at will.
4.22.6 Unrelated Business Taxable Income. No Employee Plan (or
---------------------------------
trust or other funding vehicle pursuant thereto) maintained by the Company is
subject to any tax under Code Section 511.
4.22.7 Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company
(with respect to its relationship with such entities) that, individually or
collectively, provides for the payment by the Company of any amount (i) that is
not deductible by the Company under Section 162(a)(1) or 404 of the Code,
whichever is applicable, (ii) for which the deduction by the Company would be
disallowed under Section 162(m) of the Code, or (iii) that is an "excess
parachute payment" pursuant to Section 280G of the Code.
4.22.8 Fiduciary Duties and Prohibited Transactions. Neither the
--------------------------------------------
Company nor any plan fiduciary of any Welfare Plan or Pension Plan has engaged
in any transaction in violation of Sections 404 or 406 of ERISA or any
"prohibited transaction," as defined in Section 4975(c)(1) of the Code, for
which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code, or has otherwise violated the provisions of Part 4 of Title I,
Subtitle B of ERISA. The Company has not been assessed any civil penalty under
Section 502(l) of ERISA.
4.22.9 Validity and Enforceability. Each Welfare Plan, Pension Plan,
---------------------------
related trust agreement, annuity contract or other funding instrument and
Benefit Arrangement is legally valid and binding and in full force and effect.
4.22.10 Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding, arbitral
action, governmental audit or investigation relating to or seeking benefits
under any Employee Plan that is pending, or to the best of the Company's or
Sellers' knowledge, threatened or anticipated against the Company, any ERISA
Affiliate or any Employee Plan.
4.22.11 No Amendments. Neither the Company nor any ERISA Affiliate
-------------
has any announced plan or legally binding commitment to create any additional
Employee Plans or to amend or modify any existing Employee Plan, other than any
amendments required to maintain any such Employee Plans' compliance with
applicable law.
4.22.12 No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company or any ERISA Affiliate or any Employee Plan,
directly or indirectly, could be subject to any material liability (A) under any
statute, regulation or governmental order relating
25
<PAGE>
to any Employee Plans or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
4.22.13 Unpaid Contributions. Neither the Company nor any ERISA
--------------------
Affiliate has any liability for unpaid contributions under Section 515 of ERISA
with respect to any Pension Plan or Welfare Plan.
4.22.14 Insurance Contracts. Neither the Company nor any Employee
-------------------
Plan holds as an asset of any Employee Plan any interest in any annuity
contract, guaranteed investment contract or any other investment or insurance
contract issued by an insurance company that is the subject of bankruptcy,
conservatorship or rehabilitation proceedings.
4.22.15 No Acceleration or Creation of Rights. Neither the execution
-------------------------------------
and delivery of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will result in the acceleration or creation of
any rights of any person to benefits under any Employee Plan (including, without
limitation, the acceleration of the vesting or exercisability of any stock
options, the acceleration of the vesting of any restricted stock, the
acceleration of the accrual or vesting of any benefits under any Pension Plan or
the acceleration or creation of any rights under any severance, parachute or
change in control agreement).
4.23 Compliance With Environmental Laws. Any issues pertaining to
----------------------------------
compliance with Environmental Laws shall be governed by this Section 4.23.
4.23.1 Definitions. The following terms, when used in this Section
-----------
4.23, shall have the following meanings. Unless the context otherwise requires,
any of these terms may be used in the singular or the plural depending on the
reference.
4.23.2 "Company". For purposes of this Section 4.23 only, the term
-------
"Company" shall include (i) the Sellers, (ii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or other
entities, whether in existence as of the date hereof or at any time prior to the
date hereof, the assets or obligations of which have been expressly acquired or
assumed by the Company or to which the Company has expressly succeeded.
4.23.3 "Release" shall mean and include any spilling, leaking,
-------
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
migrating, leaching, dumping or disposing into the environment or the work place
of any Hazardous Substance, and otherwise as defined in any Environmental Law.
26
<PAGE>
4.23.4 "Hazardous Substance" shall mean any quantity of asbestos in
-------------------
any form, urea formaldehyde, PCBs, radon gas, crude oil or any fraction thereof,
all forms of natural gas, petroleum products or by-products, any radioactive
substance, any toxic, infectious, reactive, corrosive, ignitible or flammable
chemical or chemical compound and any other hazardous substance, material or
waste (as defined in or for purposes of any Environmental Law), whether solid,
liquid or gas.
4.23.5 Compliance With Environmental Laws. Except as set forth on
----------------------------------
Schedule 4.23, the Facilities have been owned, leased, operated and maintained
- -------------
in compliance with all federal, state, local or foreign laws, statutes,
ordinances, regulations, rules, judgments, orders, notice requirements, court
decisions, restrictions or licenses, which (i) regulate or relate to the
protection or clean-up of the environment, the use, treatment, storage,
transportation, handling or disposal of hazardous, toxic or otherwise dangerous
substances, wastes or materials (whether gas, liquid or solid), the preservation
or protection of waterways, groundwater, drinking water, air, wildlife, plants
or other natural resources, or the health and safety of persons or property,
including without limitation protection of the health and safety of employees or
(ii) impose liability with respect to any of the foregoing, including without
limitation the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.),
Resource Conservation & Recovery Act (42 U.S.C. (S) 6901 et seq.) ("RCRA"), Safe
Drinking Water Act (21 U.S.C. (S) 349, 42 U.S.C. (S)(S) 201, 300f), Toxic
Substances Control Act (15 U.S.C. (S) 2601 et seq.), Clean Air Act (42 U.S.C.
(S) 7401 et seq.), the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), or any other similar
federal, state or local law of similar effect, each as amended as of the Closing
Date (collectively, "Environmental Laws").
4.23.6 Facilities. The Facilities are, and to the best of the
----------
Sellers' and the Company's knowledge at all times have been, owned, leased and
operated in compliance with all Environmental Laws and to Sellers' best
knowledge in a manner that will not give rise to any liability under any
Environmental Laws.
4.23.7 Permits. The Company has, and to the best of the Sellers' and
-------
the Company's knowledge at all times has had, all Permits required under any
Environmental Law and the Facilities are, and, while operated by the Company,
have at all times been in compliance with all such Permits.
4.23.8 Permits Required. The consummation of any of the transactions
----------------
contemplated by this Agreement will not require an application for issuance,
renewal, transfer or extension of, or any other administrative action regarding,
any Permit required under any Environmental Law.
27
<PAGE>
4.23.9 Notice of Violation. The Company has not received any notice
-------------------
from any governmental entity or agency at any time that it or the Facilities is
or were claimed to be in violation of the provisions of any Environmental Law or
in non-compliance with the conditions of any Permit, and there is no pending, or
to the best of the Company's or Sellers' knowledge, threatened lawsuit,
governmental or other legal action to that effect.
4.23.10 Pending Actions. There is not now pending, or to the best of
---------------
the Company's or Sellers' knowledge, threatened, nor to the best of Sellers'
knowledge is there any basis for, nor has there ever been, any Action against
the Company, nor any basis for any Action, under any Environmental Law or
otherwise with respect to any Release or mishandling of any Hazardous Substance.
4.23.11 Judgments. There are no consent decrees, judgments,
---------
judicial or administrative orders or agreements with, or liens by, any
governmental authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate, bind or in any way affect the
Company or the Facilities.
4.23.12 Hazardous Substances. There is not and to the best of the
--------------------
Sellers' and the Company's knowledge has not been any Hazardous Substance used,
generated, treated, stored, transported, disposed of, handled or otherwise
existing on, under, about or from any Facility, except for quantities of any
such Hazardous Substances stored or otherwise held on, under or about any such
Facility in full compliance with all Environmental Laws and related to the
operation of the Business.
4.23.13 Handling of Hazardous Substances. The Company has at all
--------------------------------
times used, generated, treated, stored, transported, disposed of or otherwise
handled its Hazardous Substances in compliance with all Environmental Laws and
to the best of Sellers' knowledge in a manner that will not result in liability
of the Company or Buyer under any Environmental Law. Schedule 4.23 sets forth a
-------------
list of all contractors and other third parties who at any time have hauled,
handled, stored, transported or disposed of any Hazardous Substance (i) on
behalf of the Company or the Business, or (ii) generated by the Company or the
Business, together with, to the best of the Sellers' and the Company's
knowledge, a complete list of all dumpsites and other off-site locations at
which such Hazardous Substances have been disposed of.
4.23.14 Environmental Conditions. There are no present or to the
------------------------
best of the Sellers' and the Company's knowledge past Environmental Conditions
(as defined below) in any way relating to the Business or Facilities.
"Environmental Conditions" means the introduction into the soil, groundwater or
environment of the Facilities (through leak, spill, release, discharge, escape,
emission, dumping, disposal or otherwise) of any pollution, including without
limitation any contaminant, irritant or pollutant or Hazardous Substance
(whether or not upon the property of the
28
<PAGE>
Business and whether or not such pollution constituted at the time thereof a
violation of any Environmental Law) as a result of which either the Company or,
after the Closing, Buyer has or may become liable to any federal, state, or
local governmental authority or person or by reason of which any of the Assets
may suffer or be subjected to any lien.
4.23.15 CERCLA or RCRA. No current or to the best of the Sellers' and
--------------
the Company's knowledge past use, generation, treatment, transportation,
storage, disposal or handling practice of the Company with respect to any
Hazardous Substance has or will result in any liability under the CERCLA or RCRA
or any state or local law of similar effect.
4.23.16 Storage Tank or Pipeline. Except as set forth on Schedule
------------------------ --------
4.23, there is not now and to the best knowledge of the Sellers there has not
- ----
been at any time in the past any underground or above-ground storage tank or
pipeline at any Facility where the installation, use, maintenance, repair,
testing, closure or removal of such tank or pipeline was not in compliance with
all Environmental Laws and there has been no Release from or rupture of any such
tank or pipeline, including without limitation any Release from or in connection
with the filling or emptying of such tank.
4.23.17 Environmental Audits or Assessments. True, complete and
-----------------------------------
correct copies of the written reports, and all parts thereof, including any
drafts of such reports if such drafts are in the possession or control of the
Company, of all environmental audits or assessments which have been conducted at
any Facility within the past five years, either by the Company or any attorney,
environmental consultant or engineer engaged for such purpose, have been
delivered to Buyer and a list of all such reports, audits and assessments and
any other similar report, audit or assessment of which the Company or Sellers
have knowledge is included on Schedule 4.23.
-------------
4.23.18 Indemnification Agreements. The Company is not a party,
--------------------------
whether as a direct signatory or as successor, assign or third party
beneficiary, or to the best of the Sellers' and the Company's knowledge,
otherwise bound, to any lease or other Contract under which the Company is
obligated by or entitled to the benefits of, directly or indirectly, any
representation, warranty, indemnification, covenant, restriction or other
undertaking concerning Environmental Conditions.
4.23.19 Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or to its knowledge waived any
rights concerning any Environmental Condition.
4.23.20 Notices, Warnings and Records. The Company has given all
-----------------------------
notices and warnings, made all reports, and has kept and maintained all records
required by and in compliance with all Environmental Laws.
29
<PAGE>
4.24 Liabilities. The Company has no liabilities or obligations
-----------
(absolute, accrued, contingent or otherwise) except (i) liabilities which are
reflected on the Interim Balance Sheet or which are not required under GAAP to
be reflected on the Interim Balance Sheet, (ii) liabilities incurred in the
ordinary course of the Business and consistent with past practice since the
Interim Balance Sheet Date, and (iii) liabilities arising under Contracts
identified in Schedule 4.9 to which the Company is a party.
------------
4.25 Insurance.
---------
4.25.1 Schedule 4.25 describes all policies of insurance (including
-------------
the insurer, type of insurance and period of coverage) to which the Company is a
party or under which the Company, or any employee, officer or director of the
Company (in his or her capacity as such) is or has been insured at any time
within the five years preceding the date of this Agreement; and any self-
insurance arrangement by or affecting the Company, including any reserves
established thereunder. All such policies, together with such self-insurance,
(i) provide adequate insurance coverage for the Assets and the operations of the
Company for all risks normally insured against by a person or entity carrying on
the same business or businesses as the Company, (ii) are sufficient for
compliance with all legal requirements and Contracts to which the Company is a
party or by which it is bound, and (iii) will continue in full force and effect
following the Closing.
4.25.2 Schedule 4.25 sets forth, by year, for the current policy year
-------------
and each of the five preceding policy years, a summary of the loss experience
under each policy, and summary of the loss experience for all claims that were
self-insured, including the number and aggregate cost of such claims.
4.25.3 None of the Sellers, nor the Company has received (i) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (ii) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or effect or
will not be renewed or that the issuer of any policy is not willing or able to
perform its obligations thereunder.
4.25.4 The Company has paid all premiums due, and has otherwise
performed all of its respective obligations, under each insurance policy
described above.
