<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 JUNE 30, 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 001-12985
- --------------------------------------------------------------------------------
RENTAL SERVICE CORPORATION
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 20,797,396 shares of Rental Service Corporation Common Stock,
$.01 par value, outstanding at July 31, 1998.
<PAGE>
RENTAL SERVICE CORPORATION
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
- -----------------------------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997.......................... 1
Consolidated Statements of Operations
Three and six months ended June 30, 1998 and 1997 (unaudited)............ 2
Consolidated Statements of Cash Flows
Three and six months ended June 30, 1998 and 1997 (unaudited)............ 3
Notes to Consolidated Financial Statements - June 30, 1998 (unaudited)....... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...................15
PART II OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings........................................................16
ITEM 4. Submission of Matters to a Vote of Security Holders......................16
ITEM 5. Other Information........................................................17
ITEM 6. Exhibits and Reports on Form 8-K.........................................18
SIGNATURES...............................................................................20
</TABLE>
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents.................................................... $ 3,559 $ 8,932
Accounts receivable, net..................................................... 82,507 62,028
Other receivables and prepaid expense........................................ 9,727 3,217
Income tax receivable........................................................ 2 638
Parts and supplies inventories, net.......................................... 39,025 31,714
Deferred taxes............................................................... 15,017 15,241
Rental equipment, principally machinery, at cost, net........................ 543,363 314,696
Operating property and equipment, at cost, net............................... 46,969 35,799
Intangible assets, net....................................................... 345,878 220,166
Other assets, primarily deferred financing costs, net........................ 12,704 6,895
---------- ---------
$1,098,751 $699,326
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable............................................................. $ 51,206 $ 34,911
Payroll and other accrued expenses........................................... 27,914 31,937
Accrued interest payable..................................................... 4,215 2,179
Income taxes payable......................................................... 7,218 1,686
Deferred taxes............................................................... 33,159 30,857
Bank debt and long term obligations.......................................... 654,658 306,975
---------- ---------
Total liabilities............................................................ 778,370 408,545
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 - 20,784,666 at June 30, 1998 and 19,833,437
at December 31, 1997...................................................... 208 198
Additional paid-in capital.................................................. 291,749 270,927
Common stock issuable - 132,834 shares at June 30, 1998 and 284,108 shares
at December 31, 1997....................................................... 2,780 6,000
Deferred compensation expense............................................... (631) --
Retained earnings........................................................... 26,275 13,656
---------- ---------
Total stockholders' equity................................................... 320,381 290,781
---------- ---------
$1,098,751 $699,326
========== ========
</TABLE>
See accompanying notes.
1
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1998 1997 1998 1997
----------------------------- ----------------------------
Revenues: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Equipment rentals............................. $ 96,572 $36,800 $166,751 $64,327
Sales of parts, supplies and new equipment.... 33,826 17,787 61,053 26,952
Sales of used equipment....................... 10,652 3,967 21,909 8,584
-------- ------- -------- -------
Total revenues................................. 141,050 58,554 249,713 99,863
Cost of revenues:
Cost of equipment rentals, excluding
equipment rental depreciation................ 48,951 19,361 86,024 33,677
Depreciation, equipment rentals............... 20,038 7,730 35,499 14,036
Cost of sales of parts, supplies and new
equipment.................................... 25,978 13,869 47,227 20,606
Cost of sales of used equipment............... 7,635 2,724 15,579 5,696
-------- ------- -------- -------
Total cost of revenues......................... 102,602 43,684 184,329 74,015
-------- ------- -------- -------
Gross profit................................... 38,448 14,870 65,384 25,848
Selling, general and administrative expense.... 8,745 4,685 14,404 8,469
Depreciation and amortization, excluding
equipment rental depreciation................. 2,302 1,219 4,326 2,287
Amortization of intangibles.................... 2,505 745 4,590 1,369
-------- ------- -------- -------
Operating income............................... 24,896 8,221 42,064 13,723
Interest expense, net.......................... 12,425 3,030 20,008 4,627
-------- ------- -------- -------
Income before income taxes and extraordinary
item.......................................... 12,471 5,191 22,056 9,096
Provision for income taxes..................... 5,336 2,336 9,437 4,058
-------- ------- -------- -------
Income before extraordinary item............... 7,135 2,855 12,619 5,038
Extraordinary item, loss on extinguishment of
debt less applicable income tax benefit of
$386 in 1997.................................. -- -- -- 534
-------- ------- -------- -------
Net income..................................... $ 7,135 $ 2,855 $ 12,619 $ 4,504
======== ======= ======== =======
Earnings per common share:
Income before extraordinary item............... $ .34 $ .23 $ .61 $ .43
Extraordinary item............................. -- -- -- (.05)
-------- ------- -------- -------
Net income..................................... $ .34 $ .23 $ .61 $ .38
======== ======= ======== =======
Weighted average common shares................. 20,845 12,412 20,633 11,858
======== ======= ======== =======
Earnings per common share, assuming dilution:
Income before extraordinary item............... $ .34 $ .23 $ .60 $ .42
Extraordinary item............................. -- -- -- (.05)
-------- ------- -------- -------
Net income..................................... $ .34 $ .23 $ .60 $ .37
======== ======= ======== =======
Weighted average common shares, assuming
dilution...................................... 21,183 12,612 20,877 12,065
======== ======= ======== =======
</TABLE>
See accompanying notes.
2
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
1998 1997
-------------------- --------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 12,619 $ 4,504
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.............................................. 44,415 17,692
Extraordinary item......................................................... -- 534
Provision for losses on accounts receivable................................ 1,291 1,010
Amortization of deferred compensation expense for restricted stock
issuances................................................................. 44 --
Gain on sale of used equipment............................................. (6,330) (2,888)
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Accounts receivable..................................................... (8,735) (7,882)
Other receivables and prepaid expense................................... 1,356 226
Income tax receivable................................................... 636 446
Other assets............................................................ (115) (182)
Parts and supplies inventories.......................................... (21,210) (866)
Accounts payable........................................................ 15,387 20,247
Payroll and other accrued expenses...................................... (13,423) 1,093
Accrued interest payable................................................ 2,036 910
Income taxes payable.................................................... 5,535 3,394
Deferred taxes, net..................................................... 238 --
--------- ---------
Net cash provided by operating activities.................................... 33,744 38,238
INVESTING ACTIVITIES
Acquisitions of rental operations, net of cash acquired...................... (205,056) (119,550)
Cash purchases of rental equipment and operating property and equipment...... (195,883) (100,781)
Proceeds from sale of used equipment......................................... 21,909 8,584
--------- ---------
Net cash used in investing activities........................................ (379,030) (211,747)
FINANCING ACTIVITIES
Proceeds from bank debt...................................................... 544,888 261,160
Payments on bank debt........................................................ (399,528) (138,705)
Payments of debt issuance costs.............................................. (5,675) (3,202)
Proceeds from long term obligations.......................................... 200,000 --
Payments on long term obligations............................................ (509) (195)
Proceeds from issuance of common stock, net of issuance costs................ -- 55,643
Proceeds from exercise of stock options...................................... 565 --
Proceeds from QSP Plan offering.............................................. 172 --
--------- ---------
Net cash provided by financing activities.................................... 339,913 174,701
--------- ---------
Net increase (decrease) in cash and cash equivalents......................... (5,373) 1,192
Cash and cash equivalents at beginning of period............................. 8,932 1,452
--------- ---------
Cash and cash equivalents at end of period................................... $ 3,559 $ 2,644
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest...................................................... $ 17,972 $ 3,716
Cash paid for income taxes.................................................. $ 3,020 $ 74
</TABLE>
See accompanying notes.
3
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six-month period ended June 30, 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 Registration
Statement on Form S-1 (Registration No. 333-59519).
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. 131, Disclosures About Segments of an
Enterprise and Related Information. The Company is required to adopt the
provisions of SFAS No. 131 in 1998. SFAS No. 131 establishes a new method by
which companies will report operating segment information. This method is based
on the manner in which management organizes the segments within a company for
making operating decisions and assessing performance. The Company is evaluating
the provisions of SFAS No. 131 and, upon adoption, may report operating
segments.
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 (in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1998 1997
--------------- -------------
(Unaudited)
<S> <C> <C>
Assets acquired...................................... $106,296 $ 62,633
Goodwill and covenants not to compete................ 127,606 81,826
Less: common stock issued or issuable................ (16,200) (12,671)
Less: liabilities assumed............................ (12,646) (12,238)
-------- --------
Cash purchase price.................................. $205,056 $119,550
======== ========
Number of acquisitions............................... 13 14
</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 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1998 1997
--------------- -------------
(Unaudited)
<S> <C> <C>
Total revenues....................................... $265,038 $219,312
Income before extraordinary item..................... 12,689 4,775
Net income........................................... 12,689 4,241
Earnings per common share:
Income before extraordinary item................ .61 .35
Net income...................................... .61 .31
Earnings per common share, assuming dilution:
Income before extraordinary item................ .60 .34
Net income...................................... .60 .30
</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.
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
approximately $51.2 million in cash (including the payoff of assumed debt) and
193,090 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 resulted 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.
5
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On April 2, 1998, the Company acquired all of the outstanding stock of T&M
Rental, Inc. ("T&M") for approximately $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 resulted in approximately $15.7 million in goodwill,
which is being 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.
3. EARNINGS PER SHARE
The following table sets forth the computation of the denominator for earnings
per share and earnings per share, assuming dilution (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
1998 1997 1998 1997
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding........... 20,695 12,455 20,440 11,919
Common stock issuable in connection with
acquisitions................................. 171 29 211 14
Unvested restricted stock outstanding......... (21) (72) (18) (75)
------- ------ ------ ------
Denominator for earnings per share............. 20,845 12,412 20,633 11,858
Effect of dilutive securities:
Add-back of unvested restricted stock
outstanding.................................. 21 72 18 75
Common stock options.......................... 304 128 220 132
Common stock to be issued in connection with
the QSP Plan................................. 13 -- 6 --
------- ------ ------ ------
Dilutive potential common shares.............. 338 200 244 207
------- ------ ------ ------
Denominator for earnings per share, assuming
dilution...................................... 21,183 12,612 20,877 12,065
======= ====== ====== ======
</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.
6
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. BANK DEBT AND LONG TERM OBLIGATIONS
Bank debt and long-term obligations consist of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
$500.0 million 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 June 30,
1998 and December 31, 1997 was 7.1% and 7.8%,
respectively................................................ $351,834 $206,475
$100.0 million 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 $1.0 million on each of the first six anniversaries, with
the remaining principal balance due on December 2,
2004. The interest rate in effect at June 30, 1998 and
December 31, 1997 was 8.1% and 8.5%, respectively........... 100,000 100,000
$200.0 million 9% Senior Subordinated Notes due 2008 (the
"Senior Subordinated Notes"); interest due semi-annually
each May 15 and November 15 beginning November 15,
1998........................................................ 200,000 ---
Other......................................................... 2,824 500
-------- --------
$654,658 $306,975
======== ========
</TABLE>
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; and amended several covenants, including the
computation methodology of certain financial covenants.
In connection with the issuance of the Senior Subordinated Notes in May 1998,
the Company amended the Revolver to (i) reduce the interest rate margins by
.25%, (ii) increase the allowed levels of capital expenditures and investments
to $220.0 million in 1998, $235.0 million in 1999, $250 million in 2000, $270.0
million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus amounts
reinvested from asset sales), (iii) change certain financial and other covenants
and (iv) permit the issuance of the Senior Subordinated Notes.
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.
7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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 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. For the period ended June 30, 1998, the Company is 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. 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 June 30, 1998 was approximately
$351.8 million, with approximately $148.2 million available based on the
borrowing base.
On May 13, 1998, the Company issued the Senior Subordinated Notes in a private
placement pursuant to Rule 144A. The Senior Subordinated Notes call for semi-
annual interest payments on May 15 and November 15 of each year (beginning
November 15, 1998) and mature on May 15, 2008. The Senior Subordinated Notes are
guaranteed by substantially all of the Company's current and future domestic
subsidiaries, and contain covenants restricting additional indebtedness, certain
payments by the Company and its subsidiaries, asset sales, liens, mergers and
consolidations and transactions with affiliates.