4.26 Conduct of the Business. Since the Interim Balance Sheet Date, the
-----------------------
Company has conducted its operations in the ordinary course of the Business and
substantially in accordance with past practice, and has not taken any action
that, if taken after the date hereof, would violate Section 9.1.
4.27 Securities Law Matters.
----------------------
30
<PAGE>
4.27.1 Each Seller confirms that it is acquiring the Parent Common
Stock for its own account as principal, for investment purposes only, and not
with a view to, or for, resale or distribution thereof, and no other person has
or will have a direct or indirect beneficial interest in such Parent Common
Stock.
4.27.2 Each Seller understands that the offering and sale of the
Parent Common Stock is intended to be a transaction by an issuer not involving
any public offering exempt from registration under the Securities Act by virtue
of Section 4(2) of the Securities Act and the rules and regulations of the
Commission thereunder;
4.27.3 Each Seller represents that it is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act;
4.27.4 Each Seller understands and acknowledges that there are
substantial risks of loss of investment involved in an investment in the Parent
Common Stock, and that the investment in the Parent Common Stock is an illiquid
investment subject to transfer restrictions, and Sellers represent and warrant
that they have the financial ability to bear the economic risk of such
investment;
4.27.5 Each Seller has such knowledge and experience in financial and
business matters, including investments of the type represented by the Parent
Common Stock, as to be capable of evaluating the merits of investment in
therein;
4.27.6 Each Seller has been furnished with a copy of the most recent
periodic report filed by Parent with the Commission under the Exchange Act and
any documents that may have been made available to the Sellers otherwise or upon
their request, have carefully read and understand such materials and have
evaluated the risks of an acquisition of the Parent Common Stock;
4.27.7 Each Seller has been given the opportunity to ask questions
of, and receive answers from, representatives of Parent in order for it to
evaluate the merits and risks of investment in the Parent Common Stock; and
4.27.8 No Seller has been furnished with or has relied upon any oral
or written representation, warranty or information in connection with the
offering of the Parent Common Stock except for that set forth in this Agreement
or included in the SEC Documents.
4.27.9 The instruments evidencing the Parent Common Stock shall bear
a restrictive legend in substantially the following form: "The securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended (the "Act"). These securities have
31
<PAGE>
been acquired for investment and not with a view to distribution or resale, and
may not be sold, offered for sale, pledged or hypothecated in the absence of an
effective registration statement for such shares under the Act or an opinion of
counsel satisfactory in form and content to the issuer that such registration is
not required under such Act."
4.28 Affiliate Transactions. Except as set forth on Schedule 4.28, no
---------------------- -------------
officer, director, or any Seller or any member of the immediate family of any
such officer, director, or Seller, or any entity in which any of such persons
owns any beneficial interest (other than a publicly held corporation whose stock
is traded on a national securities exchange or in the over-the-counter market
and less than 1% of the stock of which is beneficially owned by any of such
persons) (collectively "Insiders") has any agreement with the Company or any
--------
interest in any property (real, personal, or mixed, tangible or intangible) used
in or pertaining to the Business or the Assets to be acquired hereunder. For
purposes of the preceding sentence, the members of the immediate family of an
officer, director, or, Seller shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer, director, or Seller.
4.29 HSR Act. As determined in accordance with the HSR Act, neither the
-------
Company nor any "acquired person" of which the Company may be deemed to be a
part: (i) is engaged in manufacturing, (ii) has total assets of $10,000,000 or
more, or (iii) has annual net sales of $100,000,000 or more.
4.30 Disclosure. Neither this Agreement nor any of the Schedules or
----------
Exhibits hereto contains or shall contain when delivered at Closing any untrue
statement of a material fact or shall omit to state a material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they were made, not misleading, and there is no fact which has not been
disclosed to Buyer which to the best of Sellers' knowledge Materially Adversely
Affects or could reasonably be anticipated to Materially Adversely Affect the
Shares being transferred, Assets, Business, financial condition or results of
operations, customer, employee or supplier relations, or business condition of
the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
--------------------------------------------------
5.1 Representations and Warranties of Buyer. Buyer hereby represents and
---------------------------------------
warrants to Sellers as follows, which representations and warranties are, as of
the date hereof, and will be, as of the Closing Date, true and correct:
32
<PAGE>
5.1.1 Organization of Buyer. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the State of
Mississippi. The Company is duly qualified or licensed to do business in the
State of Indiana.
5.1.2 Authorization. Buyer has all requisite corporate power and
-------------
authority, and has taken all corporate action necessary, to execute and deliver
this Agreement and each of the Ancillary Agreements, including the New Lease, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by Buyer and is (and following their execution and delivery by Buyer
and Sellers or the Company, as applicable, each of the Ancillary Agreements will
be) a legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
5.1.3 No Conflict or Violation. Neither the execution, delivery or
------------------------
performance of this Agreement or the Ancillary Agreements nor the consummation
of the transactions contemplated hereby or thereby, nor compliance by Buyer with
any of the provisions hereof or thereof, will (a) violate or conflict with any
provision of the Certificate of Incorporation or Bylaws of Buyer, or (b)
violate, conflict with or result in a breach of any statute, rule, regulation,
ordinance, code, order, judgment, ruling, writ, injunction, decree or award
binding upon Buyer.
5.1.4 Consents and Approvals. No notice to, declaration, filing or
----------------------
registration with, or authorization, consent or approval of, or permit from, any
governmental or regulatory body or authority, or any other person or entity, is
required to be made or obtained by Buyer in connection with the execution,
delivery and performance of this Agreement or the Ancillary Agreements and the
consummation of the transactions contemplated hereby or thereby, except (a) as
may be required by Buyer to operate the Business after the Closing, (b) as has
been obtained on or prior to the date hereof or (c) as set forth in Schedule
--------
5.1.4.
- -----
5.1.5 No Brokers. Neither Buyer nor any of its respective officers,
----------
directors, employees or, to its knowledge, shareholders have employed or made
any Agreement with any broker, finder or similar agent or any person or firm
which will result in an obligation to pay any finders fees, brokerage fees or
commission or similar payment in connection with the transactions contemplated
hereby for which Seller or the Company will bear any responsibility.
5.2 Representations and Warranties of Parent. Parent hereby represents and
----------------------------------------
warrants to Sellers as follows, which representations and warranties are, as of
the date hereof, and will be, as of the Closing Date, true and correct:
5.2.1 Organization of Parent. Parent is a corporation duly organized,
----------------------
validly existing, and in good standing under the laws of the State of Delaware.
33
<PAGE>
5.2.2 Authorization. At the Closing, the execution and delivery of
-------------
this Agreement and the consummation of the transactions contemplated hereby will
be duly authorized by all requisite corporate action on the part of Parent.
This Agreement has been duly executed and delivered by Parent and is (and
following their execution and delivery by Parent, Buyer and Sellers or the
Company, as applicable, will be) a legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms.
5.2.3 No Conflicts or Violations. The execution and delivery of this
--------------------------
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate any provision of the Certificate of Incorporation or Bylaws of
Parent, (ii) violate, conflict with or result in a breach of any applicable
provision of law or regulation, order, injunction, or decree, or any other
requirement of any governmental body or court relating to Parent or its
securities, property, or business, or (iii) (subject to Parent obtaining any
consent or approval required as a condition of Closing), violate, conflict
with, result in the breach or termination of, constitute a default under, or
result in the creation of any material lien, charge, or encumbrance upon any of
the properties or assets of Parent or any of its subsidiaries pursuant to any
agreement or instrument to which it or any of its subsidiaries is a party, which
violate, conflict, breach, termination, default, or creation would have a
material adverse effect on the business or financial condition of Parent and it
subsidiaries taken as a whole (a "Parent Material Adverse Effect").
5.2.4 Consents and Approvals. No notice to, declaration, filing or
----------------------
registration with, or authorization, consent or approval of, or permit
(collectively "Governmental Consents") from, any governmental or regulatory body
or authority, or any other person or entity, is required to be made or obtained
by Parent in connection with the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement, and except for those Governmental Consents the failure of which to
make or obtain would not have a Parent Material Adverse Effect.
5.2.5 Parent Common Stock. The Shares of Parent Common Stock to be
-------------------
issued pursuant to this Agreement, when issued and delivered in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully
paid, and nonassessable and free of preemptive rights.
5.2.6 SEC Information Furnished Concerning Parent. For the period
-------------------------------------------
from January 1, 1997 to December 31, 1997, Parent has filed with the Commission
those filings and reports required pursuant to the Exchange Act (the "SEC
Documents"). The audited consolidated financial statements for the year ended
December 31, 1996, contained within the SEC Documents have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be otherwise noted therein) and fairly present the consolidated
financial position of Parent and its subsidiaries as of such date and the
consolidated results of operations of Parent and its
34
<PAGE>
subsidiaries for the year then ended. To Parent's knowledge, as of their
respective dates, the SEC Documents, including, but not limited to, the
financial statements contained therein, did not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
5.2.7 Litigation. As of the date hereof, except as set forth in the
----------
SEC Documents, there are, and as of the Closing Date, except as set forth
therein or pursuant to a Commission report or filing made prior to the Closing
Date, no suits, actions or administrative, arbitration, or other proceedings
(including proceedings concerning labor disputes or grievances) or governmental
investigations pending or, to the knowledge of Parent, threatened against Parent
or its properties or business that could reasonably be expected to have a Parent
Material Adverse Effect.
5.2.8 No Brokers. Neither Parent nor any of its respective officers,
----------
directors, employees or, to its knowledge, shareholders have employed or made
any Agreement with any broker, finder or similar agent or any person or firm
which will result in an obligation to pay any finders fees, brokerage fees or
commission or similar payment in connection with the transactions contemplated
hereby for which Sellers or the Company will bear any responsibility.
ARTICLE VI
COVENANTS OF BUYER, THE COMPANY AND SELLERS
-------------------------------------------
Buyer, the Company and Sellers each covenant with the others as follows:
6.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, each of the parties hereto agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using their respective best efforts (A)
to obtain all necessary waivers, consents and approvals from third parties;
provided, however, that Buyer shall not be required to make any payments,
commence litigation or agree to modifications of the terms of Contracts or
Leases in order to obtain any such waivers, consents or approvals, (B) to obtain
all necessary Permits as are required to be obtained under any federal, state,
local or foreign law or regulations, (C) to effect all necessary registrations
and filings, and all other submissions of information requested by governmental
authorities, and (D) to fulfill all conditions to this Agreement.
35
<PAGE>
6.2 Employee Matters. Buyer shall retain only those employees of the
----------------
Company who pass a physical examination and drug and alcohol screening by a
licensed laboratory chosen by Buyer in compliance with Indiana law, and who
otherwise meet Buyer's customary criteria for employment, and Sellers shall
reasonably cooperate with Buyer in retaining all such employees (the "Retained
Employees"). Buyer agrees to give Retained Employees credit for their time of
employment with Company with respect to their seniority as an employee of Buyer
for the purpose of determining benefits eligibility. All Retained Employees will
be at-will employees of Buyer and may be terminated by Buyer in its sole
discretion, subject to the requirements of applicable laws governing employers
and employees.
6.3 Environmental Assessments and Remediation.
------------------------------------------
6.3.1 Buyer has retained Environmental Risk Management Services (the
"Consultant") to perform Phase 1 environmental assessments with respect to each
of the Facilities. Upon its availability, Consultant will deliver such
assessments to Buyer and the Company. In the event any such assessment
recommends the performance of additional investigation (including, without
limitation, Phase 2 environmental assessments), such additional investigation
shall, if requested by Buyer, be undertaken promptly and delivered to each of
the Company and Buyer. The environmental assessments and investigations
undertaken pursuant to this Section 6.3.1 are collectively referred to herein as
the "Environmental Assessments." Buyer shall be solely responsible for the cost
of the Environmental Assessments.
6.3.2 In the event any of the Environmental Assessments reveals any
remediation work, recognized environmental conditions, or other actions which
must be completed in order to bring the Facilities into compliance with
applicable Environmental Laws or eliminate any potential environmental
liability, the Consultant shall be directed to prepare and to deliver to each of
the Company and Buyer a written report setting forth in reasonable detail the
scope of required remediation and an estimate of the cost of completing such
remediation. For the purposes of Section 6.3, "required remediation" shall mean
any action necessary to (i) comply with any governmental order, (ii) comply with
any Environmental Law effective at the Closing, or (iii) install any required
wash-racks, as applicable to the Facilities or the operation thereof by the
Company as of the Closing Date (the "Required Remediation"). The owner of each
Facility shall be responsible for all reasonable costs and expenses related to
required remediation or the installation of wash-racks.