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 six months ended June 30, 1997.
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 of the Company's common stock on the date of grant. The restricted stock
was valued at the fair market value of the Company's common stock on the date of
grant, and the resulting deferred compensation expense is being amortized over
the vesting period. 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.
8
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
On April 29, 1998, the Company's stockholders approved a proposal to increase
the number of shares of the Company's common stock authorized for issuance under
the 1996 Plan to 2,000,000. At June 30, 1998, 916,440 shares of common stock
were available for future awards under the 1996 Plan.
On April 29, 1998, the Company granted the chairman 40,411 stock options and
16,589 shares of restricted stock under 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 of
the Company's common stock on the date of grant. The restricted stock was valued
at the fair market value of the Company's common stock on the date of grant, and
the resulting deferred compensation expense is being amortized over the vesting
period.
6. SUBSEQUENT EVENTS
On July 29, 1998, the Company acquired all of the outstanding stock of M.J.
Struckel & Company, Inc. ("Struckel") for approximately $21.2 million in cash
(including the payoff of assumed debt). Struckel rented and sold a variety of
aerial equipment to customers in the construction industry, and operated in
Illinois and Missouri. Struckel's balance sheet was consolidated with the
Company's as of July 29, 1998. Pursuant to the acquisition agreement, the
Company assumed effective control of Struckel's operations on July 1, 1998 and
has included Struckel's revenues, costs and expenses from such date in its
consolidated statements of operations, net of related imputed purchase price
adjustments.
Subsequent to June 30, 1998, the Company has completed two additional
acquisitions for a total combined purchase price of approximately $10.6 million
in cash. The two acquired equipment rental companies operated in Canada and
Illinois.
As of July 31, 1998, the Company was party to non-binding letters of intent
to acquire six equipment rental businesses for a total combined purchase price
of approximately $36.7 million in cash (including the assumption of
approximately $1.3 million of debt). These acquisitions are subject to a number
of closing conditions, including the execution of definitive purchase
agreements, RSC board of directors approval and, in some cases, expiration or
early termination of the waiting period under the Hart-Scott-Rodino Act.
On July 20, 1998, the Company amended the Bank Facility to allow for a
separate credit facility in Canada of up to Cdn. $45.0 million and to make
certain other changes.
9
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 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 June 30, 1998 increased
140.9% to $141.0 million from $58.6 million for the three months ended June 30,
1997. This increase was primarily due to the inclusion of revenues from
acquisitions of 21 businesses (consisting of 72 locations) and the opening of 16
start-up locations since June 30, 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 162.4%
to $96.6 million from $36.8 million due to the larger rental fleet resulting
from acquisitions and capital expenditures. Sales of parts, supplies and new
equipment increased 90.2% to $33.8 million from $17.8 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 168.5% to $10.7 million from $4.0 million due
to the larger rental fleet and the Company's continuing strategy of selling the
older items in its fleet.
Total revenues for the six months ended June 30, 1998 increased 150.1% to
$249.7 million from $99.9 million for the six months ended June 30, 1997. This
increase was primarily attributable to the inclusion of revenues from
acquisitions and start-up locations since June 30, 1997. Equipment rental
revenues increased 159.2% to $166.8 million from $64.3 million due to the larger
rental fleet resulting from acquisitions and capital expenditures. Sales of
parts, supplies and new equipment increased 126.5% to $61.1 million from $27.0
million, while sales of used equipment increased 155.2% to $21.9 million from
$8.6 million.
Gross Profit. Gross profit for the three months ended June 30, 1998 increased
to $38.4 million, or 27.3% of total revenues, from $14.9 million, or 25.4% of
total revenues, for the three months ended June 30, 1997. This increase was
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 increased to 28.6%
of equipment rental revenues from 26.4% for the three months ended June 30,
1997, primarily due to the improved gross profit resulting from the Company's
cost controlling methods and the greater flow-through achieved from the larger
rental fleet. Gross margin on sales of parts, supplies and new equipment
increased to 23.2% of sales from 22.0%, due primarily to a change in the product
mix of parts, supplies and new equipment sales. Gross margin on sales of used
equipment decreased to 28.3% of sales from 31.3%, due primarily to increasing
sales of relatively younger equipment to meet customer demand. Generally, newer
equipment is sold at lower margins than more fully depreciated, older items.
Gross profit for the six months ended June 30, 1998 increased to $65.4
million, or 26.2% of total revenues, from $25.8 million, or 25.9% of total
revenues, for the six months ended June 30, 1997. This increase was primarily
attributable to the Company's increased number of locations and larger rental
fleet. Gross margin on equipment rentals increased to 27.1% of equipment rental
revenues from 25.8% for the six months ended June 30, 1997, primarily due to the
Company's cost controlling methods and the greater flow-through achieved from
the larger rental fleet. Gross margin on sales of parts, supplies and new
equipment decreased to 22.6% of sales from 23.5%, due to the acquisition of IAT,
which generally had lower gross margins than the Company on the sale of parts,
supplies and new equipment, and a change in the product mix of parts, supplies
and new equipment sales. Gross margin on sales of used equipment decreased to
28.9% of sales from 33.6%, due primarily to increasing sales of relatively
younger equipment.
10
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
Selling, General and Administrative Expense. Selling, general and
administrative expense for the three and six months ended June 30, 1998 was $8.7
million, or 6.2% of total revenues, and $14.4 million, or 5.8% of total
revenues, respectively, compared to $4.7 million, or 8.0% of total revenues, and
$8.5 million, or 8.5% of total revenues, respectively, in the same periods in
1997. These increases were the result of the greater number of locations and
employees resulting from the Company's acquisitions and start-ups since June 30,
1997, with the decreasing percentage of total revenues resulting from economies
of scale and the Company's focus on cost control.
Depreciation and Amortization, excluding equipment rental depreciation.
Depreciation and amortization, excluding equipment rental depreciation, for the
three and six months ended June 30, 1998 was $2.3 million, or 1.6% of total
revenues, and $4.3 million, or 1.7% of total revenues, respectively, compared to
$1.2 million, or 2.1% of total revenues, and $2.3 million, or 2.3% of total
revenues, respectively, in the same periods in 1997. These increases were
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 and six
months ended June 30, 1998 was $2.5 million, or 1.8% of total revenues, and $4.6
million, or 1.9% of total revenues, respectively, compared to $745,000, or 1.3%
of total revenues, and $1.4 million, or 1.4% of total revenues, respectively, in
the same periods in 1997. These increases were due to the additional goodwill
and covenants not-to-compete associated with acquisitions completed since June
30, 1997.
Interest Expense, net. Interest expense, net, for the three and six months
ended June 30, 1998 was $12.4 million and $20.0 million, respectively, compared
to $3.0 million and $4.6 million, respectively, for the same periods in 1997.
These increases were the result of the Company's increased average debt
outstanding for the three and six month periods ended June 30, 1998 versus the
same periods in 1997. The increased debt has resulted from acquisitions, capital
expenditures and start-up locations financed under the Bank Facility and the
Senior Subordinated Notes. Interest expense will continue to increase in
subsequent periods to the extent the Company borrows under the Bank Facility, or
otherwise, to fund acquisitions, capital expenditures and start-up locations.
Provision for Income Taxes. Provision for income taxes was $5.3 million and
$9.4 million, respectively, for the three and six months ended June 30, 1998,
compared to $2.3 million and $4.1 million, respectively, in the same periods in
1997. The Company's effective tax rate was 42.8% for the three and six months
ending June 30, 1998, compared to 45.0% and 44.6%, respectively, for the same
periods in 1997. The decrease in the Company's effective tax rate was 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 six
months ended June 30, 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
$3.6 million at June 30, 1998 and $8.9 million at December 31, 1997.
Operating activities. During the six months ended June 30, 1998 and 1997, the
Company's operating activities provided net cash flow of $33.7 million and $38.2
million, respectively. The principal causes for the variation in cash flow
between periods were higher net income, increased depreciation and amortization,
higher inventory levels and lower levels of accrued expenses.
11
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
Investing activities. Net cash used in investing activities was $379.0 million
and $211.7 million for the six months ended June 30, 1998 and 1997,
respectively. The increase between periods was attributable to a higher combined
level of capital expenditures and acquisitions. Acquisition spending totaled
$205.1 million and $119.6 million for the six months ended June 30, 1998 and
1997, respectively. In addition, the Company had capital expenditures of $195.9
million and $100.8 million for the six months ended June 30, 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 $21.9 million and $8.6 million for the six months ended
June 30, 1998 and 1997, respectively.
Financing activities. Net cash provided by financing activities was $339.9
million and $174.7 million for the six months ended June 30, 1998 and 1997,
respectively. The net cash provided by financing activities during these periods
was primarily from borrowings under the Revolver, from the issuance of common
stock in a public offering completed in June 1997 and from the issuance of the
Senior Subordinated Notes in May 1998.
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 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; and amended several covenants, including the
computation methodology of certain financial covenants.
In connection with the issuance of the Senior Subordinated Notes in May 1998,
the Company amended the Revolver to (i) reduce the interest rate margins by
0.25%, (ii) increase the allowed levels of capital expenditures and investments
to $220.0 million in 1998, $235.0 million in 1999, $250 million in 2000, $270.0
million in 2001 and $340.0 million in each of 2002, 2003 and 2004 (plus amounts
reinvested from asset sales), (iii) change certain financial and other covenants
and (iv) permit the issuance of the Senior Subordinated Notes.
In connection with the formation of Rental Service Corporation of Canada Ltd.
("RSC Canada"), a wholly owned subsidiary of RSC, and the negotiations for the
Canadian credit facility described below, the Company has executed an amendment
and consent to the Bank Facility to permit the Canadian credit facility, and to
make certain other changes.
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.
12
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
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. For the period ended June 30, 1998, the Company is 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 July 31, 1998, the principal amount outstanding under the Revolver was
approximately $423.5 million, the average interest rate on such borrowings was
approximately 7.2%, and approximately $76.5 million was available to the Company
under the Revolver.
RSC Canada is negotiating a secured revolving credit facility with lenders (or
affiliates) who are parties to the Bank Facility. The new Canadian facility is
anticipated to be in an amount of up to Cdn. $30.0 million, subject to certain
borrowing base limitations. The Canadian credit facility will be secured by
substantially all of the assets of RSC Canada and any subsidiary of RSC Canada
and guaranteed by RSC, with the guarantee being secured by the stock of RSC
Canada. The Canadian credit facility will expire on December 2, 2002, and will
contain other terms substantially similar to those contained in the Bank
Facility.
On May 13, 1998 the Company issued $200.0 million aggregate principal amount
of 9% Senior Subordinated Notes due 2008 in a private placement pursuant to Rule
144A. The net proceeds of the offering were used to repay indebtedness under the
Revolver in order to provide borrowing availability for general corporate
purposes, including acquisitions. The Senior Subordinated Notes call for semi-
annual interest payments on May 15 and November 15 of each year (beginning
November 15, 1998) and mature on May 15, 2008. The Senior Subordinated Notes are
guaranteed by substantially all of the Company's current and future domestic
subsidiaries, and contain covenants restricting additional indebtedness, certain
payments by the Company and its subsidiaries, asset sales, liens, mergers and
consolidations and transactions with affiliates.
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 non-binding 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 16
acquisitions of rental equipment businesses (including Valley, Metroquip, T&M
and Struckel) with an aggregate of 50 locations, has opened 13 new start-up
locations and has consolidated four acquired locations with existing locations
serving the same markets, bringing the Company's total number of locations to
224 in the United States and Canada as of July 31, 1998.
13
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
During the six months ended June 30, 1998, the Company completed 13
acquisitions of equipment rental businesses with a combined total of 41
locations for an aggregate purchase price of approximately $205.1 million in
cash (including the payoff of assumed debt), 696,892 shares of RSC common stock
and the assumption of approximately $12.6 million in liabilities. Additionally,
128,589 shares of RSC common stock may be paid for these acquisitions based on
the achievement of certain performance objectives by the acquired companies.
During the six months ended June 30, 1997, the Company completed 14 acquisitions
of rental equipment businesses with a combined total of 33 locations for an
aggregate purchase price of approximately $119.6 million in cash, 678,306 shares
of RSC common stock (of which 68,290 shares will be issued in future years) and
the assumption of approximately $12.2 million in liabilities. Additionally,
197,738 shares of RSC common stock may be paid for these acquisitions based on
the achievement of certain performance objectives by the acquired companies, of
which 65,913 shares were issued during the first six months of 1998.
During the six months ended June 30, 1998, the Company opened six new start-up
locations and consolidated four acquired locations with existing locations
serving the same markets. During the six months ended June 30, 1997, the Company
opened six new start-up locations, consolidated one acquired location with an
existing location servicing the same market and closed one under-performing
location.
On July 29, 1998, the Company acquired all of the outstanding stock of M.J.
Struckel & Company, Inc. ("Struckel") for approximately $21.2 million in cash
(including the payoff of assumed debt). Struckel rented and sold a variety of
aerial equipment to customers in the construction industry, operated a total of
three locations in Illinois and Missouri, and had total revenues of
approximately $9.2 million for its fiscal year ended December 31, 1997.
Struckel's balance sheet was consolidated with the Company's as of July 29,
1998. Pursuant to the acquisition agreement, the Company assumed effective
control of Struckel's operations on July 1, 1998 and has included Struckel's
revenues, costs and expenses from such date in its consolidated statements of
operations, net of related imputed purchase price adjustments.
Subsequent to June 30, 1998, the Company completed two additional acquisitions
for a total combined purchase price of approximately $10.6 million in cash.
These acquisitions had a combined six locations in Canada and Illinois.
As of July 31, 1998, the Company was party to non-binding letters of intent to
acquire six equipment rental businesses with a combined ten locations in
Arizona, Illinois, Maryland, New Mexico, Oklahoma and Wisconsin for a total
combined purchase price of approximately $36.7 million in cash (including the
assumption of approximately $1.3 million in debt). These acquisitions are
subject to a number of closing conditions, including the execution of definitive
purchase agreements, RSC board of directors approval and, in some cases,
expiration or early termination of the waiting period under the Hart-Scott-
Rodino Act. Furthermore, in view of the fact that these letters of intent are
non-binding and that the Company has not completed its due diligence
investigations with respect thereto, the Company cannot predict whether these
letters of intent will lead to definitive agreements, whether the terms of any
such definitive agreements will be the same as the terms contemplated by the
letters of intent, or whether any transaction contemplated by such letters of
intent will be consummated.
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 July 31, 1998, the
Company was obligated, under noncancellable purchase commitments, to purchase
approximately $96.5 million of equipment. Such purchases are expected to be
financed with cash flow 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 operations and capital liquidity requirements for at
least the next 12 months. However, if significant additional acquisition
opportunities arise, the Company may need to seek additional capital. Such
acquisitions and discretionary 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
14
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
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.
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 $456,000 at June 30,
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 contained 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 generally 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
Registration Statement on Form S-1 (Registration No. 333-59519) 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
results referred to in 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 or growth
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
15
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 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
On April 29, 1998 at the Company's Annual Meeting of Stockholders (the
"Annual Meeting"), eight individuals were elected to the Company's
Board of Directors for the ensuing year to serve until their successors
are elected and have been qualified. The eight directors elected were:
Martin R. Reid, Chairman; William M. Barnum, Jr.; James R. Buch; David
P. Lanoha; Christopher A. Laurence; Eric L. Mattson; Britton H. Murdoch
and John M. Sullivan. Each director was elected based on the
stockholder votes set forth below:
<TABLE>
<CAPTION>
DIRECTOR NAME NUMBER OF VOTES FOR NUMBER OF VOTES ABSTAINING
- ------------- ------------------- --------------------------
<S> <C> <C>
Martin R. Reid 16,793,517 717,156
William M. Barnum, Jr. 16,793,517 717,156
James R. Buch 16,848,121 662,552
David P. Lanoha 16,793,517 717,156
Christopher A. Laurence 16,793,307 717,366
Eric L. Mattson 16,848,123 662,550
Britton H. Murdoch 16,847,913 662,760
John M. Sullivan 16,736,323 774,350
</TABLE>
The second item of business conducted at the Annual Meeting was, as described in
the Proxy Statement dated March 30, 1998 (the "Proxy Statement"), a proposed
amendment to the Company's certificate of incorporation to provide for a
classified Board of Directors. The proposed amendment was defeated based on the
stockholder votes set forth below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 5,613,061
Number of votes against: 10,031,728
Number of votes abstaining: 31,233
</TABLE>
The third item of business conducted at the Annual Meeting was, as described in
the Proxy Statement, a proposed amendment to the Company's certificate of
incorporation to require the affirmative vote of two-thirds of the Company's
common stock for amendments to the classified Board provision. The proposed
amendment was defeated based on the stockholder votes set forth below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 4,948,057
Number of votes against: 10,710,538
Number of votes abstaining: 17,429
</TABLE>
16
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
The fourth item of business conducted at the Annual Meeting was, as
described in the Proxy Statement, the approval of the Company's
Management Incentive Compensation Plan. The Management Incentive
Compensation Plan was approved based on the stockholder votes set forth
below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 16,959,264
Number of votes against: 527,891
Number of votes abstaining: 23,518
</TABLE>
The fifth item of business conducted at the Annual Meeting was, as
described in the Proxy Statement, a proposed amendment to the Employee
Qualified Stock Purchase Plan of Rental Service Corporation (the "QSP
Plan") to shorten to six months the minimum period during which
employees must be employed by the Company before they are eligible to
participate in the QSP Plan. The proposed amendment was approved based
on the stockholder votes set forth below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 16,851,106
Number of votes against: 514,015
Number of votes abstaining: 145,552
</TABLE>
The sixth item of business conducted at the Annual Meeting was, as
described in the Proxy Statement, the approval of an increase in the
number of shares available for awards under the 1996 Equity
Participation Plan of Rental Service Corporation (the "1996 Plan") to
2,000,000. The increase in shares for the 1996 Plan was approved based
on the stockholder votes set forth below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 8,053,893
Number of votes against: 8,036,876
Number of votes abstaining: 15,937
</TABLE>
The final item of business conducted at the Annual Meeting was, as
described in the Proxy Statement, the ratification of the Board's
selection of Ernst & Young LLP as independent auditors for the Company
for 1998. The ratification of Ernst & Young LLP was approved based on
the stockholder votes set forth below:
<TABLE>
<CAPTION>
<S> <C>
Number of votes for: 17,497,017
Number of votes against: 7,010
Number of votes abstaining: 6,646
</TABLE>
ITEM 5. OTHER INFORMATION
As noted in a Company press release dated July 28, 1998, Milfred E.
"Bud" Howard was appointed to the position of Senior Vice President of
Sales and Marketing (effective August 1, 1998). Associated with this
appointment, Mr. Howard has been elected a corporate officer of the
Company and will report to the Chairman and Chief Executive Officer. In
this capacity, Mr. Howard will be responsible for defining the Company's
sales and marketing strategies in the general rental and industrial
markets, along with providing overall leadership to the Company's sales
and marketing efforts. Mr. Howard has been employed by the Company since
June 1997 as its Vice President of Sales for the Industrial Division.
Mr. Howard was previously Vice President of Sales for Hertz Equipment
Rental Corporation, and graduated from the University of Southern
Alabama with a B.S. Degree in Marketing Management.
17
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------------------------------------------------------------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment of Certificate of Incorporation. (2)
3.3 Form of Amended and Restated Bylaws of the Company. (3)
4.1 Indenture dated as of May 13, 1998 by and between Rental Service
Corporation, the Subsidiary Guarantors and Norwest Bank Minnesota, National
Association, as trustee for the 9% Senior Subordinated Notes. (4)
10.1 Second Amendment to Second Amended and Restated Credit Agreement, dated as
of July 20, 1998. (5)
10.2 Management Incentive Compensation Plan. (6)
10.3 Employment Agreement dated January 14, 1998 between Rental Service
Corporation and Martin R. Reid. (7)
10.4 Restricted Stock Agreement dated January 14, 1998 between Rental Service
Corporation and Martin R. Reid. (4)
10.5 Restricted Stock Agreement dated April 29, 1998 between Rental Service
Corporation and Martin R. Reid. (5)
10.6 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 the stockholders of Seller, dated December 30, 1997. (8)
10.7 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.
(7)
10.8 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. (7)
10.9 Registration Rights Agreement dated as of May 13, 1998 by and among Rental
Service Corporation and the persons named therein relating to the 9% Senior
Subordinated Notes. (4)
10.10 Form of Executive Severance agreement between Rental Service Corporation and
certain executive officers. (5)
*10.11 Stock Purchase Agreement by and among Jerry O. Grayson, Michael A. Mathon
and Becker Partners as "Sellers," Becker St. Paul Corporation and Kathleen
Becker as "Partners," Walker Jones Equipment, Inc. as "Buyer," and M. J.
Struckel & Company, Inc. as the "Company," dated July 29, 1998.
21.1 Subsidiaries of Rental Service Corporation. (4)
27.1 Financial Data Schedule. (5)
</TABLE>
__________
* Filed herewith.
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-05949, effective September 18, 1996), and
incorporated here in by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-40707, effective December 16, 1997), and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.
18
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(4) Filed as an exhibit to the Company's Registration Statement on
Form S-4 (Registration No. 333-56653) dated June 12, 1998, and
incorporated herein by reference.
(5) Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-59519) dated July 24, 1998, and
incorporated herein by reference.
(6) Filed with the Company's Proxy Statement on Schedule 14A filed
March 30, 1998, and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 1998, and incorporated herein
by reference.
(8) 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/A dated April 17,
1998, which included the audited financial statements of JDW
Enterprises, Inc. d/b/a Valley Rentals ("Valley") and the unaudited
pro forma consolidated financial data of the Company, including the
acquisition of Valley.
2) The Company filed a Current Report Form 8-K dated May 14, 1998,
announcing the completion of the private offering of its 9% Senior
Subordinated Notes due 2008.
19
<PAGE>
RENTAL SERVICE CORPORATION
JUNE 30, 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>
Date: August 3, 1998 By: /s/ Martin R. Reid
----------------------------------- -------------------------------------------------
Martin R. Reid
Chairman and Chief Executive Officer
Date: August 3, 1998 By: /s/ Robert M. Wilson
----------------------------------- -------------------------------------------------
Robert M. Wilson
Senior V.P. and Chief Financial Officer
</TABLE>
20
<PAGE>
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
by and among
JERRY O. GRAYSON, MICHAEL A. MATHON AND BECKER PARTNERS
as "Sellers,"
BECKER ST. PAUL CORPORATION AND KATHLEEN BECKER
as "Partners,"
WALKER JONES EQUIPMENT, INC.