6.3.3 Promptly upon completion of the Consultant's report referred to
in Section 6.3.2 but in any event, within 60 days thereof, the Sellers shall
engage a reliable environmental engineering firm reasonably acceptable to Buyer
to perform any Required Remediation. The Sellers shall use their best efforts
to cause such Required Remediation to be completed on or before the Closing
Date, and the Sellers shall bear all costs of such Required Remediation,
including the costs associated with verifying that the Required Remediation is
complete; provided that the completion
36
<PAGE>
of all such Required Remediation shall be a condition to Buyer's obligations to
consummate the transactions contemplated by this Agreement. Buyer may, in its
sole discretion, authorize Sellers to defer any portion of the Required
Remediation which the Company and its contractors are unable to complete prior
to Closing, in which case Sellers shall cause the portion of the Required
Remediation so deferred to be completed as promptly as practicable, but in no
event later than 60 days following Closing, at the Sellers' sole expense (which
may be satisfied from the Holdback Amount pursuant to the Escrow Agreement).
Buyer may monitor the performance of the Required Remediation, and at its
election may cause the Consultant to review the of the Required Remediation. If
Buyer directs the Consultant to undertake such review, the Required Remediation
shall be deemed completed only upon certification of its completion by the
Consultant. If, however, there is a dispute as to the performance of the
Required Remediation, any such dispute shall be settled by a mutually agreed-
upon environmental expert not otherwise involved in the Required Remediation,
whose determination shall be final and binding on the parties.
6.3.4 The Holdback Amount shall secure the completion by Sellers of
any Required Remediation which has not been resolved by the Closing Date
pursuant to this Section 6.3. Upon the completion of the Required Remediation,
certification of such completion by the Consultant or mutually agreed-upon third
party expert, and payment by Sellers of all expenses of such remediation, all in
accordance with the standards set forth in this Section 6.3, no further claims
may be made against the Holdback Amount on account of Sellers' obligations under
this Section 6.3. However, if such Required Remediation has not been completed
by Sellers and so certified on or prior to the date which is 60 days following
the Closing Date, Buyer shall be entitled to engage its own environmental
engineering firm to complete such Required Remediation, and to distribute from
escrow such portion of the Holdback Amount as is necessary to pay the fees and
costs of such firm, or other costs incurred, in completing such Required
Remediation.
6.4 Registration Rights. In the event that, at any time prior to the
-------------------
first anniversary of the receipt by Sellers of any shares of Parent Common Stock
pursuant to the Performance Incentive Agreement, Parent files a registration
statement under the Securities Act covering shares of Parent Common Stock,
other than a registration statement on Form S-4 or Form S-8, or a registration
statement filed pursuant to "demand" or similar contractual registration rights
of any other stockholders of Parent, then each Seller shall have the right to
include in such registration statement (on a "piggyback" basis) any or all of
its shares of Parent Common Stock, and to receive the benefit of any
representations, indemnities, opinions or comfort letters given by Parent (or
its counsel, auditors or underwriters) to any underwriter in connection with
such registration, subject to the obligations of the Sellers to (i) cooperate
with Parent in preparing each such registration and executing all such
agreements as any representative of the underwriters may deem reasonably
necessary in favor of the underwriters, (ii) promptly supply Parent with all
information, documents, representations and agreements as the underwriters or
Parent may deem reasonably necessary in connection with such registration and
(iii) confirm in writing not to sell or transfer any shares of the
37
<PAGE>
capital stock of Parent not included in such registration during the period
beginning ten (10) days prior to the filing and ending ninety (90) days from the
effective date of such registration without the underwriters' or Parent's
consent; provided, however, that if the managing underwriter or underwriters in
-----------------
the registered offering advise Parent that the inclusion in the offering of all
or some of the shares of Parent Common Stock owned by Sellers would have a
material adverse effect on the marketability or price of the offering, then the
number of shares of Parent Common Stock to be included by Sellers shall be
reduced on a pro rata basis in proportion to the number of shares of Parent
Common Stock requested to be included by Sellers.
6.5 Tax Attributes. The Seller's recognize that in connection with the
--------------
sale of the Shares, that all tax attributes of Company including but not limited
to tax net operating losses, tax credits and other similar items generated
through and subsequent to the acquisition date will remain as tax attributes of
Company or its successors. Accordingly, any refunds or benefits obtained via
the carryback, carryforward or realization of such tax attributes of Company or
its successors shall remain as sole property of Company or its successors with
no amount being transferred to the Sellers as additional consideration for the
purchase of the Shares; provided, however, any tax audit which results in a
refund to the Company will be distributed to Sellers so long as Sellers are
responsible for the professional fees incurred in connection with such audit.
The parties hereto agree that the Sellers shall be responsible for preparing the
Company's tax returns for fiscal year 1998. Buyer shall have the right to
review the Company's tax returns for fiscal year 1998 and Sellers shall not file
any tax returns relating to the Company with any taxing authority unless Buyer
consents to such filing.
6.6 Seller Notes. Contemporaneous with the Closing, Buyer shall pay off
------------
all notes payable of the Company to the Sellers which are reflected on the
Interim Balance Sheet plus accrued interest on such notes through the Closing.
ARTICLE VII
CONDITIONS TO SELLERS' OBLIGATIONS
----------------------------------
The obligations of Sellers to consummate the transactions provided for
hereby are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions, any of which may be waived by Sellers:
7.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Buyer and Parent contained in this Agreement shall be true and
correct in all material respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Buyer
shall have performed and satisfied all agreements and covenants required hereby
to be performed by it prior to or on the Closing Date.
38
<PAGE>
7.2 No Proceedings, Litigation or Laws. No Action by any governmental
----------------------------------
authority or other person shall have been instituted or threatened which
questions the validity or legality of the transactions contemplated hereby and
which could reasonably be expected to materially damage Sellers if the
transactions contemplated hereunder are consummated. There shall not be any
statute, rule or regulation that makes the purchase and sale of the Business or
the Assets contemplated hereby illegal or otherwise prohibited.
7.3 Certificates. Buyer shall have executed the Ancillary Agreements.
------------
7.4 No Cessation of Trading. There shall have been no cessation of
-----------------------
trading of Parent's Common Stock on the New York Stock Exchange or a national
securities exchange, and there shall be no action, order or proceeding pending
or, to Parent's knowledge, threatened, by any regulatory agency to stop the
public trading of Parent's Common Stock.
7.5 Opinion Letter of Buyer's Attorneys. Sellers shall receive an opinion
-----------------------------------
of Snell & Wilmer L.L.P., counsel for Buyer and Parent, dated as of the Closing
Date, in form and substance reasonably satisfactory to Sellers, to the effect
that:
7.5.1 Incorporation. Parent has been duly incorporated and is validly
-------------
existing and in good standing under the laws of the State of Delaware, with
corporate power to own or lease its properties and to carry on its business as
now conducted. Buyer has been duly incorporated and is validly existing and in
good standing under the laws of the State of Mississippi, with corporate power
to own or lease its properties and to carry on its Business as now conducted.
7.5.2 Corporation Power and Authority. The execution, delivery and
-------------------------------
performance of this Agreement and the consummation of the transaction
contemplated by the Agreement have been duly authorized by Parent and Buyer, and
the Agreement has been duly executed and delivered by Parent and Buyer.
7.5.3 Corporate Action. The Agreement constitutes a legally valid and
----------------
binding obligation of Buyer or Parent, as applicable, enforceable against Buyer
or Parent in accordance with their terms, except as limited by (i) bankruptcy,
insolvency, reorganization, moratorium, or other similar laws relating to
creditors' rights generally or by equitable principles (whether considered in an
action at law or in equity), (ii) limitations imposed by federal or applicable
state law or equitable principles upon the availability of specific performance,
injunctive relief, or other equitable remedies, or (iii) other customary
limitations reasonably satisfactory to Seller's counsel;
7.5.4 Parent Common Stock. (i) The Parent Common Stock being
-------------------
delivered to Sellers under the terms of this Agreement has been duly authorized
and reserved and, when issued, will be validly issued, fully paid, and
nonassessable; and (ii) assuming the accuracy of the
39
<PAGE>
representations and warranties in Section 4.27 of the Agreement, it is not
necessary to register the Parent Common Stock to be issued to Sellers pursuant
to the Agreement under the Securities Act of 1933, as amended.
For purposes of the foregoing opinions relating to Buyer, Buyer's counsel
may assume that the laws of Mississippi and Indiana, including the corporate law
of such states, are the same as the law of Arizona.
7.6 Buyer and Parent Corporate Documents. Buyer and Parent shall each
------------------------------------
have delivered to Sellers a copy of its articles of incorporation certified by
the Mississippi Secretary of State or a copy of its certificate of organization
certified by the Delaware Secretary of State, as the case may be, a good
standing certificate dated not more than ten days prior to Closing by the
Mississippi Secretary of State or the Delaware Secretary of State and a copy of
the resolutions adopted by Buyer and Parent in connection with this Agreement,
certified in each case by its corporate secretary.
ARTICLE VII
CONDITIONS TO BUYER'S OBLIGATIONS
---------------------------------
The obligations of Buyer to consummate the transactions provided for hereby
are subject, in the discretion of Buyer, to the satisfaction, on or prior to the
Closing Date, of each of the following conditions, any of which may be waived by
Buyer:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Sellers and the Company contained in this Agreement shall be true
and correct in all material respects at and as of the date of this Agreement and
at and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof, and Sellers
and the Company shall have performed and satisfied all agreements and covenants
required hereby to be performed by them prior to or on the Closing Date.
8.2 Consents. All Permits and waivers necessary to the consummation of
--------
the transactions contemplated hereby and for the continued operation of the
Business after the Closing by Buyer shall have been obtained including, without
limitation (a) all required third party consents and (b) all required approvals
of Buyer's lender's.
8.3 Board Approval. Each of Parent and Buyer shall have received the
--------------
consent of its Board of Directors to consummate the transactions, subject to the
terms and conditions set forth herein.
40
<PAGE>
8.4 No Proceedings or Litigation. No Action by any governmental authority
----------------------------
or other person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage Buyer materially if the transactions
contemplated hereby are consummated, including without limitation any Material
Adverse Effect on the right or ability of the Buyer to own, operate, possess or
transfer the Assets after the Closing. There shall not be any statute, rule or
regulation that makes the purchase and sale of the Business or the Assets
contemplated hereby illegal or otherwise prohibited.
8.5 Opinion of Counsel. The Company shall have delivered to Buyer an
------------------
opinion of counsel to the Company and the Sellers, dated as of the Closing Date,
in form and substance reasonably satisfactory to Buyer, to the effect that:
8.5.1 Incorporation. The Company has been duly incorporated and is
-------------
validly existing and in good standing under the laws of the State of Indiana and
is qualified to do business and in good standing in each state in which the
character of its business requires it to do so.
8.5.2 Corporate Power and Authority. The Company has the necessary
-----------------------------
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby and to own, lease and operate the Assets and its
other properties and to conduct the Business as presently conducted;
8.5.3 Corporate Action. The execution, delivery and performance of
----------------
this Agreement and the Ancillary Agreements to which the Company is a party have
been duly authorized by all necessary corporate action of the Company, and this
Agreement and the Ancillary Agreements have been duly executed and delivered by
the Company or the Sellers, as applicable;
8.5.4 Obligation of the Company or Sellers. This Agreement and each
------------------------------------
Ancillary Agreement constitutes a legally valid and binding obligation of the
Company or the Sellers, as applicable, enforceable against the Company or the
Sellers in accordance with its terms, except as limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally or by equitable principles (whether considered in an
action at law or in equity), (ii) limitations imposed by federal or applicable
state law or equitable principles upon the availability of specific performance,
injunctive relief or other equitable remedies, or (iii) other customary
limitations reasonably satisfactory to Buyer's counsel;
8.5.5 No Breach. Neither the execution and delivery of this Agreement
---------
or the Ancillary Agreements by the Company or the Sellers, as applicable, nor
the consummation of the transactions contemplated hereby or thereby will (i)
violate or conflict with any provision of the Articles of Incorporation or
Bylaws of the Company or of any Seller that is not a natural person, (ii)
breach, or cause a default under, any term or provision of any material contract
listed on a schedule
41
<PAGE>
to such opinion to which contract the Company or the Sellers are a party or by
which the Assets are bound, or (iii) violate any judgment, decree, injunction,
writ or order applicable to the Company or the Sellers;
8.5.6 No Permits Required. No Permit of, or filing with, any
-------------------
governmental authority or, to the best knowledge of such counsel, any other
person, is required for the execution and delivery of this Agreement or the
Ancillary Agreements by the Company or the Sellers, as applicable, or the
consummation by the Company or the Sellers of the transactions contemplated
hereby or thereby, except as set forth in this Agreement or the schedules or
exhibits hereto;
8.5.7 No Actions Pending. Except as set forth in this Agreement or
------------------
the schedules hereto, no Action is pending or to the best knowledge of such
counsel, threatened (i) against the Company or the Business, (ii) against any of
the officers or directors of the Company as such, (iii) in which the Company is
a plaintiff, or (iv) which questions the validity or legality of the
transactions contemplated hereby;
8.5.8 No Violation of Law. Neither the execution and delivery of this
-------------------
Agreement or the Ancillary Agreement by the Company or the Sellers, as
applicable, nor the consummation of the transactions contemplated hereby or
thereby will violate or result in a failure to comply with any statute, law,
ordinance, regulation, rule or order of any federal, state or local government
or any other governmental department or agency, or any judgment, decree or order
of any court, applicable to the Company, the Sellers or the Business; and, to
the best knowledge of such counsel, the Company has all licenses, franchises and
other authority required to conduct the Business as it is now being conducted;
8.5.9 Title to Shares. The authorized capital stock of the Company
---------------
consists solely of 1,000 shares of common stock, no par value per share, and the
issued and outstanding common stock of the Company consists solely of the
Shares, all of which are owned of record and beneficially by the Sellers, free
and clear of all Encumbrances. To the knowledge of such counsel, there are no
outstanding warrants, options or other rights to acquire, or securities
convertible into or exercisable or exchangeable for, shares of capital stock of
the Company, nor any commitments or agreements by the Company to issue any such
rights or securities or shares of capital stock. Upon Closing, Buyer will
acquire good and valid title to all of the Shares, free and clear of all
Encumbrances.