as "Buyer,"
and
M. J. STRUCKEL & COMPANY, INC.
as the "Company"
July 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C> <C>
DEFINITIONS .............................................................. 1
-----------
1.1 Defined Terms .................................................... 1
-------------
1.2 Other Defined Terms .............................................. 5
-------------------
<CAPTION>
ARTICLE II
<S> <C> <C>
SALE AND TRANSFER OF SHARES .............................................. 6
---------------------------
2.1 Transfer of Shares ............................................... 6
------------------
2.2 Purchase Price ................................................... 6
--------------
2.3 Holdback and Escrow Agreement .................................... 6
-----------------------------
2.4 Purchase Price Adjustments ....................................... 7
--------------------------
2.5 Transfer Taxes and Fees .......................................... 9
-----------------------
2.6 Closing of Books; Benefits and Risks of Ownership ............... 10
-------------------------------------------------
<CAPTION>
ARTICLE III
<S> <C> <C>
CLOSING ................................................................. 10
-------
3.1 Closing .......................................................... 10
-------
3.2 Conveyances at Closing ........................................... 10
----------------------
<CAPTION>
ARTICLE IV
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
AND THE COMPANY ......................................................... 11
---------------
4.1 Organization of the Company ..................................... 11
---------------------------
4.2 Subsidiaries .................................................... 11
------------
4.3 Authorization ................................................... 11
-------------
4.4 No Violation; Consents .......................................... 12
----------------------
4.5 Capitalization .................................................. 12
--------------
4.6 Financial Statements ............................................ 13
--------------------
4.7 No Change in the Assets ......................................... 13
-----------------------
4.8 No Liabilities .................................................. 14
--------------
4.9 Assets; Absence of Encumbrances ................................. 14
-------------------------------
4.10 Real Property ................................................... 14
-------------
4.11 Receivables ..................................................... 16
-----------
4.12 Inventory ....................................................... 16
---------
4.13 Equipment ....................................................... 16
---------
4.14 Contracts and Commitments ....................................... 16
-------------------------
4.15 Books and Records ............................................... 17
-----------------
4.16 Litigation ...................................................... 18
----------
4.17 Labor Matters ................................................... 18
-------------
4.18 Compliance with Law; Permits .................................... 18
----------------------------
4.19 No Other Agreements to Sell the Company ......................... 19
---------------------------------------
4.20 Proprietary Rights .............................................. 19
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.21 Tax Matters ...................................................... 19
-----------
4.22 Employees and Employee Benefits .................................. 22
-------------------------------
4.23 ERISA Representations ............................................ 24
---------------------
4.24 Compliance With Environmental Laws ............................... 27
----------------------------------
4.25 Insurance ........................................................ 30
---------
4.26 Affiliate Transactions ........................................... 30
----------------------
4.27 No Brokers ....................................................... 30
----------
4.28 Disclosure ....................................................... 31
----------
<CAPTION>
ARTICLE V
<S> <C> <C>
INDIVIDUAL REPRESENTATIONS AND WARRANTIES
-----------------------------------------
OF EACH SELLER .......................................................... 31
--------------
5.1 Authorization..................................................... 31
-------------
5.2 Title to the Shares ............................................. 31
-------------------
5.3 No Violation ..................................................... 31
------------
<CAPTION>
ARTICLE VI
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF BUYER ................................. 32
---------------------------------------
Representations and Warranties of Buyer. ......................... 32
---------------------------------------
<CAPTION>
ARTICLE VII
<S> <C> <C>
COVENANTS OF BUYER, THE COMPANY AND SELLERS ............................. 33
-------------------------------------------
7.1 Further Assurances................................................ 33
------------------
7.2 Employee Matters.................................................. 33
----------------
7.3 Environmental Assessments and Remediation......................... 34
------------------------------------------
7.4 Conduct of Business Pending the Closing........................... 35
---------------------------------------
7.5 Business Relationships............................................ 37
----------------------
7.6 Public Announcements.............................................. 37
--------------------
<CAPTION>
ARTICLE VIII
<S> <C> <C>
CONDITIONS TO SELLERS' OBLIGATIONS....................................... 37
----------------------------------
8.1 Representations, Warranties and Covenants......................... 37
-----------------------------------------
8.2 No Proceedings, Litigation or Laws................................ 37
-----------------------------------
8.3 Certificates...................................................... 38
-------------
8.4 Ancillary Agreements.............................................. 38
---------------------
8.5 Buyer Corporate Governing Documents............................... 38
-----------------------------------
<CAPTION>
ARTICLE IX
<S> <C> <C>
CONDITIONS TO BUYER'S OBLIGATIONS........................................ 38
---------------------------------
9.1 Representations, Warranties and Covenants......................... 38
-----------------------------------------
9.2 Consents.......................................................... 38
--------
9.3 No Proceedings or Litigation...................................... 38
----------------------------
9.4 Opinion of Counsel................................................ 39
------------------
9.5 Certificates...................................................... 39
------------
9.6 Ancillary Agreements.............................................. 39
--------------------
9.7 Release of Encumbrances........................................... 39
-----------------------
ii
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9.8 No Material Changes............................................... 39
-------------------
9.9 Governing Documents............................................... 39
-------------------
9.10 Completion of Environmental Remediation........................... 39
---------------------------------------
9.11 Financing......................................................... 39
---------
9.12 Affiliate Transactions............................................ 40
----------------------
9.13 Resignations...................................................... 40
------------
9.14 Due Diligence Review.............................................. 40
---------------------
9.15 Termination....................................................... 40
------------
<CAPTION>
ARTICLE X
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.......................... 40
-----------------------------------------------
10.1 Survival of Representations, Etc.................................. 40
--------------------------------
10.2 Indemnification................................................... 40
---------------
10.3 Sellers' Representative........................................... 43
-----------------------
<CAPTION>
ARTICLE XI
<S> <C> <C>
MISCELLANEOUS............................................................ 44
-------------
11.1 Certain Tax Matters............................................... 44
-------------------
11.2 Cooperation and Records Retention................................. 45
---------------------------------
11.3 Negotiations...................................................... 45
------------
11.4 Assignment........................................................ 45
----------
11.5 Notices........................................................... 45
-------
11.6 Choice of Law..................................................... 47
-------------
11.7 Entire Agreement; Amendments and Waivers.......................... 48
----------------------------------------
11.8 Multiple Counterparts............................................. 48
---------------------
11.9 Expenses.......................................................... 48
--------
11.10 Invalidity........................................................ 48
----------
11.11 Titles............................................................ 48
------
11.12 Cumulative Remedies............................................... 48
-------------------
11.13 Arbitration....................................................... 48
-----------
11.14 Guarantor......................................................... 49
---------
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of July 29, 1998 (the
"Agreement") by and among Walker Jones Equipment, Inc., a Mississippi
corporation ("Buyer"), The Becker Partnership, a Missouri general partnership
("Becker Partnership"), Michael A. Mathon ("Mathon") and Jerry O. Grayson
("Grayson") (the Becker Partnership, Mathon and Grayson each a "Seller" and
collectively, the "Sellers"), Becker St. Paul Corporation, a Delaware
corporation, and Kathleen Becker (each a "Partner" and collectively the
"Partners"), M. J. Struckel & Company, Inc., a Missouri corporation (the
"Company"), and Richard Becker ("Guarantor").
RECITALS
--------
A. The Company is engaged in the businesses of equipment rental and
sales.
B. The Partners are the sole general partners of the Becker Partnership.
C. Sellers own of record and beneficially all of the issued and
outstanding shares of capital stock of the Company (the "Shares").
D. 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 capital stock in the Company.
E. Guarantor agrees to guarantee the obligations of the Becker
Partnership under this Agreement.
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 "Adjusted GAAP" shall mean generally accepted accounting
-------------
principles applied on a basis consistent with those used by the Company in the
past.
1.1.3 "Agreement" shall have the meaning specified in the first
---------
paragraph of this Agreement.
1.1.4 "Ancillary Agreements" shall mean the Employment and
--------------------
Noncompetition Agreements of Michael A. Mathon, Jerry Grayson and Richard
Becker, the Lease between Buyer, each of RCB Investments, Inc. and Earth City
Investments, Inc. and the Escrow Agreement among the parties hereto and
Mercantile Bank, N.A.
1.1.5 "Buyer" shall have the meaning specified in the first paragraph
-----
of this Agreement.
1.1.6 "Company" shall have the meaning specified in the first
-------
paragraph of the Agreement.
1.1.7 "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and the rules and regulations promulgated thereunder.
1.1.8 "Commission" shall mean the Securities and Exchange Commission.
----------
1.1.9 "Company" shall have the meaning specified in the first
-------
paragraph of this Agreement, and shall include its Subsidiaries, except where
the context requires otherwise or except where otherwise defined.
1.1.10 "Contract" shall mean any agreement, contract, note, bond,
--------
mortgage, indenture, loan, evidence of indebtedness, lease, sublease, permit,
purchase order, letter of credit, franchise agreement, undertaking, covenant not
to compete, employment agreement, license, instrument, arrangement, obligation
or commitment to which the Company is a party or is bound or to which its assets
or properties are subject, whether oral or written.
1.1.11 "Effective Date Balance Sheet" shall mean the balance sheet of
----------------------------
the Company dated as of June 30, 1998 and attached hereto as Schedule 1.1.11.
---------------
1.1.12 "Effective Date" shall mean July 1, 1998.
--------------
1.1.13 "Encumbrance" shall mean any claim, lien, pledge, charge,
-----------
easement, security interest, deed of trust, mortgage, option, right of first
refusal, preemptive right, right-of-way, patent reservation, 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,
2
<PAGE>
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.
1.1.14 "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 or used by the Company.
1.1.15 "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
1.1.16 "Escrow Agent" shall mean the entity designated by Buyer and
------------
Sellers to act as escrow agent under the Escrow Agreement.
1.1.17 "Escrow Agreement" shall mean that certain Escrow Agreement,
----------------
dated as of the Closing Date, by and among Buyer, Sellers and the Escrow Agent
of even date herewith.
1.1.18 "Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended, and the rules and regulations promulgated thereunder.
1.1.19 "Facilities" shall mean the rental yards, stores, buildings,
----------
offices, maintenance and storage facilities, shops, plants, warehouses,
improvements and other structures, together with all related fixtures located at
645 Leffingwell, Kirkwood, MO 63122; 4609 Crossroads Industrial Drive, St.
Louis, MO 63045; 1701 East Street; Bloomington, IL 61701; and 3360 Oakshire
Drive, Scott City, MO 63780.
1.1.20 "GAAP" shall mean generally accepted accounting principles.
----
1.1.21 "including" shall mean including without limitation by reason
---------
of enumeration.
1.1.22 "Inventory" shall mean all of the Company's inventory held for
---------
resale and all of the Company's new repair or replacement parts, supplies and
packaging items and similar items, in each case wherever the same may be
located.
1.1.23 "Leased Real Property" shall mean all real property and
--------------------
improvements thereon leased, subleased or otherwise occupied, under assignment
or subassignment of a lease by the Company, including all rights, easements and
privileges appertaining or relating thereto.
1.1.24 "March 31, 1998 Balance Sheet" shall mean the unaudited
----------------------------
balance sheet of Company dated March 31, 1998, and attached hereto as Schedule
--------
1.1.24.
- ------
1.1.25 "Material Adverse Effect" or "Material Adverse Change" shall
----------------------- -----------------------
mean any material adverse effect or change in the financial condition, assets or
liabilities of the Company or
3
<PAGE>
on the ability of the Sellers or the Company to consummate the transactions
contemplated hereby, or any event, condition or state of facts which could
reasonably be expected with the passage of time, to constitute a "Material
Adverse Effect" or "Material Adverse Change."
1.1.26 "Net Worth" shall be the net worth of the Company as set forth
---------
in the March 31, 1998 Balance Sheet which is set forth on Schedule 1.1.26.
---------------
1.1.27 "Owned Real Property" shall mean all real property and
-------------------
improvements thereon owned, by the Company or any Affiliate of Company, Sellers
or the Partners used, in connection with or doing business with the Company,
including all rights, easements and privileges appertaining or relating thereto.
1.1.28 "Partners" shall have the meaning specified in the first
--------
paragraph of the Agreement.
1.1.29 "Permits" shall mean all licenses, permits, franchises,
-------
approvals, notifications, authorizations, consents or orders of, or filings
with, any governmental agency or authority, whether foreign, federal, state or
local, or any other person, necessary or desirable for the past, present or
presently anticipated conduct of, or relating to the operation of, the Company,
its business or assets.
1.1.30 "Person" shall mean any natural person, corporation, general
------
or limited partnership, limited liability company, trust, sole proprietorship,
or other entity, organization or association of any kind.
1.1.31 "Real Property" shall mean the Leased Real Property and Owned
-------------
Real Property (as such terms are herein defined).
1.1.32 "Rental and Non-Rental Asset Listing" shall mean the asset
-----------------------------------
listing attached as Schedule 2.4.2 hereto, listing all assets of the Company as
--------------
of the Closing Date.
1.1.33 "Representative" shall mean any officer, director, principal,
--------------
partner, manager, member, attorney, agent, employee or other representative.
1.1.34 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
1.1.35 "Sellers" shall have the meaning specified in the first
-------
paragraph of this Agreement.
1.1.36 "Shares" shall have the meaning specified in Recital B.
------
4
<PAGE>
1.1.37 "Subsidiary" shall mean any person in which the Company or any
------------
of its subsidiaries controls fifty percent (50%) or more of the voting equity
interest.
1.1.38 "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).
1.1.39 "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.
1.2 Other Defined Terms. The following terms shall have the meanings
--------------------
ascribed to them in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
----- -------
<S> <C>
Actions.................................................... 4.16
Benefit Arrangement...................................... 4.22.1
CERCLA................................................... 4.24.1
Claim.................................................... 10.2.4
Claim Notice............................................. 10.2.4
Closing..................................................... 3.1
Closing Date................................................ 3.1
Consultant................................................ 7.3.1
Damages.................................................. 10.2.1
Employee Plans........................................... 4.22.1
Environmental Assessments................................. 7.3.1
Environmental Conditions................................. 4.24.9
Environmental Laws....................................... 4.24.1
ERISA Affiliate.......................................... 4.22.1
Escrow.................................................... 2.3.2
Financial Statements ....................................... 4.6
Hazardous Substance...................................... 4.24.1
Leases .................................................. 4.10.3
Multiemployer Plan....................................... 4.22.1
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
PBGC..................................................... 4.22.1
Pension Plan............................................. 4.22.1
Post Closing Environmental Liability..................... 10.2.1
Proprietary Rights....................................... 4.20.1
Purchase Price............................................ 2.2.1
RCRA..................................................... 4.24.1
Release.................................................. 4.24.1
Rental Ready........................................... 2.4.2(b)
Required Remediation...................................... 7.3.2
Retained Employees.......................................... 7.2
Short-Term Holdback Amount................................ 2.3.1
Welfare Plan............................................. 4.22.1
</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, Sellers will sell, convey, transfer, assign
and deliver to Buyer, and Buyer will acquire from Sellers, the Shares, free and
clear of all Encumbrances, for the consideration specified in Section 2.2.
-----------
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 Thirteen Million Seven Hundred Fifty Thousand
Dollars ($13,750,000) in cash (the "Purchase Price"), such Purchase Price shall
be paid to Sellers by wire transfer of immediately available funds to an account
designated by Sellers.
Notwithstanding the foregoing, the Purchase Price shall be subject to
adjustment as set forth in Section 2.4 below, and payment of the Cash Purchase
-----------
Price shall be subject to the Short-Term Holdback Amount and the Escrow
described in Section 2.3.
------------
2.2.2 Allocation. The Purchase Price (and the disbursement of the
----------
Short-Term Holdback Amount and Escrow) shall be allocated among the Sellers pro
rata in accordance with their ownership interest in the Company as set forth on
Schedule 4.5.
- ------------
2.3 Holdback and Escrow Agreement.
-----------------------------
6
<PAGE>
2.3.1 Short-Term Holdback Amount. At Closing, Buyer shall retain from
---------------------------
the Purchase Price an aggregate of $2,085,000 to facilitate the potential
purchase price adjustments contemplated by Section 2.4 (the "Short-Term Holdback
-----------
Amount"). Of the Short-Term Holdback Amount, (i) $10,000 shall be allocated to
the resolution of the Equipment adjustment of Section 2.4.2, (ii) $35,000 shall
be allocated to the Inventory adjustment of Section 2.4.3, (iii) $0 shall be
-------------
allocated to the resolution of the Tax adjustment of Section 2.4.4; (iv) $35,000
-------------
shall be allocated to the resolution of the Accounts Receivable adjustment of
Section 2.4.5; and (v) $5,000 shall be allocated to the resolution of the
- -------------
Required Remediation pursuant to Section 6.3. In addition to any other right or
------------
remedy of Buyer hereunder, if any portion of the Short-Term Holdback Amount
proves to be insufficient for resolution of the matter subject to adjustment
therein, Buyer may utilize a portion of the Short-Term Holdback Amount allocated
to another matter to satisfy such deficiency. Buyer shall remit to Sellers the
Short-Term Holdback Amount (less any amounts necessary to cover undisputed
claims or unresolved adjustments pursuant to Section 2.4) upon resolution of
-----------
such adjustments in accordance with Section 2.4 (or Section 6.3 with respect to
----------- -----------
the amount allocated to the Required Remediation).
2.3.2 Escrow Agreement. At Closing, Buyer shall deposit Two Million
-----------------
Dollars ($2,000,000) of the Purchase Price into an escrow account (the
"Escrow"), subject to the terms and conditions of the Escrow Agreement executed
of even date herewith as security to cover potential losses or other claims for
which Buyer is entitled to indemnity or recovery hereunder. Further, the Escrow
may be used to supplement any shortfall in the event that the Short-Term
Holdback Amount is insufficient to cover any purchase price adjustment. Subject
to any claims made against it, the Escrow shall be payable according to the
installments set forth in the Escrow Agreement in each case subject to any
claims made by Buyer or resolved in favor of Buyer. Earnings on funds held in
Escrow shall be credited to the Sellers. Subject to Section 10.2.7 Buyer shall
not be limited to the Escrow with respect to claims against Sellers in the event
indemnity losses or claims exceed the amount of the Escrow. All costs of the
escrow shall be paid by Buyer all as further provided in the Escrow Agreement.
2.4 Purchase Price Adjustments.
--------------------------
2.4.1 Net Worth Adjustment.
---------------------
(a) Prior to the Closing, the Sellers shall have delivered to
Buyer the Effective Date Balance Sheet prepared in accordance with GAAP. The
Effective Date Balance Sheet presents the Company's financial position
consistent with mutually previously agreed upon adjustments. If there are any
differences relating to the Effective Date Balance Sheet not resolved by this
Closing Date, any disputed items will be separately listed and settled pursuant
to the procedures set forth in Section 2.4.7 hereof.
-------------
(b) At Closing, the Purchase Price shall be subject to a
dollar for dollar adjustment if and to the extent that the Net Worth set forth
in the Effective Date Balance Sheet is
7
<PAGE>
less or more than the Net Worth set forth in the March 31, 1998 Balance Sheet,
such upward adjustment is limited to the budgeted net income for the second
quarter without allowance for taxes. If the Effective Balance Sheet is not
considered final and mutually agreed to on the Closing Date, the Buyer shall
adjust for any undisputed amount with the disputed difference held as pursuant
to Section 2.3.1.
(c) The Purchase Price shall be increased by $7,838 per day,
for each day from the Effective Date to the Closing Date.
(d) Schedule 1.1.11 contains the Effective Date Balance Sheet
---------------
and sets forth the adjustments mutually agreed to by the Sellers and the Buyer
pursuant to this Section 2.4.1.
--------------
2.4.2 Rental Ready, Missing or Non-Operating Equipment Adjustment.
------------------------------------------------------------
(a) 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 the Rental and Non-Rental Asset Listing,
attached as Schedule 4.13, including by visiting renters' locations as necessary
-------------
to inspect such equipment. Based upon such inventory, Buyer in consultation
with Sellers will develop a schedule reconciling such inventory to Schedule
--------
4.13, and within twenty (20) calendar days after the Closing, the Purchase Price
- ----
shall be adjusted based upon such reconciliation. To determine the adjustment
of the Purchase Price for missing or inoperative equipment, the aggregate book
value of missing or inoperative equipment (after credits for insurance
reimbursements or customer charges for related damage) will be divided by the
aggregate cost of equipment and the resulting factor applied to the aggregate
original cost of missing or inoperative equipment in excess of $25,000.
(b) On or prior to the 10th business day following the Closing
Date, the Purchase Price shall be reduced by the aggregate cost necessary to
render all items of Equipment listed on Schedule 2.4.2 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.
(c) 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
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
-------
2.4.7 hereof.
- -----
8
<PAGE>
2.4.3 Inventory Adjustment.
---------------------
(a) If not completed prior to the Closing, promptly following
the Closing, Buyer will conduct a physical inspection of the Company's
Inventory. The Purchase Price shall be reduced within thirty (30) calendar days
of the Closing to the extent that the aggregate book value of the inventory as
determined in the physical inventory (after giving effect to physical count,
missing items, condition, saleability and obsolescence) is less than the book
value therefore as set forth on the Effective Date Balance Sheet.
(b) 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 2.4.7 hereof.
- -------------
2.4.4 Tax Adjustment. Sellers shall bear all economic responsibility
---------------
for Taxes relating to pre-Closing Date periods by accruing a sufficient amount
to pay such Taxes. To the extent not reflected and accounted for on the March
31, 1998 Balance Sheet or Effective Date Balance Sheet, the Short-Term Holdback
Amount shall include an amount sufficient to satisfy all liabilities of the
Company relating to Taxes for each tax year of the Company ending on or prior to
the Closing Date.
2.4.5 Accounts Receivable Adjustment. The Effective Date Balance
-------------------------------
Sheet shall be reduced by a mutually agreed amount upon determining the
uncollectible accounts receivable. Any accounts receivable not collected within
one hundred twenty (120) calendar days after the Closing in excess of the
reserve for doubtful accounts on the Effective Date Balance Sheet will be
returned to the Sellers and deducted from the Short-Term Holdback Amount, and
the balance of the Holdback Amount relating to the resolution of this Section
-------
2.4.5, if any, shall be paid to Sellers not later than one hundred fifty (150)
- -----
calendar days after the Closing Date.
2.4.6 Liens. At Closing, the assets of the Company shall be free and
------
clear of all Encumbrances except those set forth in the Effective Date Balance
Sheet.
2.4.7 Disputes. In the event of any disagreement between Buyer and
---------
Sellers regarding the dollar amount of any such adjustment pursuant to this
Section 2.4, the Sellers and Buyer shall jointly select a nationally recognized
- -----------
accounting firm not currently engaged by Buyer, Sellers or any Affiliate of
either of them, to perform a review of the disputed items. Such reviewing
firm's conclusions shall be final, binding and conclusive as to such matters.
Sellers and Buyer will share equally the fees and expenses of such review.
2.5 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
9
<PAGE>
fees and costs of recording or filing all UCC termination statements and other
releases of Encumbrances, and any fees or costs in obtaining any necessary
consents.
2.6 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 July 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
June 30, 1998. Seller shall operate the Company subject to and pursuant to the
requirements of this Agreement by, from and after July 1, 1998, until such time
as this Agreement is terminated or closed. Without the consent of Buyer, until
the Closing Date, the Company 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.
ARTICLE III
CLOSING
-------
3.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held on July 29, 1998 or at a time and place as the parties
shall mutually agree (the "Closing Date").
3.2 Conveyances at Closing.
----------------------
3.2.1 Sellers' Delivery Obligations. To effect the sale and transfer
-----------------------------
of the Shares, Sellers will, at the Closing, execute (or cause to be executed by
any other party thereto other than Buyer) and deliver to Buyer:
3.2.1.1 certificates evidencing the Shares, free and clear of
any Encumbrances, duly endorsed in blank for transfer or accompanied by stock
powers duly executed in blank;
3.2.1.2 all Ancillary Agreements, including those
required to be executed by any of the Sellers;
3.2.1.3 all certificates, opinions of counsel and other
documents described in Article IX; and
----------
3.2.1.4 third party consents required for the valid transfer
of the Shares as contemplated by this Agreement, or for the continued operation
of the business of the Company following such transfer.
10
<PAGE>
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:
3.2.2.1 the Purchase Price;
3.2.2.2 all Ancillary Agreements required to be executed by
Buyer; and
3.2.2.3 all certificates, opinions of counsel and other
documents described in Article VIII.
------------
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, including the
schedules referenced herein which relate to the representations and warranties
in the Section of the Agreement to which they expressly relate and to any
representation or warranty in this Agreement (regardless of whether or not such
other Section is specifically identified therein), are, 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
Missouri. 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 and are currently in effect without further
amendment thereto, except as set forth therein. Except as set forth on Schedule
--------
4.1, the Company is duly qualified or licensed to do business in each
- ---
jurisdiction in which ownership of property, the employment of personnel or the
conduct of its business requires such qualification except where the failure to
be so qualified would not have a Material Adverse Effect.