8.5.10 Other Opinions. Such other opinions as any lender to Buyer may
--------------
reasonably request, and the lenders to Buyer shall be entitled to rely upon such
opinions of Sellers' counsel.
In rendering such opinions, such counsel may rely as to factual
matters upon certificates and assurances of public officials, Sellers, and
officers of the Company. In addition, such
42
<PAGE>
opinions may be subject to such additional qualifications and exceptions as are
reasonably acceptable to counsel to Buyer.
8.6 Certificates. Sellers and the Company shall furnish Buyer with such
------------
certificates of Sellers, the officers of the Company and others to evidence
compliance with the conditions set forth in this Article VIII as may be
reasonably requested by Buyer.
8.7 Escrow Agreement. The Company, the Sellers and Buyer shall have
----------------
entered into the Escrow Agreement substantially in the form attached as Exhibit
8.7.
8.8 Employment and Non-Competition Agreements. Buyer and Mark Mosak shall
-----------------------------------------
have entered into an Employment and Non-Competition Agreement in the form
attached as Exhibit 8.8.1 hereto and Buyer and Thomas A. Mosak shall have
entered into a Non-Competition Agreement in the form attached as Exhibit 8.8.2
hereto.
8.9 New Lease. Buyer and Mark S. Mosak and Thomas A. Mosak shall have
---------
entered into the New Lease in the form attached as Exhibit 8.9 hereto.
8.10 Release of Encumbrances. The Company shall have filed (where
-----------------------
necessary) and delivered to Buyer all documents necessary to release the Assets
from all Encumbrances (except for Encumbrances permitted under Section 4.7),
which documents shall be in a form reasonably satisfactory to Buyer's counsel.
8.11 Material Changes. Since the Interim Balance Sheet Date, there shall
----------------
not have been any Material Adverse Change with respect to the Business.
8.12 Corporate Documents. Buyer shall have received from the Company
-------------------
resolutions adopted by its board of directors approving this Agreement and the
Ancillary Agreements to which it will be a party, and the transactions
contemplated hereby and thereby.
8.13 Due Diligence Review. Buyer and its Representatives shall have
--------------------
conducted a due diligence review of the Company's Books and Records, Financial
Statements, and other records and accounts of the Business, and in the sole
discretion of Buyer, Buyer shall be satisfied with such review. Such review
shall have no effect whatsoever on the liability of Sellers or the Company to
Buyer under this Agreement or otherwise for breach of any representations,
warranties, or covenants of Sellers or the Company or hereunder.
8.14 Completion of Environmental Remediation. The Company or its agents
---------------------------------------
shall have completed any "Required Remediation" within the meaning of Section
6.3, subject to the procedures
43
<PAGE>
set forth in Section 6.3 with respect to the certification of such completion
and the resolution of any disputes relating thereto.
8.15 Financing. Buyer shall have obtained all lender approvals and
---------
financing to pay the cash portion of the Purchase Price.
8.16 Financial Statement Deliveries. The Company shall have delivered to
------------------------------
Buyer unaudited financial statements for the year ended February 28, 1998.
These financial statements shall be subject to the same representations and
warranties of Section 4.10 of this Agreement.
ARTICLE IX
CONDUCT OF COMPANY AND BUYER PENDING THE CLOSING
------------------------------------------------
9.1 Company and Seller Covenants. The Company and Sellers hereby covenant
----------------------------
and agree that from the date hereof to the Closing Date:
9.1.1 Conduct of Business Pending the Closing. Except as specifically
---------------------------------------
contemplated in this Agreement or as disclosed in any Schedule hereto, the
Business of the Company shall be conducted only in, and the Company shall take
no action except in, the ordinary course, on an arm's length basis, and in
accordance with all applicable laws, rules, and regulations and past custom and
practice, including, without limitation, making any loans or any cash payments,
or transferring any other assets or properties of the Company to any employee,
officer, shareholder, or director of the Company; and the Company shall maintain
its Facilities in good operating condition, ordinary wear and tear excepted; and
the Company will not, directly or indirectly, do or permit to occur any of the
following:
(i) Cancel or terminate or permit to be canceled or terminated
its current insurance (or reinsurance) policies or permit any of the coverage
thereunder to lapse, unless simultaneous with such termination, cancellation, or
lapse, replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated, or lapsed policies are in full force
and effect;
(ii) Default under any material contract, agreement, commitment,
or undertaking;
(iii) Knowingly violate or fail to comply with any laws
applicable to it or the Business;
(iv) Commit any act or permit the occurrence of any event or the
existence of any condition of the type described in Section 4.6 hereof;
44
<PAGE>
(v) Fail to maintain and repair its assets and properties in
accordance with good standards of maintenance and as required in any leases or
other agreements pertaining thereto;
(vi) Except in the ordinary course of business consistent with
historical practices enter into or modify any employment, severance, or similar
agreements or arrangements with, or grant any bonuses, salary increases, or
severance or termination pay to, any officers, directors, employees, or
consultants, or adopt or amend any bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, employment, or other benefit
plan, trust, fund, or group arrangement for the benefit or welfare of any
officers, directors, or employees;
(vii) Directly or indirectly enter into or modify any
contract, agreement, or understanding or enter into any transaction not in the
ordinary course of business;
(viii) Cancel, without full payment, any note, loan, or other
obligation owing to the Company relating to the Business except in the ordinary
course of business;
(ix) Acquire (by merger, exchange, consolidation, acquisition of
stock or assets, or otherwise) any corporation, partnership, joint venture, or
other business organization or division or material assets thereof;
(x) Issue any additional shares of its capital stock or (except
with Buyer's reasonable consent) permit the transfer of any outstanding shares
of Capital Stock or declare any dividends or distributions other than in cash;
(xi) Issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any additional
or effect any transfer outstanding shares of its capital stock of any class
might be directly or indirectly authorized, issued, or transferred from
treasury, or incur any indebtedness for borrowed money or issue any debt
securities except the borrowing of working capital in the ordinary course of
business and consistent with past practice;
(xii) Pay any obligation or liability, fixed or contingent,
except in the ordinary course of business;
(xiii) Waive or compromise any right or claim (other than as
required to resolve any pending or threatened litigation disclosed in the
Schedules attached hereto);
(xiv) Agree to do any of the actions described in the
preceding clauses (i) through (xiii).
45
<PAGE>
9.1.2 Business Relationships. The Company will exercise its best
----------------------
efforts to preserve intact its business organization and goodwill, keep
available the services of its officers and employees as a group, and maintain
satisfactory relationships with suppliers, distributors, customers, and others
having business relationships with it.
9.1.3 Notification of Certain Matters. The Company shall (i) confer
-------------------------------
on a regular basis with representatives of Buyer and report operational matters
and the general status of ongoing operations, (ii) notify Buyer of Any Material
Adverse Change in the normal course of its business or in the operation of its
properties and of any governmental or third party complaints, investigations, or
hearings (or communications indicating that the same may be contemplated); and
(iii) promptly notify Buyer if the Company shall discover that any
representation or warranty made by it in this Agreement was when made, or has
subsequently become, untrue.
9.1.4 Closing. The Company shall use its best efforts to cause the
-------
conditions specified in Article VIII hereof to be satisfied at or prior to the
Closing Date hereof.
9.1.5 Seller's. Sellers shall exercise best efforts to ensure
--------
compliance with all covenants applicable to them and shall use responsible best
efforts to ensure compliance by the Company nor any of all of its covenants and
agreements hereunder.
9.2 No Negotiations. Neither the Company nor any Seller shall, directly
---------------
or indirectly, through any officer, director, agent, or otherwise, solicit,
initiate, or encourage submission of any proposal or offer from any person or
entity (including any of its or their officers or employees) relating to any
liquidation, dissolution, recapitalization, merger, consolidation, or
acquisition or purchase of all or a material portion of the assets of, or any
equity interest in, Company or other similar transaction or business combination
involving the Company, or participate in any negotiations regarding, or furnish
to any other person any information with respect to, or otherwise cooperate in
any way with, or assist, participate in, facilitate, or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing. The
Company or any Seller shall promptly notify Buyer if any such proposal or offer,
or any inquiry from or contact with any person with respect thereto, is made and
shall promptly provide Buyer with such information regarding such proposal,
offer, inquiry, or contact as Buyer may request.
9.3 Public Announcements. The parties hereto shall not issue any press
--------------------
release or public announcement, including announcements by any party for general
reception by or dissemination to employees, agents, or customers, with respect
to this Agreement and the other transactions contemplated by this Agreement
without the prior written consent of the other parties hereto (which consent
shall not be withheld unreasonably); provided, however, that Buyer may make any
------------------
disclosure or announcement of information, it is obligated to make pursuant to
applicable law or regulation, including any applicable law or
46
<PAGE>
regulation of the New York Stock Exchange or any other national securities
exchange, as applicable.
9.4 Confidentiality. Each party hereto, and its officers, directors,
---------------
agents, and affiliates, will hold in strict confidence, and will not divulge,
communicate, use to the detriment of any other party hereto or for the benefit
of any other person or persons, or misuse in any way, any financial information
or other data obtained in connection with this Agreement, including, without
limitation, any confidential information or trade secrets of such other party,
personnel information, secret processes, know how, customer lists, formulas, or
other technical data; and if the transactions contemplated by this Agreement are
not consummated, each party hereto, and its officers, directors, agents, and
affiliates, will return to each other party all such data and information,
including, without limitation, work sheets, test reports, manuals, lists,
memoranda, and other documents prepared by or made available in connection with
this transaction (and all copies of same). The parties hereto may disclose such
information to their respective attorneys, accountants and other agents so long
as they agree to keep such information confidential.
ARTICLE X
RISK OF LOSS; CONSENTS TO ASSIGNMENT
------------------------------------
10.1 Intentionally Omitted.
---------------------
ARTICLE XI
ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING
----------------------------------------------
11.1 Books and Records; Tax Examinations.
-----------------------------------
11.1.1 Books and Records. Each party agrees that it will cooperate
-----------------
with and make available to the other party, during normal business hours, all
Books and Records, information and employees (without substantial disruption of
employment) retained and remaining in existence after the Closing Date which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
Books and Records, information or employees for any reasonable business purpose.
11.1.2 Cooperation and Records Retention. Sellers and Buyer shall
---------------------------------
(i) each provide the other with such assistance as may reasonably be requested
by any of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to liability for Taxes, (ii) each retain and provide the other with any
records or other information that may be relevant to such return, audit or
examination, proceeding or determination, and (iii) each provide the other with
any final determination of any
47
<PAGE>
such audit or examination, proceeding, or determination that affects any amount
required to be shown on any tax return of the other for any period. Without
limiting the generality of the foregoing, Sellers and the Company shall each
retain, until the applicable statutes of limitations (including any extensions)
have expired, copies of all tax returns, supporting work schedules, and other
records or information that may be relevant to such returns for all tax periods
or portions thereof ending on or before the Closing Date and shall not destroy
or otherwise dispose of any such records without first providing the other
parties with a reasonable opportunity to review and copy the same.
11.2 Survival of Representations, Etc. All statements contained in any
--------------------------------
certificate, schedule, exhibit, instrument or conveyance delivered by or on
behalf of the parties pursuant to this Agreement or in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the parties hereunder. The representations, warranties, covenants
and agreements of Sellers, the Company, Parent and Buyer contained herein shall
survive the consummation of the transactions contemplated hereby and the Closing
Date, without regard to any investigation made by any of the parties hereto;
provided, however, the representations and warranties of the Company shall
- -------- -------
terminate as of the Closing. All such representations and warranties and all
claims and causes of action with respect thereto (other than the provisions of
Sections 4.5, 4.18, 4.23 and this Section 11.2, and all claims and causes of
action with respect thereto and other than any Claims and causes of action based
on fraud or intentional misrepresentation of the Sellers') shall terminate upon
expiration of two years after the Closing Date. The representations and
warranties in Sections 4.18 and 4.23 shall survive until the expiration of the
applicable statute of limitations (with extensions) with respect to the matters
addressed in such sections and the representations and warranties in Section 4.5
and those based on fraud or intentional misrepresentation shall survive
indefinitely. The termination of the representations and warranties provided
herein shall not affect the rights of a party in respect of any Claim made by
such party in a writing received by the other party prior to the expiration of
the applicable survival period provided herein.