4.2 Subsidiaries. The Company has no Subsidiaries.
------------
4.3 Authorization. The Company has full power and authority (corporate,
-------------
fiduciary 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, trustees, or any governing body or person
of the Company and has taken all action required by law, its charter or other
governing 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
11
<PAGE>
may be, and the consummation of the transactions contemplated hereby and
thereby. This Agreement is, and the Ancillary Agreements, when executed will be,
the legal, valid and binding obligations of the Company or other parties thereto
(other than Buyer), enforceable against each of them in accordance with their
respective terms. A copy of the resolutions of the Company's board of directors
and stockholders authorizing this Agreement and the related transactions are
attached hereto as Schedule 4.3.
------------
4.4 No Violation; Consents. 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) or give to others any right of termination, amendment,
acceleration, suspension, revocation or cancellation with respect to, any
Contract to which any Sellers or the Company is a party or by which any of the
Shares or any of the assets or properties of the Company 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 under any Contract to which the
Company is a party or by which the Company is bound or affected, or to which the
property of the Company is subject, or (iv) violate, conflict with or result in
the breach of any statute or law or any judgment, decree, order, regulation or
rule of any court or governmental authority to which any Sellers, the Company,
or any of their properties or assets are subject, which, in the case of the
matters set forth in clauses (ii), (iii) or (iv) above would have a Material
Adverse Effect on the Company. 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 the Company of this
Agreement and the Ancillary Agreements, as the case may be, or the consummation
by the Company of the transactions contemplated by each of them herein and
therein.
4.5 Capitalization.
--------------
4.5.1 The authorized equity securities of the Company consist solely
of 30,000 shares of common stock, par value $1.00 per share, of which 6,250
shares are issued and outstanding and constitute the Shares.
4.5.2 There are no shares of capital stock of the Company issued and
outstanding (other than the Shares) and there are no shares of treasury stock.
All Shares are validly issued, fully paid and nonassessable. None of the issued
and outstanding Shares was issued in violation of any preemptive rights. Except
as set forth in Schedule 4.5, 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 securities in connection
with any registration by the Company under the Securities Act, with respect to
the 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;
12
<PAGE>
(iii) contracts, commitments, agreements, understandings or arrangements of any
kind relating to the issuance, sale, transfer, or assignment of any capital
stock, any convertible or exchangeable securities or any options, warrants or
rights of the Company; or (iv) Shares or other securities of the Company pledged
as collateral to secure any agreement or obligation of the Company. Except as
set forth on Schedule 4.5, there are no
------------
voting trust agreements or other contracts, agreements, arrangements,
commitments, plans, proxies or understandings restricting or otherwise relating
to conveyance, voting or dividend rights with respect to the Shares. Upon
consummation of the transactions contemplated by this Agreement, 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 Financial Statements. Attached hereto as Schedule 4.6 is the balance
-------------------- ------------
sheet, statement of operations, and statement of cash flows for the years ended
December 31, 1997 and 1996, and the balance sheets and statement of operations
and statements of cash flows for the three months ended March 31, 1998
(collectively, the "Financial Statements"). The Financial Statements (a) are in
accordance with the underlying books and records of the Company, (b) have been
prepared in accordance with GAAP consistently applied throughout the periods
covered thereby (except as otherwise noted on Schedule 4.6), and (c) accurately
------------
present the assets, liabilities (including all reserves) and financial position
of the Company in accordance with Adjusted GAAP 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 (except as
otherwise noted on Schedule 4.6), there were no liabilities of the Company
------------
which, in accordance with Adjusted 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.
4.7 No Change in the Assets. Since March 31, 1998:
-----------------------
4.7.1 There has been no Material Adverse Change in the Company;
4.7.2 Except in the ordinary course, there has not been any sale or
other disposition of any assets of the Company, any Encumbrance placed on its
assets, or any purchase of assets, including inventory or equipment, of the
Company;
4.7.3 The Company has operated its business in the ordinary course
consistent with the Company's past practice so as to preserve its business
intact, to keep available to it the services of its employees, and to otherwise
preserve the Company's goodwill and its relationships with suppliers, customers,
distributors and others having business relations with it;
4.7.4 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;
4.7.5 The Company has not taken any action that, if taken after the
date of the March 31, 1998 Balance Sheet, would violate Section 7.4.
------------
13
<PAGE>
4.8 No Liabilities. The Company has no liabilities or obligations
--------------
(absolute, accrued, contingent or otherwise) except (i) liabilities which are
reflected on the Financial Statements or which are not required under GAAP to be
reflected on the Financial Statements, (ii) liabilities incurred in the ordinary
course of business and consistent with past practice since March 31, 1998,
(iii) liabilities arising under Contracts to which the Company is a party
(excluding specifically any claim for breach of contract), and (iv) liabilities
disclosed in any Schedule hereto.
4.9 Assets; Absence of Encumbrances. The assets reflected on the
-------------------------------
Financial Statements constitute all the assets presently used in the conduct of
the Company's business as presently conducted. All of the assets of or used by
the Company are owned by the Company free and clear of all Encumbrances, other
than Encumbrances (i) reflected or reserved against on the March 31, 1998
Balance Sheet, or (ii) as set forth on Schedule 4.9.
------------
4.10 Real Property.
-------------
4.10.1 Description. Schedule 4.10 sets forth a complete and accurate
----------- -------------
legal description of all Owned Real Property and all Leased Real Property. The
Company enjoys peaceful and undisturbed possession of the Real Property.
4.10.2 Title. The Company or its Affiliates has good and marketable
-----
title in fee simple to the Owned Real Property, free and clear of all
Encumbrances, except as disclosed in Schedule 4.10, (i) mortgages or security
-------------
interests shown on the March 31, 1998 Balance Sheet as securing specific
liability or obligations, (ii) mortgages or security interests incurred in
connection with the purchase of Real Property or assets after the date of said
Balance Sheet, (iii) liens for current taxes not yet due, (iv) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the Real Property
subject thereto, or impairs the operation of the Company, and (v) zoning laws
and other land use restrictions that do not impair the present use of the Real
Property subject thereto. Except as set forth on Schedule 4.10, with respect to
-------------
any Contracts, covenants, conditions, deeds, deeds of trust, rights-of-way,
easements, mortgages, restrictions, surveys, title insurance policies, and other
documents granting to the Company title to or an interest in or otherwise
affecting the Owned Real Property (copies of which have been delivered to
Buyer), no breach or event of default exists on the part of the Company or, to
the knowledge of the Company or Sellers, any third party, and no condition or
event has occurred that with the giving of notice, the lapse of time, or both
would constitute a material breach or event of a default by the Company, to the
knowledge of the Company or the Sellers, or any other person.
4.10.3 Leases. The Sellers and the Company have delivered to Buyer an
------
accurate copy of the leases and subleases covering the Leased Real Property,
including all amendments thereto (the "Leases"), a summary of which is attached
as Schedule 4.10. All of the Leases are valid and in full force and effect.
-------------
The Company has duly performed all of its obligations under the Leases to the
extent those obligations to perform have accrued, and no material violation of
or default or breach under any Leases by the Company or, to the knowledge of the
Company or the Sellers, or any
14
<PAGE>
other party has occurred and neither the Company nor to the knowledge of the
Company or the Sellers, any other party has repudiated any provisions thereof.
All of the Leases 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.
4.10.4 No Unpaid Charges. Except as set forth on Schedule 4.10, and
----------------- -------------
except in the ordinary course of the Company's business there are no unpaid
charges, debts, liabilities, claims, or obligations arising from the
construction, occupancy, ownership, use, or operation by the Company of the Real
Property and no charges or assessments allocable to the Company for public
improvements or otherwise made against the Real Property are unpaid, including
without limitation those for construction of sewer lines, water lines, storm
drainage systems, electric lines, natural gas lines, streets (including
perimeter streets), roads and curbs. No Owned Real Property or to the best
knowledge of Sellers or the Company and Leased Real Property, is subject to any
condition or obligation to any governmental entity or other person requiring the
owner or any transferee thereof to donate land, money or other property or to
make off-site public improvements.
4.10.5 Compliance with Laws. No legal proceeding is pending or, to
--------------------
knowledge of the Company or the Sellers, threatened against or involving the
Real Property. Without limitation of the foregoing, no condemnation, eminent
domain, or similar proceeding exists, is pending or, to the knowledge of the
Company and the Sellers, is threatened against or involves the Real Property.
All of the Real Property is in compliance with all applicable zoning
restrictions. The Owned Real Property is zoned (if applicable) and to the best
knowledge of the Sellers and the Company the Leased Real Property is zoned to
permit operation of the business presently conducted thereon.
4.10.6 Facilities. The Facilities and all equipment 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 and required by
any applicable Contract, (ii) with respect to the Facilities, structurally sound
with no known material defects, (iii) in satisfactory operating condition and
repair, to allow business activities to be operated therefrom, subject to
ordinary wear and tear, (iv) not subject to any deferred maintenance, (v)
sufficient for the operation of the Company's business as presently conducted or
presently anticipated to be conducted, and (vi) in conformity with all
applicable laws, ordinances, orders, regulations and other requirements relating
thereto currently in effect. The Facilities are supplied with utilities and
other services necessary for the operation of the business conducted thereat.
Except as set forth in Schedule 4.10, (i) none of the Facilities or equipment
-------------
thereat is subject to any commitment or other arrangement for their sale or use
by any person, and (ii) the Company has not granted to any person any contract
or other right to the use of any portion of the Real Property, or to the use of
any Facility or amenity on or relating to any such property.
4.10.7 No Foreign Owners. Neither the Company nor any Sellers is a
-----------------
"foreign person" within the meaning of Sections 1445 and 7701 of the Code.
15
<PAGE>
4.11 Receivables. Except as set forth on Schedule 4.11, the accounts
----------- -------------
receivable reflected in the March 31, 1998 Balance Sheet, and all accounts
receivable arising since the date thereof 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 March 31, 1998 Balance Sheet or as will be
reserved against on the Effective Date Balance Sheet. Except as set forth on
Schedule 4.11, the Company owns all such accounts receivable, free and clear of
- -------------
all Encumbrances.
4.12 Inventory. Schedule 4.12 sets forth a complete and accurate list of
--------- -------------
all Inventory as of the date hereof, subject to adjustment on and after the
Closing Date in accordance with Section 2.4.3. Except as set forth on Schedule
------- ----- --------
4.12, 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
March 31, 1998 Balance Sheet Date. The value at which the Inventory is shown on
such 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 or slow-moving
Inventory, and obsolescence and shrinkage.
4.13 Equipment. The Rental and Non-Rental Asset Listing attached as
---------
Schedule 4.13 sets forth the asset description, make, model, original cost and
- -------------
net book value of all Equipment as of the date hereof. Subject to adjustment on
and after the Closing Date in accordance with Section 2.4.2, all of the
-------------
Equipment listed on Schedule 4.13 is, and on the Closing Date will be, fully
-------------
operable, accounted for and Rental Ready. The value at which the Equipment is
shown on the March 31, 1998 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 reasonable provisions or adjustments
in accordance with GAAP for excess or slow-moving Equipment, and Equipment
obsolescence and shrinkage.
4.14 Contracts and Commitments.
-------------------------
4.14.1 Contracts. Schedule 4.14 sets forth a complete and accurate
--------- -------------
list of all Contracts of the following categories:
4.14.1.1 Material Contracts not made in the ordinary course of
the Company's conduct of the business;
4.14.1.2 Employment contracts, handbooks on policies; bonus
plans, programs or agreements; and severance plans, programs or agreements ;
16
<PAGE>
4.14.1.3 Supply, purchase, distribution, franchise, license,
sales or commission contracts related to the Company, in excess of $10,000 or
otherwise material to the Company, and not cancelable (without liability) by the
Company within 30 calendar days.
4.14.1.4 Contracts involving expenditures or liabilities, actual
or potential, in excess of $10,000 or otherwise material to the Company, and not
cancelable (without liability) by the Company within 30 calendar days;
4.14.1.5 Contracts or commitments relating to commission
arrangements with others;
4.14.1.6 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 assets are pledged (excluding credit
provided by the Company in the ordinary course of business to its customers);
4.14.1.7 Leases of personal property in excess of $10,000 and
not cancelable (without liability) within 30 calendar days; and
4.14.1.8 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 and Company have delivered to Buyer true, correct and complete
copies of all of the Contracts listed on Schedule 4.14, including all amendments
-------------
and supplements thereto.
4.14.2 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 monetary or material violation of, or default or breach under
any Contracts by the Company or, to the knowledge of the Company or the Sellers,
any other party has occurred and neither the Company nor, to the knowledge of
the Company or the Sellers, 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.
4.15 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
or ratify 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
17
<PAGE>
Company 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.
4.16 Litigation. Except as set forth on Schedule 4.16, 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 its assets 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.
4.17 Labor Matters. Except as set forth on Schedule 4.17 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 of which the Company's employees are members. Except as set forth
on Schedule 4.17, 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. Except as set forth on
Schedule 4.17 the employment of all persons presently employed or retained by
- -------------
the Company is terminable at will by the Company. Schedule 4.17 (i) contains a
-------------
list of all employees of the Company and their wage rates or salaries as of the
date of this Agreement, (ii) sets forth the dates of employment for such
employees and (iii) accurately characterizes them as exempt or non-exempt.
4.18 Compliance with Law; Permits. The Company, the conduct of its
----------------------------
business and the operation of its 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. The Company and the conduct of
its 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 Environmental
Laws and all other foreign, federal, state, and local governmental and
regulatory requirements. 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. The
Company has all Permits required to conduct its business. All Permits are valid
and in full force and effect and all material Permits are listed on Schedule
--------
4.18. To the best knowledge of the Company and the Sellers all of the Permits
- ----
will remain in full force and effect after the Closing to the same extent as if
the transaction contemplated by this Agreement had not been consummated.
18
<PAGE>
4.19 No Other Agreements to Sell the Company. Neither any Sellers nor the
---------------------------------------
Company 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 any other shares of the Company's capital stock
(authorized or unauthorized), or to effect any merger, consolidation,
liquidation, dissolution or other reorganization of the Company, or to effect
any sale of the Company's assets (other than the sale of inventory of the
Company in the ordinary course of business).
4.20 Proprietary Rights.
------------------
4.20.1 Proprietary Rights. Schedule 4.20 lists all of the Company's
------------------ -------------
federal, state and foreign registrations of patents, 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 in which the Company uses in the conduct of its business
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 (collectively, "Proprietary Rights").
4.20.2 Royalties and Licenses. To the best knowledge of the Company,
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, except as set forth on
Schedule 4.20.
- -------------
4.20.3 Ownership and Protection of Proprietary Rights. The Company
----------------------------------------------
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 the Company's or Sellers' knowledge,
threatened litigation. The Company has not received any notice of invalidity
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 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.
4.21 Tax Matters.
-----------
4.21.1 Filing of Tax Returns, Payment of Taxes. Except as set forth
---------------------------------------
in Schedule 4.21.1, the Company has filed all Tax Returns that the Company 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 4.21.1, all Taxes owed by or with respect to the
---------------
19
<PAGE>
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 Schedule 4.21.1, all other Taxes due and payable by the Company with respect
---------------
to periods ending on or before the Effective Date or in respect of transactions
entered into or any state of facts existing on or before 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 Closing or have been or will be accrued and a
corresponding amount of cash segregated in the accounts of the Company on or
before the date of the Closing. 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 date of the Closing or in respect of transactions
entered into or any state of facts existing on or before the Effective Date, the
Effective Date shall be deemed to be the last day of any applicable tax period.
Except as set forth in Schedule 4.21.1, all Tax Returns the due date of which
---------------
(determined without extensions) is on or before the date hereof but on or before
the date of the Closing will be correct and complete and filed in accordance
with applicable law.
4.21.2 Taxing Jurisdictions. Schedule 4.21.2 lists (i) all countries,
--------------------
states, cities, or other jurisdictions in which the Company 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 that are currently in force or to
which the Company is bound, and (iii) (x) all countries, states, cities, or
other jurisdictions in which the Company 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.
4.21.3 General Tax Matters. Except as set forth in Schedule 4.21.3,
-------------------- ---------------
with respect to each taxable period for the Company ending on or before 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
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; (iii) the Company has not consented to
extend the time in which any Taxes may be assessed or collected by any taxing
authority; (iv) the Company 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
threatened against or with respect to the Company regarding Taxes; (vi) the
Company has not 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; (vii) there are
no liens, pledges, charges, claims, security interests, or other Encumbrances on
the assets of the Company relating or attributable to Taxes (other than liens
for sales and payroll Taxes not yet due and payable) and the Company and the
Sellers 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
20
<PAGE>
Company; (viii) the Company will not be required (A) as a result of a change in
method of accounting for a taxable period ending on or prior to the Closing
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 Closing 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 Closing Date; (ix) the Company has not 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) the Company is not 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 does not file Tax Returns
that the Company 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) the Company has not 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 has disclosed on each Tax Return filed by the Company 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) the Company
was not 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 prohibition elections are applicable to the Company; (xvi) the Company
has made no payments in the nature of compensation, 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 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 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 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 is a party will be attributed to the Company
which is not represented by income to which the Company 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
21
<PAGE>
other entity the income of which is required to be included in the income of the
Company whether or not distributed.
4.21.4 Tax Attributes. Set forth in Schedule 4.21.4 is a list
-------------- ---------------
reflecting the following information with respect to the Company as of the date
hereof as well as on an estimated pro forma basis as of the date of the Closing:
(i) the basis of the Company in its assets, (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
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
transactions contemplated by this Agreement.
4.21.5 Copies of Tax Returns. Except as otherwise set forth in
---------------------
Schedule 4.21.5 the Company has furnished Buyer with copies of all income and
- ---------------
sales Tax Returns filed by or with respect to the Company relating to the period
encompassing the three taxable years of the Company preceding the date hereof.
4.21.6 Definition. Any reference to the term "the Company" in this
----------
Section 4.21 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 4.21 shall encompass any action or actions taken by or at the direction
- ------------
of the Company whether or not such actions taken by or at the direction of the
Company were properly authorized.
4.22 Employees and Employee Benefits.
-------------------------------
4.22.1 As used in this Section 4.22 and in Section 4.23, the
------------ ------------
following terms have the meanings set forth below. Unless the context otherwise
requires, any of these terms may be used in the singular or the plural depending
on the reference.
"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 post-retirement 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
22
<PAGE>
employee of the Company or any ERISA Affiliate (with respect to their
relationship with such entities).
"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 (other than a Multiemployer Plan) 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.
4.2 Disclosure; Delivery of Copies of Relevant Documents and Other
--------------------------------------------------------------
Information. Schedule 4.22 contains a complete list of all Employee Plans. True
- ----------- -------------
and complete copies of each of the following documents have been delivered by
the Company to Buyer: (i) each 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 employees and all annuity contracts or other
funding instruments; (ii) each Benefit Arrangement including written
interpretations thereof and written descriptions
23
<PAGE>
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; (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 (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 ERISA Representations.
---------------------
4.23.1 Pension Plans. Except as otherwise provided on Schedule
4.23.1, no Pension Plan is subject to Title IV of ERISA or to the minimum
funding requirements of Section 302 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. No Pension Plan has been completely or partially terminated or been the
subject of a "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. No proceeding by the PBGC to terminate any Pension Plan has been
instituted or threatened.
4.23.2 Multiemployer Plans.
-------------------
4.22.2.1 Schedule 4.23.2 lists all Pension Plans that are also
Multiemployer Plans.
4.22.2.2 With respect to each such Multiemployer Plan in which
the Company or any ERISA Affiliate participates or has participated, (1) neither
the Company nor any ERISA Affiliate has withdrawn, partially withdrawn, or
received any notice of any claim or demand for withdrawal liability or partial
withdrawal liability; (2) neither the Company nor any ERISA Affiliate has
received any notice that any such Plan is in reorganization, that increased
contributions may be required to avoid a reduction in Plan benefits or the
imposition of any excise tax, or that any such Plan is or may become insolvent;
(3) neither the Company nor any ERISA Affiliate has failed to make any required
contributions; (4) no such Plan is a party to any pending merger or asset or
24
<PAGE>
liability transfer; (5) there are no PBGC proceedings against or affecting any
such Plan; and (6) neither the Company nor any ERISA Affiliate has (or may have
as a result of the transactions contemplated hereby) any withdrawal liability by
reason of a sale of assets pursuant to Section 4204 of ERISA.
4.23.2.3 Schedule 4.23.2 includes for each Multiemployer Plan,
as of its last valuation date, the amount of potential withdrawal liability of
the Company and ERISA Affiliates, calculated according to the information made
available pursuant to Section 4221(e) of ERISA, and identifies the specific
obligor. Nothing has occurred or is expected to occur that would materially
increase the amount of the total potential withdrawal liability of a specified
obligor for any such plan over the amount shown in Schedule 4.23.2.
4.23.3 Welfare Plans. None of the Company, 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 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 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.
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 Unrelated Business Taxable Income. No Employee Plan (or trust
---------------------------------
or other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
4.23.6 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.
4.23.7 Fiduciary Duties and Prohibited Transactions. Neither the
--------------------------------------------
Company nor any plan fiduciary or "party in interest" (as such terms are defined
in Sections 3(21) and 3(14) of (ERISA) 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
25
<PAGE>
not 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 Sections 502(i) or 502(l) of ERISA.
4.23.8 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.
4.23.9 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, the sponsor or administrator of any Employee
Plan or against any fiduciary of any Employee Plan with respect to the operation
thereof.
4.23.1 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.
4.23.11 No Other 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 liability (A) under any statute, regulation
or governmental order relating 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.
4.23.12 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.
4.23.13 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.
4.23.14 No Acceleration or Creation of Rights. Except as set forth on
-------------------------------------
Schedule 4.23, 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).
26
<PAGE>
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.
"Company" and "Facility" or "Facilities". For purposes of this
------- -------- ----------
Section 4.24 only, the term (i) "Company" shall include (A) the Company and the
- ------------
Subsidiaries and all of their Affiliates, and the Sellers and their Affiliates,
(B) 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 (C) all predecessor or former corporations, partnerships, joint
ventures, organizations, trusts, 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 acquired or assumed by the Company or
to which the Company has succeeded; and (ii) "Facilities" or "Facility" shall
mean all of the Facilities, each Facility and all Real Property, whether now or
previously owned or leased by any of the foregoing, provided, however, that
Sellers and Company make no representation or warranty, and assert no knowledge
for such previously owned or leased Facilities following the date such
Facilities were no longer owned or leased.
"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.
"Environmental Laws" shall mean 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 applicable federal, state or local law of similar
effect, each as amended.
"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 substance, material or waste (as defined in or
for purposes of any Environmental Law), whether solid, liquid or gas.
4.24.2 Compliance With Environmental Laws. Except as set forth on
----------------------------------
Schedule 4.24, the Facilities are and have been owned, leased, operated,
- --------------
permitted and maintained in compliance with any applicable material 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
27
<PAGE>
of the environment, the use, treatment, storage, transportation, handling or
disposal of Hazardous Substances or other 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, any Environmental Law. To the Company's knowledge,
the Real Property does not contain wetlands or a level of radon above action
levels of the U.S. Environmental Protection Agency and it is not located within
a "critical," "preservation," "conservation" or similar type of area.
4.24.3 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 related to the Facilities or the
conduct of the Company's business.
4.24.4 Notice of Violation. Except as set forth on Schedule 4.24, the
------------------- -------------
Company has not 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 the Company's or Sellers' knowledge, threatened lawsuit,
governmental or other legal action to that effect.
4.24.5 Pending Actions. Except as set forth on Schedule 4.24, there
--------------- -------------
is not now pending, or to the best of the Company's or Sellers' knowledge,
threatened, nor is there or has there been any basis for, nor has there ever
been, any Action against the Company under any Environmental Law or otherwise
with respect to any Release or mishandling of any Hazardous Substance.
4.24.6 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.