11.3 Indemnifications.
----------------
11.3.1 By Sellers. Sellers shall indemnify, defend, save and hold
----------
harmless Buyer, its Affiliates and subsidiaries (including the Company from and
after the Closing Date), and its and their respective Representatives, from and
against any and all claims, damages, costs, losses (including without limitation
diminution in value), Taxes, liabilities, judgments, penalties, fines,
obligations, lawsuits, deficiencies, demands and expenses (whether or not
arising out of third-party claims), including without limitation interest,
penalties, costs of mitigation, losses in connection with any Environmental Law
(including without limitation any clean-up or remedial action), lost profits and
other losses resulting from any shutdown or curtailment of operations, damages
to the environment, reasonable attorneys' fees, experts' fees and all amounts
paid in investigation, defense or settlement of any of the foregoing (herein,
"Damages"), incurred in connection with, arising out
48
<PAGE>
of, resulting from or incident to (i) any breach of any representation or
warranty, or the inaccuracy of any representation or warranty, made by the
Company or Sellers in or pursuant to this Agreement; (ii) any breach of any
covenant or agreement made by the Company or Sellers in or pursuant to this
Agreement; (iii) any liability arising under any Environmental Law on account of
the conduct of the Company or any Seller or prior owners or users of the
Facilities or other persons, or on account of the operation of the Business or
the Facilities, or related to any Environmental Condition existing, in each case
on or at any time prior to the Closing Date; or (iv) any Post-Closing
Environmental Liability; (v) any liability for Taxes in respect of taxable
periods ending on or before the Closing Date in excess of the Tax Reserve but
not including any tax liability arising solely out of Company's reserve of
$75,000 for doubtful accounts on the Effective Date Balance Sheet; or (vi) (A)
any claim of an unfair labor practice, or any claim under any state unemployment
compensation or worker's compensation law or regulation or under any federal or
state employment discrimination law or regulation, which shall have been
asserted on or prior to the Closing Date or is based on acts or omissions which
occurred on or prior to the Closing Date, (B) any liability arising from any
injury to or death of any person or damage to or destruction of any property,
whether based on negligence, breach of warranty, strict liability, enterprise
liability or any other legal or equitable theory arising from defects in
products sold or services performed by or on behalf of Seller or any other
person or entity on or prior to the Closing Date, or arising from any other
cause, including without limitation any liabilities arising (on a date of
occurrence basis or otherwise) on or prior to the Closing Date relating to the
use or misuse of Equipment or to traffic accidents, or (C) any liability or
obligation of Seller arising out of or related to any Action against Seller or
any Action which adversely affects the Assets and which shall have been asserted
on or prior to the Closing Date or to the extent the basis of which shall have
arisen on or prior to the Closing Date; or (vii) any claim or contingent
liability disclosed in any schedule to this Agreement arising prior to the
Effective Date and not adequately reflected for, accounted for or reserved
against on the Effective Date Balance Sheet. Without limiting the generality of
the foregoing, the indemnification provided herein, insofar as it relates to any
Environmental Law or Environmental Condition, shall specifically cover costs
incurred in connection with any investigation of site conditions (excepting the
cost of the Environmental Assessments) or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision or by the provisions of Section 6.3 hereof. For purposes
of this Section 11.3.1, "Post-Closing Environmental Liability" shall mean any
liability imposed on Buyer or the Company arising out of or related to events
occurring on or after the Closing Date and prior to and related to the
completion of all Required Remediation in accordance with Section 6.3 hereof,
and resulting from any Environmental Condition described in the Environmental
Assessments, including without limitation those Environmental Conditions
described therein but not identified as being in violation of any Environmental
Law and those related to the absence of any Permits, but excluding any liability
to the extent such liability results from the negligent acts or willful
misconduct of Buyer or its Representatives.
49
<PAGE>
11.3.2 By Parent and Buyer. Parent and Buyer shall indemnify, defend
-------------------
and save and hold harmless Sellers, their Affiliates and their Representatives
from and against any and all Damages incurred in connection with, arising out
of, resulting from or incident to (i) any breach of any representation or
warranty, or the inaccuracy of any representation or warranty, made by Parent or
Buyer in or pursuant to this Agreement; or (ii) any breach of any covenant or
agreement made by Parent or Buyer in or pursuant to this Agreement.
11.3.3 Cooperation. In connection with third party lawsuits or
-----------
actions, the indemnified party shall cooperate in all reasonable respects with
the indemnifying party and such attorneys in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; provided,
however, that the indemnified party may, at its own cost (except as provided in
Section 11.3.4 hereof), participate in the investigation, trial and defense of
such lawsuit or action and any appeal arising therefrom. The parties shall
cooperate with each other in any notifications to insurers.
11.3.4 Defense of Claims. If a claim for Damages (a "Claim") is to be
-----------------
made by a party entitled to indemnification hereunder against the indemnifying
party, the party claiming such indemnification shall, subject to Section 12.2,
give written notice (a "Claim Notice") to the indemnifying party and the Escrow
Agent pursuant to the Escrow Agreement as soon as practicable after the party
entitled to indemnification becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under this
Section 11.3. The Claim Notice shall include the amounts the indemnified party
believes in good faith are subject to indemnification (of which it shall notify
Escrow Agent) and a brief basis of the claim. Buyer or Sellers may revise its
estimate of any claim by notice to the indemnified party and Escrow Agent. If
any lawsuit or enforcement action is filed against any party entitled to the
benefit of indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within fifteen
(15) calendar days after the service of the citation or summons). The failure
of any indemnified party to give timely notice hereunder shall not affect rights
to indemnification hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects, (i) to take control of the defense and
investigation of such lawsuit or action, (ii) to employ and engage attorneys of
its own choice (which shall be reasonably acceptable to the indemnified party)
to handle and defend the same, at the indemnifying party's cost, risk and
expense unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, in which case the indemnified party
shall be able to retain its own counsel at the reasonable expense of the
indemnifying party), and (iii) to
50
<PAGE>
compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the indemnified party, such consent not to be
unreasonably withheld; provided, however, if the remediation or resolution of
any such Claim will occur on or at any Facility or is reasonably expected to
have a Material Adverse Effect on the indemnified party's business operations,
then, notwithstanding the foregoing, the indemnified party shall be entitled to
control such remediation or resolution, including without limitation to take
control of the defense and investigation of such lawsuit or action, to employ
and engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense, and to compromise or settle such
Claim. If the indemnifying party fails to assume the defense of such Claim
within fifteen (15) calendar days after receipt of the Claim Notice, the
indemnified party against which such Claim has been asserted will (upon
delivering notice to such effect to the indemnifying party) have the right to
undertake, at the indemnifying party's cost and expense, the defense, compromise
or settlement of such Claim on behalf of and for the account and risk of the
indemnifying party. In the event the indemnified party assumes the defense of
the Claim, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 11.3 and for any final judgment
(subject to any right of appeal), and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any Damages by reason of
such settlement or judgment.
11.3.5 Buyer's Right of Offset. Anything in this Agreement to the
-----------------------
contrary notwithstanding, Buyer may withhold and set off any amount as to which
Sellers are obligated to indemnify Buyer pursuant to this Section 11.3 against
the portion of the Holdback Amount allocable to the resolution of Seller's
indemnification obligations under this Section 11.3.
11.3.6 Limits on Indemnity.
-------------------
(i) Neither Buyer nor Sellers shall be liable to the other
under this Section 11.3 for any Damages until the amount otherwise due the party
being indemnified exceeds $100,000 in the aggregate, in which case such
indemnifying party will be liable to the indemnified party for all such amounts,
in excess of the first $100,000. Notwithstanding the preceding sentence, this
limitation shall not apply with respect to Damages arising out of a breach of a
representation or warranty contained in Sections 4.5, 4.18 or 4.23, any Claims
or causes of action based on fraud or intentional misrepresentation of any
Seller, or any claim or contingent liability disclosed in any schedule to this
Agreement. Buyer shall give Sellers prompt notice of any Damages that might
apply toward the first $100,000.
(ii) Notwithstanding any other provision of this Agreement to
the contrary, except as set forth below, the parties agree that the
indemnification obligation of the Sellers shall be limited as follows: except
with respect to Damages arising out of a breach of a
51
<PAGE>
representation or warranty contained in Sections 4.5, 4.18 or 4.23, any Claims
or causes of action based on fraud or intentional misrepresentation of any
Seller, or any claim or contingent liability disclosed in any schedule to this
Agreement or reserved against or disclosed in the Effective Date Balance Sheet,
Sellers' indemnification obligation in the aggregate shall be limited to
$2,400,000; provided, however, with respect to Damages arising out of a breach
of a representation or warranty contained in Sections 4.5, 4.18 or 4.23,
Sellers' indemnification obligation shall be limited to the Purchase Price; and
further provided there will be no limitation on Sellers' indemnification
obligation with respect to Damages arising out of any Claims or causes of action
based on fraud or intentional misrepresentation of any Seller, or any claim or
contingent liability disclosed in any schedule to this Agreement. The
indemnification limitation set forth in this Section 11.3.6 shall not apply to
the Purchase Price adjustments of Section 2.5 of this Agreement which are
separate matters.
11.3.7 Liability and Remedies, etc. Except as set forth below, no
----------------------------
individual Representative of any party shall be personally liable for any
Damages under the provisions contained in this Section 11.3. Nothing herein
shall relieve either party of any liability to make any payment expressly
required to be made by such party pursuant to this Agreement. The term
"Damages" as used in this Section 11.3 is not limited to matters asserted by
third parties against Sellers or Buyer, but includes Damages incurred or
sustained by an indemnified party in the absence of third party claims.
Payments by an indemnified party of amounts for which such party is indemnified
hereunder shall not be a condition precedent to recovery. Buyer and Sellers
agree and acknowledge that collection under the Escrow Agreement shall not be
Buyer's exclusive method of receiving indemnification from Sellers pursuant to
Section 11.3; rather, Buyer and its Affiliates and Representatives will have all
other remedies provided by law or in this Agreement.
11.3.8 Further Action. After the Closing, Sellers shall take all
--------------
actions reasonably necessary to effect the conveyance of the Shares to Buyer
free and clear of all Encumbrances and otherwise required by Buyer's lenders.
11.3.9 Tax Audits. After the Closing in the event any tax audits
----------
arise for tax years of Company prior to the Closing, Sellers shall be
responsible for the costs and expenses of all professional fees in connection
with such audits.
11.4 Employee Benefits. In the event Buyer and Parent make available to
-----------------
Company employees the Employee Plans covering Buyer's employees, Company
employees shall be credited with their period of service with the Company for
all eligibility, vesting and waiting period purposes under such Plans. Sellers
shall take all appropriate actions prior to Closing to terminate all Benefit
Arrangements, Pension Plans, and Welfare Plans, as of a date on or before the
Closing.
ARTICLE XII
52
<PAGE>
MISCELLANEOUS
-------------
12.1 Termination. This Agreement may be terminated at any time prior to
-----------
Closing:
12.1.1 By mutual written consent of Buyer and the Seller
Representative;
12.1.2 By Buyer or Sellers if the Closing shall not have occurred on
or before April 15, 1998; provided, however, that this provision shall not be
available to Buyer if Sellers have the right to terminate this Agreement under
Section 12.1.4, and this provision shall not be available to Sellers if Buyer
has the right to terminate this Agreement under Section 12.1.3;
12.1.3 By Buyer if there is a material breach of any representation
or warranty set forth in Article IV hereof or any covenant or agreement to be
complied with or performed by Sellers or the Company pursuant to the terms of
this Agreement or the failure of a condition set forth in Article VIII to be
satisfied (and such condition is not waived in writing by Buyer) on or prior to
the Closing Date, or the occurrence of any event which results or would result
in the failure of a condition set forth in Article VIII to be satisfied on or
prior to the Closing Date, provided that Buyer may not terminate this Agreement
prior to the Closing if Sellers or the Company have not had an adequate
opportunity to cure such failure; or
12.1.4 By Sellers if there is a material breach of any representation
or warranty set forth in Article V hereof or of any covenant or agreement to be
complied with or performed by Buyer pursuant to the terms of this Agreement or
the failure of a condition set forth in Article VII to be satisfied (and such
condition is not waived in writing by Sellers) on or prior to the Closing Date,
or the occurrence of any event which results or would result in the failure of a
condition set forth in Article VII to be satisfied on or prior to the Closing
Date; provided that Sellers may not terminate this Agreement prior to the
Closing Date if Buyer has not had an adequate opportunity to cure such failure.
12.2 In the Event of Termination. In the event of termination of this
---------------------------
Agreement:
12.2.1 Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same; and
12.2.2 No party hereto shall have any liability or further obligation
to any other party to this Agreement, except as stated in Sections 12.8, 12.11,
12.2.1 or this Section 12.2.2, and except for any willful breach of this
Agreement occurring prior to the proper termination of this Agreement. The
foregoing provisions shall not limit or restrict the availability of specific
53
<PAGE>
performance or other injunctive relief to the extent that specific performance
or such other relief would otherwise be available to a party hereunder.
12.3 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; except that Parent or Buyer may, without such
consent, assign all such rights to any lender as collateral security, and Buyer
may assign all such rights and obligations to a wholly-owned subsidiary or
subsidiaries of Parent or Buyer (or a partnership controlled by Parent or Buyer)
which shall assume all obligations and liabilities of Buyer under this
Agreement. Subject to the foregoing, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, and no other person shall have any right, benefit or
obligation under this Agreement as a third party beneficiary or otherwise.
12.4 Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method; the day after it is sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express); and
upon receipt, if sent by certified or registered mail, return receipt requested.
In each case notice shall be sent to:
If to the Company, addressed to:
T&M Rental, Inc.
300 West Chicago Avenue
East Chicago, Indiana 46312
with a copy to:
Lane R. Moyer, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
If to Sellers, addressed to:
Mark S. Mosak
436 Scarborough Road
Valparaiso, Indiana 46385
and
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<PAGE>
Thomas A. Mosak
1251 Covington Court
Crown Point, Indiana 46307
with a copy to:
Lane R. Moyer, Esq.
Vedder, Price, Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
If to Parent or Buyer, addressed to:
Rental Service Corporation
14505 N. Hayden Road, Suite 322
Scottsdale, Arizona 85260
Attention: Chief Executive Officer
with a copy to:
Steven D. Pidgeon, Esq.
Snell & Wilmer, L.L.P.
One Arizona Center
Phoenix, Arizona 85004
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.5 Choice of Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
Indiana (without reference to the choice of law provisions thereof), except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
55
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12.6 Entire Agreement; Amendments and Waivers. This Agreement, together
----------------------------------------
with all exhibits and schedules hereto and the Ancillary Agreements, constitutes
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. No amendment, supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
12.7 Multiple Counterparts. This Agreement may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.8 Expenses. Except as otherwise specified in this Agreement, each
--------
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect; provided, however, that, if
-------- -------
the transactions contemplated hereby are consummated, the Company may pay such
expenses of the Sellers up to an amount equal to the lesser of (1) $15,000, or
(2) one-half of such expenses of the Sellers. Such expenses must be accrued in
the Company's February 28, 1998 balance sheet or paid by February 28, 1998.
12.9 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.10 Titles. The titles, captions or headings of the Articles, Sections
------
and subsections herein are inserted for convenience of reference only and are
not intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.11 Publicity; Confidentiality. None of Parent, Buyer, Sellers, the
--------------------------
Company or their respective Affiliates or Representatives shall issue any press
release or make any public statement regarding, or disclose to any third party
(except as required by law or legal process, and except to each party's lenders
if such lenders so require) any of the terms of, the transactions contemplated
hereby, without prior written approval of the other party, provided that Parent,
Buyers, Sellers and the Company may, if they mutually agree, issue or make an
appropriate press release or public
56
<PAGE>
announcement after the Closing Date. In the event that this Agreement is
terminated prior to Closing, Buyer agrees to return to Sellers and the Company
all correspondence and documents furnished by Sellers or the Company's
Representatives, and agrees not to disclose or use for its own purposes any
confidential or proprietary information of Sellers that has been furnished to it
by Sellers or the Company's Representatives.
12.12 Cumulative Remedies. All rights and remedies of either party hereto
-------------------
are cumulative of each other and of every other right or remedy such party may
otherwise have at law or in equity, and the exercise of one or more rights or
remedies shall not prejudice or impair the concurrent or subsequent exercise of
other rights or remedies.
12.13 Arbitration. Any controversy arising after the Closing out of or
-----------
relating to this Agreement (including, without limitation, pursuant to Section
2.5 or 11.3, but excluding for purposes of this Section 12.13, the employment
and non-competition agreements attached as Exhibits hereto), or relating to the
breach hereof, shall be settled by arbitration conducted in Chicago, Illinois in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect (except as otherwise expressly provided in this
Agreement). The award rendered by the arbitrator(s) shall be final and judgment
upon the award rendered by the arbitrator(s) may be entered upon it in any court
having jurisdiction thereof. The arbitrator(s) shall possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration. The expenses of the arbitration shall be borne by the losing party
unless otherwise allocated by the arbitrator(s). The agreement to arbitrate
shall be specifically enforceable under the prevailing arbitration law. During
the continuance of any arbitration proceedings, the parties shall continue to
perform their respective obligations under this Agreement.
12.14 Seller Representative.
---------------------
12.14.1 The Sellers irrevocably make, constitute and appoint Mark
Mosak as their agent (the "Seller Representative") and authorize and empower him
to fulfill the role of Seller Representative hereunder and under the Escrow
Agreement. In the event of the resignation, death or incapacity of a Seller
Representative, his successor shall be appointed within 21 days of his death or
incapacity by mutual agreement of the remaining Sellers, and such successor
either shall be a Seller or shall otherwise be acceptable to Buyer. If the
Sellers fail to appoint a successor within such 21-day period, then Buyer shall
have the right to appoint the successor from among the Sellers. The choice of a
successor Seller Representative appointed in any manner permitted above shall be
final and binding upon all of the Sellers. The decisions and actions of any
successor Seller Representative shall be, for all purposes, those of a Seller
Representative as if originally named herein.
12.14.2 Each Seller has made, constituted and appointed and by the
execution of this Agreement hereby irrevocably makes, constitutes and appoints
the Seller Representative as
57
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such person's true and lawful attorney in fact and agent, for such person and in
such person's name, (i) to execute and perform the Escrow Agreement on behalf of
each Seller, (ii) to receive all notices and communications directed to such
Seller under this Agreement or the Escrow Agreement and to take any action (or
to determine to take no action) with respect thereto, as he may deem appropriate
as effectively as such Seller could act for himself or herself, including
without limitation, the settlement or compromise of any dispute or controversy,
and (iii) to execute and deliver all instruments and documents of every kind
incident to the foregoing to all intents and purposes and with the same effect
as such Seller could do personally, and each such Seller hereby ratifies and
confirms as his or her own act, all that the Seller Representative shall do or
cause to be done pursuant to the provisions hereof.
12.14.3 The death or incapacity of any Seller shall not terminate the
authority and agency of the Seller Representative.
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
T & M Rental, Inc.
By: /s/ Mark S. Mosak
_____________________________________
Name: Mark S. Mosak
Its: President
(the "Company")
WALKER JONES EQUIPMENT, INC.
By: /s/ Douglas A. Waugaman
_____________________________________
Name: Douglas A. Waugaman
Its: Assistant Secretary
("Buyer")
/s/ MARK S. MOSAK
----------------------------------------
MARK S. MOSAK
/s/ THOMAS A. MOSAK
----------------------------------------
THOMAS A. MOSAK
RENTAL SERVICE CORPORATION
By: /s/ Douglas A. Waugaman
_____________________________________
Name: Douglas A. Waugaman
Its: Assistant Secretary
("Parent")
59
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EXHIBIT 10.4
Martin R. Reid
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of
the January 14, 1998, between Rental Service Corporation, a Delaware corporation
(the "Company" or "RSC"), and Martin R. Reid (the "Executive").
WHEREAS, This Agreement addresses, among other things, terms of employment;
certain stock options granted to the Executive, including their expiration and
vesting; certain shares of restricted stock, and the Executive's severance from
RSC under certain conditions;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein the sufficiency and receipt of which are hereby acknowledged,
the parties agree to continue Executive's employment as follows:
1. Term. The term of this Agreement (the "Term") shall commence upon
----
execution of this Agreement and shall continue until December 31, 2001; provided
--------
that on December 31 of each year commencing with December 31, 1998, the Term
shall automatically extend for one full calendar year unless either party gives
written notice to the other at least 90 days prior to such December 31st of its
desire not to extend. Notwithstanding the foregoing, either party may terminate
Executive's employment under this Agreement any time, with or without "cause"
(as defined below), upon written notice to the other party. The rights and
duties of each party in connection with terminations are set forth below.
2. Employment and Duties.
---------------------
2.01 Duties. RSC hereby employs the Executive as the Chairman of the
------
Board and Chief Executive Officer and agrees to cause the Executive to be
nominated, elected, or appointed as the case may be to such corporate offices or
positions during the periods provided herein; provided, however, that the
-------- -------
appointment as Chairman of the Board is conditioned upon the Executive's annual
re-election by the stockholders of RSC. The duties and responsibilities of the
Executive shall include the duties and responsibilities for the Executive's
corporate offices and positions which are set forth in the respective Bylaws of
the Company from time to time, and such other duties and responsibilities
consistent with the Executive's corporate offices and position which the Board
of Directors of the Company from time to time may assign to the Executive.
2.02 Resignation. At the discretion of the Board of Directors and upon
-----------
their request, the Executive will resign as Chief Executive Officer ("a
Resignation"). Following the Resignation, at the discretion and request of the
Board, Executive may remain as Chairman of the Board of the Company, subject to
annual re-election by the stockholders of RSC. If upon request by the Board of
Directors, Executive does not continue as Chairman of the Board
<PAGE>
following the Resignation (a "Step Down"), Executive will be an employee or
consultant to the Company as set forth in Section 3.03 below.
3. Base Salary.
-----------
3.01 Prior to Resignation. For all services to be rendered by the
--------------------
Executive pursuant to this Agreement, while Executive remains as Chief Executive
Officer of RSC, RSC agrees to pay or cause to be paid to the Executive a base
salary at a minimum annual rate of $500,000, payable in periodic installments in
accordance with the general practice of RSC as in effect from time to time.
Notwithstanding anything to the contrary in the foregoing, if the Board of
Directors determines that the financial position of RSC mandates temporary
salary and or benefit reductions for executive officers, the Executive's base
salary will be reduced in the same proportion as the salary reduction imposed by
the Board of Directors on all other executive officers of RSC. Under no other
conditions will Executive's base salary be reduced below $500,000 per annum
during his tenure as Chief Executive Officer of the Company.
3.02 A Year in which Resignation Occurs. For the remainder of the
----------------------------------
calendar year in which the Resignation occurs, the Executive will be paid a base
salary as set forth in Section 3.01 of this Agreement. In the event that the
Resignation occurs at the end of a calendar year, such that there is no
"remainder", then the Executive will thereafter be paid a base salary as set
forth in 3.03 below.
3.03 After Resignation. For all full calendar years after the year in
-----------------
which Resignation occurs, the Executive will, subject to the same terms and
conditions set forth in 3.01 above, be paid a base salary of $250,000 per annum
for any year, or partial year (pro rated based on days elapsed), in which
Executive continues as Chairman of the Board. After a Step Down, Executive
shall be paid, as an employee or consultant to the Company, a pro rata portion
of an amount equal to his former salary as Chief Executive Officer, based upon
Executive's time commitment to the Company. Such time commitment will be pre-
determined at the start of each calendar year at the Board's discretion. In no
event will Executive's gross compensation as an employee or consultant be less
than $125,000 per annum (before any required withholding), and in no event will
Executive's time commitment to the Company be less than 20%. The Executive may
choose whether he wishes to remain an employee, subject to payroll withholding
and other applicable corporate policies, or whether he wishes to be a consultant
and serve as an independent contractor.
4. Cash Bonus. Subject to approval by the Company's stockholders ("Bonus
----------
Plan Approval") of the Executive Incentive and Bonus Plan ("Bonus Plan"),
Executive will be entitled (in addition to the base salary and other benefits
under this Agreement), so long as he is Chief Executive Officer, to a cash bonus
of up to $500,000 for the year in question ("Annual Incentive Compensation
Opportunity") if RSC achieves certain goals set by the Compensation Committee
(consisting solely of two or more outside directors) for such year during the
Term of
2
<PAGE>
this Agreement. Subject to Bonus Plan Approval, Executive's Annual Incentive
Compensation Opportunity shall be reduced to $250,000 for each year following
the year in which a Resignation occurs, so long as Executive continues as
Chairman of the Board. Beginning with the year following a year in which any
Step Down occurs, Executive will no longer be eligible for any Annual Incentive
Compensation Opportunity.
5. Options and Restricted Stock. RSC has established a Stock Option Plan
----------------------------
for Key Employees and the 1996 Equity Participation Plan and may establish
similar future plans (collectively the "Option Plan"). In addition to the base
salary and other benefits under this Agreement, during the Term, the Executive
will be granted options and restricted stock (the "Reid Equity") pursuant to the
applicable Option Plan as set forth and subject to the conditions in this
Agreement and in Exhibit "A" hereto which is incorporated herein and made a part
hereof.
6. Fringe Benefits. So long as Executive's employment has not been
---------------
terminated (whether voluntarily or involuntarily), he shall be entitled to all
benefits and conditions of employment generally available to other executives of
RSC including, by way of illustration but not by way of limitation, sick leave,
disability, accident, life, hospitalization, medical and dental insurance, paid
holidays, participation in any pension, profit sharing or other retirement plan,
and any other similar indirect compensation or benefits which RSC now provides,
and may from time to time in the future extend to its executives, and Executive
shall also be provided with a Company vehicle comparable to the vehicle provided
during his tenure as Chief Executive Officer. For purposes of determining
eligibility for such benefits, Executive will be considered to have remained
employed through the Term and, in the case of medical and hospitalization and
dental benefits, through the age of 65, the intent of this Section 6 being that
Executive will in all events have medical, hospitalization and dental benefits
through age 65. If necessary to allow participation in such benefits, the
Company will re-employ Executive at a salary of $500 per month until Executive
reaches age 65 with duties no greater than those he previously had as Chairman
of the Board. Notwithstanding the foregoing, nothing in this Agreement shall
permit Executive to continue to participate in the 401(k) Plan or any other
qualified plan if such continued participation would cause the 401(k) Plan or
any other such plan to lose its qualified status for tax purposes.
7. Vacation. The Executive shall be entitled to an annual paid vacation
--------
of no less than four (4) weeks per year during any calendar year in which the
Executive devotes his full time to the Company.
8. Reimbursement for Business Expenses. The Executive shall be reimbursed
-----------------------------------
for all reasonable business expenses incurred by him in performing his duties
under this Agreement in accordance with the policies of RSC in effect from time
to time. All requests for reimbursement shall be substantiated by invoices and
other pertinent data reasonably satisfactory to RSC.
3
<PAGE>
9. Other Activities.
----------------
9.01 Full Time Efforts. So long as he remains Chief Executive Officer,
-----------------
the Executive shall devote substantially all of his working time and efforts to
the affairs of RSC and to the diligent and faithful performance of the duties
and responsibilities assigned to him pursuant to this Agreement.
9.02 After Resignation. During any remainder of any calendar year of the
-----------------
Resignation and during all full calendar years after the Resignation in which
Executive serves as Chairman of the Board, the Executive shall devote
approximately fifty percent (50%) of his business time to the affairs of RSC and
to the diligent and faithful performance of the duties and assignments of the
Chairman of the Board as assigned by the Board of Directors of RSC.
10. Severance Absent Change of Control
----------------------------------
10.01 Severance Event. Except where there has been a "Change of Control"
---------------
(as defined in Section 11 hereof) if the Executive's active employment with RSC
as Chairman and Chief Executive Officer or as Chairman or as an
employee/consultant is "Terminated Without Cause" (as hereinafter defined) or if
Executive resigns from his employment because RSC fails to perform any of the
material terms of this Agreement after written notice from the Executive (any of
which shall constitute a "Severance Event"), the Executive shall receive: (i)
payment of an amount equal to the aggregate base salary he would have earned
during the remaining Term of this Agreement had he remained in the position he
held immediately prior to the Severance Event; (ii) the aggregate Annual
Incentive Compensation Opportunity for which the Executive could have been
eligible (without regard to the other terms and conditions of the Bonus Plan)
under Section 4 herein during the remaining Term of this Agreement had he
remained in the position he held immediately prior to the Severance Event, (iii)
the immediate vesting and lapse of all restrictions on all of Executive's shares
of restricted stock; and (iv) the immediate vesting of all Options previously
granted pursuant to the Option Plan. These options will be exercisable for the
shorter of (i) their remaining terms prior to stated expiration or (ii) five
years from the Severance Event or (iii) the periods permitted/required under the
applicable Option Plan and any applicable option agreements. The Executive
shall receive the base salary portion of his severance compensation in a lump
sum discounted to present value using the three-year treasury bill rate then in
effect, and the portion attributable to his Annual Incentive Compensation shall
be payable each year within fourteen (14) days after determination of whether
the applicable goals were met.
10.02 Demise. If, during the Term of this Agreement, the Executive's
------
active employment with RSC is terminated as a result of the Executive's death or
mental or physical disability ("Demise"), the Executive or the Executive's
estate, as the case may be, will be entitled to receive at the end of the fiscal
year in which such Demise occurs, a pro rata portion
4
<PAGE>
(based on days elapsed in such year up to the Demise) of his Annual Incentive
Compensation Opportunity for such fiscal year (without regard to the other terms
and conditions of the Bonus Plan). In addition, any unvested options previously
granted to the Executive pursuant to the Option Plan shall become immediately
vested and fully exercisable for the shorter of (i) their remaining term(s) or
(ii) five years from the Demise or (iii) the periods permitted/required under
the applicable Option Plan and any applicable option agreements.
10.03 Termination for Cause. For purposes of this Agreement, a
---------------------
"Termination Without Cause" shall mean any termination by RSC or any successor
of the Executive for any reason other than: (1) the Executive's conviction of a
crime substantially detrimental to RSC's business or relating to moral
turpitude; (2) the Executive's intentional or willful damage of RSC's business,
properties or labor relations; (3) the Executive's willful and continued
negligence in the performance of his duties as set forth in this Agreement and
the bylaws of RSC including failure to substantially perform the duties of his
office after receiving written notice thereof from RSC; (4) the Executive's
material breach of this Agreement or (v) a Demise. Termination due to any of
items (1)(2) (3) or (4) is referred to herein as "Termination For Cause".
10.04 No Severance in Certain Events. Except as set forth in Sections 11
------------------------------
and 2.02, if during the Term of this Agreement: (a) the Executive's active
employment with RSC as Chairman or Chief Executive Officer or
employee/consultant is Terminated For Cause; or (b) the Executive resigns as
Chairman and Chief Executive Officer of RSC other than pursuant to a Severance
Event; or (c) the Executive resigns as Chairman of RSC (other than at the
request of the Board pursuant to a Step Down or other than pursuant to a
Severance Event) or as an employee/consultant (other than pursuant to a
Severance Event), then the Executive shall not be entitled to any severance
payments or benefits.
11. Change of Control.
-----------------
11.01 Definitions.
-----------
For the purposes of this Section 11, the following terms shall have the
following respective meanings:
(a) "Annual Base Salary" shall mean the Annual Base Salary being earned
--------------------
by the Executive on the date that the relevant Change of Control occurs.
(b) "Annual Incentive Compensation Opportunity" shall mean the maximum
-------------------------------------------
amount of cash bonus for which Executive could be eligible pursuant to Section 4
during the fiscal year in which the relevant Change of Control occurs (without
regard to the other terms and conditions of the Bonus Plan).
5
<PAGE>
(c) A "Change in Control" shall be deemed to have occurred if:
----------
(i) any "person" (other than any employee benefit plan maintained
by the Company), as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") is or becomes
the "beneficial owner", as such term is used in Rule 13d-3 promulgated
under the 1934 Act, directly or indirectly, of securities representing
fifty percent (50%) or more of the common stock of RSC; or
(ii) all or substantially all of the business of the Company is
disposed of pursuant to a merger, consolidation or other transaction in
which (x) the Company is not the surviving company, or (y) the stockholders
of the Company immediately prior to the transaction do not continue to own
at least sixty percent (60%) of the surviving corporation immediately after
the transaction; or
(iii) the Company is materially or completely liquidated; or
(iv) individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the date
-------
hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an election contest with respect to the election or removal
of directors or other actual or overtly and publicly threatened
solicitation of proxies or consents by or on behalf of a person or entity
other than the Board of Directors.
(d) "Good Reason" shall mean:
-----------
(i) a material reduction in Executive's authority, duties or
responsibilities (including status, offices, titles and reporting
requirements) from those of Executive at the time of the relevant Change in
Control
(ii) any reduction in Executive's Annual Base Salary or Annual
Incentive Compensation Opportunity except as set forth in Section 3;
(iii) any material reduction (in the aggregate) in Executive's
employee benefits except as set forth in Section 3;
6
<PAGE>
(iv) the Company requires Executive to be based at any office
located more than thirty (30) miles from RSC's current offices without
Executive's consent.
11.02 Acceleration of Options. In the event of Change of Control, all of
-----------------------
Executive's unvested stock options and restricted stock shall vest without
further action by either of the Company or Executive.
11.03 Termination Payments After a Change in Control. If within twenty
----------------------------------------------
four (24 months after a Change in Control, (a) there is a Termination Without
Cause or (b) Executive voluntarily terminates his employment with the Company
for Good Reason, RSC shall, in lieu of any other severance obligation:
(a) pay to Executive two and one half (2-1/2) times the sum of (i) his
Annual Base Salary and (ii) Annual Incentive Compensation Opportunity then in
effect; provided that if the sum of Executive's (i) Annual Base Salary and (ii)
--------
Incentive Compensation Opportunity for any of the previous years during the Term
of this Agreement prior to the Change of Control is greater, then the Executive
shall be paid two and one half (2-1/2) times the greater amount.
(b) continue to provide to Executive basic health and life insurance
coverage substantially comparable to the coverage in effect upon the date of the
Change of Control for thirty (30) months after such termination or until
Executive is re-employed and eligible for basic health and life insurance
benefits from his employer which are equal to or better than those provided by
RSC on the date of termination, provided, however, that if Executive is not
-------- -------
eligible for coverage with any new employer for "pre-existing conditions" and
the like, RSC shall continue to provide coverage for such conditions through the
end of the thirty (30) month period. In consideration for such coverage,
Executive shall continue to pay an amount equal to the amount paid by him for
such coverage by RSC prior to his termination or such amount as other than
current executive employees of RSC pay for such coverage.
(c) pay to Executive an amount equal to two and one-half (2-1/2) times
three percent (3 %) of Executive's Annual Base Salary at the date of termination
(2-1/2 x his then Annual Base Salary x .03). In addition, if Executive is not
fully vested in his 401(k) account on the date of termination, RSC shall either
fully vest Executive in such account or pay Executive an amount equal to the
unvested portion of such account; and
(d) either transfer to Executive ownership and title to the Executive's
Company car or, if Executive receives a car allowance in lieu of a Company car,
pay Executive an amount equal to two and one-half (2-1/2) times Executive's
annual car allowance.
All payments due pursuant to Section 11 shall be made within fifteen (15)
business days of the date of termination or as soon thereafter as the amount can
be calculated.
7
<PAGE>
11.04 Assumption By Successor. RSC will require any successor (whether
-----------------------
direct or indirect, by purchase, merger, consolidation or otherwise) which is
not otherwise bound by operation of law to all or substantially all of the
business and/or assets of either of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place.
11.05 No Mitigation - No Offset. If Executive is Terminated Without Cause
-------------------------
or voluntarily terminates for Good Reason, Executive shall be under no
obligation to seek other employment, and there shall be no offset against
amounts due Executive under this Agreement on account of any remuneration
attributable to any subsequent employment Executive may obtain.
11.06 Attorney's Fees. If Executive reasonably determines that it is
---------------
necessary to initiate any legal action including any arbitration proceeding as
described in Section 12 to obtain any payments, benefits or rights provided by
this Agreement to him, RSC shall reimburse Executive for all attorneys' fees,
arbitrator's fees, costs and other related expenses incurred by him if Executive
prevails in said action.
12. Dispute Resolution.
------------------
12.01 Notice of Dispute. If any dispute arises out of this Agreement, the
-----------------
"complaining party" shall give the "other party" written notice of such dispute.
The other party shall have ten (10) business days to resolve the dispute to the
complaining party's satisfaction. If the dispute is not resolved by the end of
such period, the complaining party may by written notice (the "Notice") demand
arbitration of the dispute as set out below, and each party hereto expressly
agrees to submit to, and be bound by, such arbitration.
(a) Each party, will, within ten (10) business days of the Notice,
nominate an arbitrator. Each nominated arbitrator must be someone experienced in
dispute resolution and not within the employ or direct or indirect influence of
the nominating party. The two nominated arbitrators will, within ten (10)
business days of nomination, agree upon a third arbitrator who shall act as sole
arbitrator. If two (2) appointed arbitrators cannot agree on a third arbitrator
within such period, the parties may seek such an appointment through any
permitted court proceeding or by JAMS/Endistpute ("JAMS"). The arbitrator will
set the rules and timing of the arbitration, but will generally follow the rules
of JAMS/Endispute and this Agreement where same are applicable and shall provide
for written fact findings.
(b) The arbitration hearing will in no event take place more than ninety
(90) days after the appointment of the third arbitrator.
(c) The arbitration will take place in Scottsdale, Arizona unless
otherwise unanimously agreed to by the parties.
8
<PAGE>
(d) The results of the arbitration and the decision of the arbitrator
will be final and binding and non-appealable on the parties, and each party
agrees and acknowledges that these results shall be enforceable in a court of
law.
12.02 Nothing herein shall, however, prevent RSC from seeking injunctive
relief pursuant to Section 16 only, in a court of competent jurisdiction.
13. Nondisclosure of Proprietary Information. As used in this Agreement,
----------------------------------------
the term "Proprietary Information" shall mean all information disclosed to the
Executive or known by the Executive as a consequence of or through the
Executive's employment by RSC (including information belonging to third parties
in RSC's possession and information conceived, originated or developed by the
Executive), whether or not in the Executive's primary field of professional
interest, which information is not generally known in the trade or industry in
which such information is used, about RSC's (or third party's) products,
processes, services, customers, suppliers, vendors, marketing strategy, employee
relationships or business plans, including, without limitation, information
relative to research, development, manufacturing, supplies, purchasing, product
design, and business studies, plans, projections, practices and finances. Except
as required in the performance of the Executive's duties to RSC or as
authorized, in writing, by the Board of Directors of RSC or a person (other than
the Executive) so authorized by the Board of Directors of RSC, the Executive
shall not at any time during or after his employment with RSC, directly,
indirectly or otherwise, use, disseminate, disclose or publish any Proprietary
Information, or use for the Executive's or another's benefit or deliver to
another any document, record, notebook, computer program or record or similar
repository of or containing Proprietary Information, unless and until such
Proprietary Information has become a matter of public knowledge through no
action or fault of the Executive or unless otherwise required by court order to
comply with the law. Upon termination of the Executive's employment with RSC,
all documents, records, notebooks, computer programs and records or similar
repositories of or containing Proprietary Information, including all copies
thereof, then in the Executive's possession or control whether prepared by the
Executive or others, will be left with or returned to RSC by the Executive.
14. Inventions.
----------
14.01 Definitions of Inventions. As used in this Agreement, the term
-------------------------
"Inventions" means discoveries, concepts and ideas, whether patentable or not,
including but not limited to processes, methods, formulas, and techniques, as
well as improvements thereof or know-how related thereto, relating to any
present or prospective activities of RSC.
14.02 Inventions Owned by RSC. With respect to (a) Inventions made or
-----------------------
conceived by the Executive (either solely or jointly with another or others),
whether or not during the Executive's hours of employment or with the use of
RSC's facilities, materials or personnel
9
<PAGE>
during the term of the Executive's employment with RSC, which have any
applicability to any aspect of the work engaged in by the Executive or where
derived from Proprietary information which the Executive received from, or was
privy to as a result of his employment with RSC, and (b) inventions made or
conceived by the Executive (entered solely or jointly with another or others)
after termination of the Executive's employment with RSC without royalty or any
other consideration to the Executive therefor:
(a) The Executive shall inform RSC promptly and fully of such Inventions
by a written report, setting forth in detail necessary to permit RSC to
understand said Inventions and discoveries and practice them without the
exercise of further inventive skill. Such report will be submitted by the
Executive upon completion of any and all studies of research projects undertaken
on RSC's behalf, whether or not in the Executive's opinion a given project has
resulted in an Invention;
(b) The Executive shall apply, at RSC's request and expense, for United
States and Foreign Letters of patent either in the Executive's name or otherwise
as RSC shall direct;
(c) The Executive shall assign and hereby does assign to RSC all of the
Executive's rights to such Inventions and to applications for United States
and/or Foreign Letters of patent and the United States and/or Foreign Letters of
patent granted upon such Inventions;
(d) The Executive shall acknowledge and deliver promptly to RSC without
charge to RSC (beyond the Executive's regular salary or, if after employment, at
a rate equal thereto), but at RSC's expense, such written instruments and do
such other lawful acts, such as giving testimony in support of inventorship, as
may be necessary in the opinion of RSC to obtain and maintain United States
and/or Foreign Letters of patent to vest the entire right and title thereunto in
RSC; and
(e) The Executive shall grant and hereby grants RSC the royalty free
right to use in its business, and to use, make and sell products, processes,
and/or services derived from any Inventions, discoveries, concepts and ideas
conceived or made by the Executive, whether or not patentable.
14.03 License. Notwithstanding the foregoing, the Executive shall grant
-------
and hereby grants RSC the royalty free right to use in its business, and to use,
make and sell products, processes, and/or services derived from any inventions,
discoveries, concepts and ideas conceived or made by the Executive, whether or
not patentable, including, but not limited to, processes, methods, formulas and
techniques, as well as the improvements thereof or know-how related thereto,
which are not within the scope of Inventions as hereinabove defined but which
are conceived or made by the Executive during the hours which the Executive is
employed or retained by RSC or with the use or assistance of RSC's facilities,
materials or personnel.
10
<PAGE>
15. Successors and Assigns. This Agreement and all rights under this
----------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
assigns. Except where this Agreement confers rights on the estate of the
Executive, this Agreement is personal in nature, and none of the parties to this
Agreement shall, without the written consent of the other, assign or transfer
this Agreement, or any right or obligation to this Agreement to any other person
or entity. Except as otherwise set forth herein, this Agreement replaces and
supersedes all prior Agreements between Executive and RSC, provided all grants
of stock options made prior to this Agreement are acknowledged and ratified.
Anything to the contrary in the foregoing notwithstanding, the covenants
contained in Section 11, 11 and 12 hereof shall continue to be applicable
whether RSC's business is conducted by it, by any subsidiary of RSC, or by any
other successor to the business of RSC.
16. Injunctive Relief. RSC and Executive agree that damages are an
-----------------
inadequate remedy for, and that RSC or any successor to the business of RSC
would be irreparably harmed by and breach of Section 12, 13 or 14 of this
Agreement, and that RSC or any successor to the business of RSC shall be
entitled to equitable relief in the form of a preliminary or permanent
injunction upon any breach of Section 12, 13 or 14 hereof.
17. Notices. For purposes of this Agreement, notices and other
-------
communication provided for this Agreement shall be deemed to be properly given
if delivered personally or sent by United States Certified Mail, return receipt
requested, postage prepaid, or by a reputable third party courier service
evidenced by a signed certificate of receipt, addressed as follows:
If to the Executive:
Martin R. Reid
10801 E. Happy Valley Road #44
Scottsdale, AZ 85255
If to Company:
Rental Service Corporation
6929 E. Greenway Parkway
Suite 200
Scottsdale, AZ 85254
or to such other addresses as any party may have furnished to the other parties
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
11
<PAGE>
18. Miscellaneous. No provision of this Agreement may be modified,
-------------
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and officers of RSC (other than the
Executive) so authorized by the Board of Directors of RSC. No waiver by any
party to this Agreement at any time of any breach by another party of, or
compliance by another party with, any condition or provision of this Agreement
to be performed by another party shall be deemed to be a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement have been made by any parties
that are not expressly set forth in this Agreement.
19. Validity. The validity or enforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which other provisions shall remain in
full force and effect, nor shall the invalidity or unenforceability of a portion
of any provision of this Agreement affect the validity or enforceability of the
balance of such provision.
20. Counterparts. This document may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
21. Headings. The headings of the paragraphs contained in this document
--------
are for reference purposes only and shall not, in any way, affect the meaning or
interpretation of any provision of this Agreement.
22. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the internal substantive laws, and not the choice of law
rules, of the State of Arizona.
23. Covenant Not to Compete.
-----------------------
23.01 The Executive agrees that during the Term of this Agreement and for
four (4) years subsequent to termination of employment for any reason (the
"Covenant Term"), the Executive shall not:
(a) Either directly or indirectly, or solely or jointly with other
persons or entities, or as director, officer, employee or consultant, or as a
shareholder engage in any businesses which will in any way compete with RSC
("Competing Business"). Without limiting the generality of the foregoing, for
purposes of this Section 24, it is understood that Competing Businesses shall
include any business which rents or sells construction or industrial equipment
or engages in the sale of maintenance, repair or operating supplies;
12
<PAGE>
(b) Lend any credit or money for the purposes of establishing or
operating any Competing Business, or otherwise give aid or advice to any third
person, firm, association or corporation engaging in any Competing Business,
excluding a loan to a family member outstanding on the date of this Agreement;
or
(c) Lend or allow executive skill, knowledge or experience to be so used
by any Competing Business; or solicit, divert or take away or attempt to
solicit, divert or take away any of the customers, business, employees or
patrons of RSC.
(d) Notwithstanding the foregoing, Executive may make passive
investments in up to two percent (2%) of the outstanding publicly traded common
stock of an entity which operates a Competing Business.
(e) If a court of competent jurisdiction determines that this covenant
not to compete exceeds the time or georgraphic or other limitations permitted by
applicable law, then such provisions shall be deemed reformed to the maximum
time or georgraphic or other limitations permitted by applicable law, as
determined by such court. Without limiting the generality of the foregoing, the
covenants contained herein shall be construed as separate covenants covering
their respective subject matters with respect to each separate state of the
United States in which the Company transacts business.
[Signature page to follow.]
13
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement on the date and year first above written.
RENTAL SERVICE CORPORATION
By: /s/ Robert M. Wilson
--------------------------------
Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
/s/ Martin R. Reid
-----------------------------------
Martin R. Reid
14
<PAGE>
EXHIBIT "A"
TO EMPLOYMENT AGREEMENT
BETWEEN MARTIN R. REID AND
RENTAL SERVICE CORPORATION
DATED JANUARY 14, 1998
THE REID EQUITY
1. Executive shall retain all previously granted stock options to purchase
shares of the Company's Common Stock.
2. For each year in which Executive serves as Chief Executive Officer , the
Compensation Committee may grant Executive incentive stock options or non-
qualified options to purchase shares of the Company's common stock and shares of
restricted stock in January or as soon thereafter as practical. The amounts of
such grants will be determined by the Compensation Committee with a view toward
increasing his owenership of Common Stock to a significant ownership position
and further motivating his continued leadership role with the Company. Such
grants of restricted stock will be governed by an agreement substantially in the
form attached hereto. The Compensation Committee has granted 190,000 options,
which shall vest in equal installments over four years (subject to earlier
vesting as provided in this Agreement). However, if the Executive presents, and
has approved by the Board , a CEO succession plan, said options will vest upon
the later of (i) approval of such plan or (ii) twelve months after the date the
options were granted. Subsequent option grants will vest in equal installments
over four years, subject to earlier vesting as provided in this Agreement. All
options may be made subject to the Option Plan or any subsequent stock option
plan of RSC. In no event will Executive receive options or restricted stock
which would cause Executive's total option (including shares issued on exercise
of options) and restricted stock holdings to exceed 5% of the Company's fully-
diluted outstanding common stock.
3. For all other calendar years following the Resignation during which
Executive serves as Chairman of the Board, the Executive shall have a stock
option opportunity that is proportionate to that for which the Chief Executive
Officer ("CEO") is eligible for that calendar year, ratable to their respective
salaries. For example, if the CEO and the Executive each make the same salary,
each is eligible for the same number of stock options and/or restricted stock.
If the CEO's salary is $500,000 per annum and the Executive's is $250,000 per
annum, the Executive would be eligible for options and/or restricted stock in an
amount equal to fifty percent (50%) of the number of options and/or restricted
stock for which the CEO is eligible (excluding one-time or extraordinary grants
to such CEO).
15
<PAGE>
4. Upon the merger or consolidation of RSC with or into another corporation, or
upon Change of Control or any other change in the basic corporate structure of
RSC, all options and restricted stock shall be dealt with pursuant to Section 11
of this Agreement.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF RENTAL SERVICE CORPORATION AS OF MARCH 31,
1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS<F1>
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 4,462,000 1,578,000
<SECURITIES> 0 0
<RECEIVABLES> 69,120,000 25,655,000
<ALLOWANCES> 3,630,000 2,811,000
<INVENTORY> 35,825,000 10,515,000
<CURRENT-ASSETS> 0 0
<PP&E> 522,341,000 211,094,000
<DEPRECIATION> 77,969,000 34,935,000
<TOTAL-ASSETS> 864,876,000 267,543,000
<CURRENT-LIABILITIES> 0 0
<BONDS> 433,140,000 101,624,000
0 0
0 0
<COMMON> 204,000 114,000
<OTHER-SE> 307,036,000 96,607,000
<TOTAL-LIABILITY-AND-EQUITY> 864,876,000 267,543,000
<SALES> 38,484,000 13,782,000
<TOTAL-REVENUES> 108,663,000 41,309,000
<CGS> 29,193,000 9,709,000
<TOTAL-COSTS> 81,727,000 30,331,000
<OTHER-EXPENSES> 9,340,000 5,030,000
<LOSS-PROVISION> 428,000 446,000
<INTEREST-EXPENSE> 7,583,000 1,597,000
<INCOME-PRETAX> 9,585,000 3,905,000
<INCOME-TAX> 4,101,000 1,722,000
<INCOME-CONTINUING> 5,484,000 2,183,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 534,000
<CHANGES> 0 0
<NET-INCOME> 5,484,000 1,649,000
<EPS-PRIMARY> .27 .15
<EPS-DILUTED> .27 .14
<FN>
<F1> The financial data schedule for the three months ended 3/31/97 is restated
to conform its presentation to the requirements of FAS #128.
</FN>
</TABLE>