4.24.7 Hazardous Substances. Except as set forth on Schedule 4.24,
-------------------- -------------
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, 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.
4.24.8 Handling of Hazardous Substances. The Company has at all times
used, generated, treated, stored, transported, disposed of or otherwise handled
Hazardous Substances in compliance with all Environmental Laws and in a manner
that will not result in liability of the Company or Buyer under any
Environmental Law. Schedule 4.24 sets forth a complete list of all
-------------
28
<PAGE>
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 a complete list of all dumpsites and other off-site locations at
which such Hazardous Substances have been disposed of.
4.24.9 Environmental Conditions. There are no present or past
------------------------
Environmental Conditions (as defined below) in any way relating to the Company,
its business or the 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 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.
4.24.10 CERCLA or RCRA. No current or 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.
4.24.11 Storage Tank or Pipeline. Except as set forth on Schedule
------------------------ --------
4.24, there is not now and, to the best of Seller's knowledge, has not been at
- ----
any time in the past any underground or above-ground storage tank or pipeline at
any Facility.
4.24.12 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 4.24.
-------------
4.24.13 Indemnification Agreements. The Company is not 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 is obligated by or entitled to the benefits of, directly or indirectly,
any representation, warranty, indemnification, covenant, restriction or other
undertaking concerning Environmental Conditions.
4.24.14 Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
29
<PAGE>
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) in the best judgement of the Company, provides reasonable insurance coverage
for the Company, its business, assets and operations 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 The Company has not 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 Affiliate Transactions. Except as set forth on Schedule 4.26, no
---------------------- -------------
officer or director of the Company, or any Sellers, or any member of the
immediate family of any such officer, director, or Sellers, 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
any interest in any agreement of the Company or in any property (real, personal,
or mixed, tangible or intangible) owned or used by the Company or otherwise
pertaining to the Company or its business or assets. For purposes of the
preceding sentence, the members of the immediate family of an officer or
director of the Company or Sellers 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 Sellers.
4.27 No Brokers. Except for any obligation to Brown Brothers Harriman &
----------
Co. which , Sellers will pay and not book as a liability or charge to Company,
none of the Sellers, the Company or any of the Company's officers, directors,
employees or Affiliates has employed or made any
30
<PAGE>
agreement with any broker, finder or similar agent or any person or firm which
will result in an obligation on the part of the Buyer or, except as set forth in
Schedule 4.27, the Company, to pay any finder's fee, brokerage fees or
- -------------
commission or similar payment in connection with the transactions contemplated
hereby.
4.28 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 knowledge of the
Company and the Sellers there is no fact which has not been disclosed in writing
to Buyer which Materially Adversely Affects or could reasonably be anticipated
to Materially Adversely Affect the Shares being transferred or financial
condition of the Company.
ARTICLE V
INDIVIDUAL REPRESENTATIONS AND WARRANTIES
-----------------------------------------
OF EACH SELLER
--------------
Each Seller hereby severally represents and warrants 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.
5.1 Authorization. Seller has full power and authority to enter into this
-------------
Agreement and each of the Ancillary Agreements to which he is a party and to
carry out the transactions contemplated hereby and thereby, and Seller has taken
all action required by law, or otherwise, to be taken by him 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 each of the Ancillary
Agreements to which Seller is a party, are, and as of the Closing, will be, the
legal, valid and binding obligations of Seller enforceable against him or it in
accordance with their respective terms, except as the enforceability thereof may
be (i) limited to the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws effecting
enforcement of creditors' rights generally; and (ii) subject to (a) the efficacy
or availability of specific performance, injunctive or other equitable remedies,
and (b) general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
5.2 Title to the Shares. Seller owns that number of Shares set forth on
-------------------
Schedule 5.2, free and clear of all Encumbrances (other than a legend indicating
- ------------
only that his or its shares have not been registered under the Securities Act),
and there are no warrants, options or rights in any third party to acquire any
of Seller's Shares.
5.3 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
31
<PAGE>
thereby will (i) violate, result in a breach or 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 any governing document of any Seller, 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 is a party or by which Seller
or any of the assets or properties of Seller are bound or affected, (ii) result
in the creation or imposition of any Encumbrance upon any of the Shares owned by
Seller under any agreement or commitment to which Seller is a party or by which
Seller is bound or affected or to which the property of Seller is subject, or
(iii) 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
judgment, decree, order, regulation, or rule of any court of governmental
authority to which Seller is subject. 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 Seller of this Agreement and the
Ancillary Agreements, as the case may be, or the consummation by Seller of the
transactions contemplated by him herein and therein.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
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:
6.0.1 Organization of Buyer. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the State of
Mississippi.
6.0.2 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 to which it is a party, 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 the other parties thereto, as applicable, each of the Ancillary Agreements
to which Buyer is a party will be) a legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms.
6.0.3 No Conflict or Violation. Neither the execution, delivery or
------------------------
performance of this Agreement or the Ancillary Agreements to which Buyer is a
party 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, (b) violate any statute, rule, regulation, ordinance, code,
order, judgment, ruling, writ, injunction, decree or award binding upon Buyer,
or (c) violate any contract or agreement
32
<PAGE>
to which Buyer is a party, in each case to the extent that such violation or
conflict would prevent Buyer from consummating the transactions contemplated
hereby or result in any liability to Sellers.
6.0.4 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 Company's business after the Closing,
(b) as has been obtained on or prior to the date hereof or (c) as set forth in
Schedule 6.0.4.
- --------------
6.0.5 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 Sellers or the Company will bear any responsibility.
6.0.6 Litigation. No legal action is pending or, to the knowledge of
----------
Buyer, threatened against Buyer which seeks to delay, limit or enjoin
transactions contemplated hereby.
ARTICLE VII
COVENANTS OF BUYER, THE COMPANY AND SELLERS
-------------------------------------------
Buyer, the Company and Sellers each covenant with the others as follows:
7.1 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 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, if any, and (D) to fulfill all conditions to this Agreement.
7.2 Employee Matters. Buyer shall retain only those employees of the
----------------
Company who pass a physical examination and drug and alcohol screening in
compliance with Missouri law, by a licensed laboratory chosen by Buyer and who
otherwise meet Buyer's customary criteria for
33
<PAGE>
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 the 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.
7.3 Environmental Assessments and Remediation.
------------------------------------------
7.3.1 Buyer has retained Brown & Caldwell (the "Consultant") to
perform Phase I environmental assessments with respect to each of the
Facilities. Consultant has delivered 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 Company and Buyer. The
environmental assessments and investigations undertaken pursuant to this Section
-------
7.3.1 are collectively referred to herein as the "Environmental Assessments."
- -----
Buyer shall be solely responsible for the cost of the Environmental Assessments.
7.3.2 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, 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 7.3, "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)
remove any underground tanks, or install any above-ground tank or wash-racks, as
applicable to the Facilities or the operation thereof by the Company as of the
Closing Date, all of which is set forth on Schedule 7.3.2 attached hereto.
--------------
7.3.3 Promptly upon completion of the Consultant's report referred
to in Section 7.3.2 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 or select any remediation technique method
valid pursuant to Environmental Law to achieve this purpose. 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 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
34
<PAGE>
may be satisfied from the Short-Term Holdback Amount). Buyer may monitor the
performance of the Required Remediation, and at its election and cost may cause
the Consultant to review the progress 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.
7.3.4 The Short-Term 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 7.3. 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 7.3,
-----------
Buyer shall release that portion of the Short-Term Holdback Amount (less any
amounts necessary to cover undisputed claims or unresolved adjustments pursuant
to this Section 7.3) allocated to the resolution of the matters described in
-----------
this Section 7.3). 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 use such portion
of the Short-Term Holdback Amount as is necessary to pay the fees and costs of
such firm, or other costs incurred, in completing such Required Remediation.
7.4 Conduct of Business Pending the Closing. Except as specifically
---------------------------------------
contemplated in this Agreement or as disclosed in any schedule hereto, from
March 31, 1998 to the Closing Date, the business of the Company has been
conducted only in, and the Company has taken 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; and the Company has
maintained its Facilities in good operating condition, ordinary wear and tear
excepted; and the Company has, directly or indirectly, and Sellers have not
caused or permitted the Company to:
(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 contract, agreement, commitment, or
undertaking;
(iii) Violate or fail to comply with any laws applicable to
it;
(iv) Fail to maintain and repair its assets and properties in
good standards of maintenance and as required in any Contracts pertaining
thereto;
35
<PAGE>
(v) 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, consultants or, except
in the ordinary course of business consistent with historical practices,
employees, 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;
(vi) Directly or indirectly enter into or modify any contract,
agreement, or understanding or enter into any transaction not in the ordinary
course of business;
(vii) Cancel, without full payment, any note, loan, or other
obligation owing to the Company, or waive or compromise any right or claim
except the write-off of accounts receivable in the ordinary course of business
for which reserves have been established and are reflected on the most recent
Financial Statements;
(viii) Acquire (by merger, exchange, consolidation,
acquisition of stock or assets, or otherwise) any corporation, partnership,
joint venture, or other business organization or division or assets thereof;
(ix) Issue any shares of its capital stock, issue or create any
warrants, obligations, subscriptions, options, convertible securities, or other
commitments under which any additional shares of capital stock or other
securities may be issued, or effect any transfer of outstanding shares of its
capital stock, including shares of any class that might be directly or
indirectly authorized, issued, or transferred from treasury, or otherwise
permit the transfer of any outstanding shares of capital stock or declare any
dividends or distributions whether in cash, stock or other property;
(x) 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;
(xi) Pay any obligation or liability, fixed or contingent,
except in the ordinary course of business;
(xii) Enter into any transactions with any Sellers or any
other Affiliate of the Company;
(xiii) Commit any act or permit the occurrence of any event or
the existence of any condition of the type described in Section 4.7 hereof;
-----------
36
<PAGE>
(xiv) Acquire any asset or assets with a cost of more than
$7,500 individually or $30,000 in the aggregate, without the prior written or
oral consent of Buyer which shall not be unreasonably withheld; or
(xv) Agree to do or otherwise permit to occur any of the
actions described in the preceding clauses (i) through (xiv).
7.5 Business Relationships. The Company has exercised 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.
7.6 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 or self
regulatory organization, as applicable.
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:
8.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Buyer contained in this Agreement shall be true and correct in all
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.
8.2 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.
37
<PAGE>
8.3 Certificates. Buyer shall furnish Sellers with such certificates of
------------
Buyer to evidence compliance with the conditions set forth in this Article VIII
------------
as may be reasonably requested by Sellers.
8.4 Ancillary Agreements. Buyer, Sellers and the parties thereto shall
--------------------
have executed the Ancillary Agreements to which it is a party.
8.5 Buyer Corporate Governing Documents. Buyer shall have delivered to
-----------------------------------
Sellers a copy of its Articles of Incorporation certified by the Mississippi
Secretary of State, a good standing certificate dated not more than ten days
prior to Closing by the Mississippi Secretary of State, and a copy of the
resolutions adopted by Buyer in connection with this Agreement, certified by its
secretary or assistant secretary. Buyer shall also have delivered on behalf of
its parent, Rental Service Corporation, a copy of its Certificate of
Incorporation certified by the Delaware Secretary of State,, a good standing
certificated dated not more than ten days prior to Closing by the Delaware
Secretary of State, and a copy of the resolutions adopted by Rental Service
Corporation in connection with certain matters in this Agreement, certified by
its secretary or its assistant secretary.
ARTICLE IX
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:
9.1 Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Sellers and the Company contained in this Agreement shall be true
and correct in all 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.
9.2 Consents. All Permits, waivers or consents 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 lenders, if applicable.
9.3 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 if the transactions contemplated hereby
are consummated, including without limitation any limitation or restriction on
the right or ability of the Buyer to own or transfer the Shares or of the
Company to own, possess or transfer its assets after the Closing. There shall
not be any statute, rule or regulation
38
<PAGE>
that makes the purchase and sale of the Shares or the Company contemplated
hereby illegal or otherwise prohibited.
9.4 Opinion of Counsel. The Company and Sellers shall have delivered to
------------------
Buyer an opinion of Behr, Mantovani, McCarter & Potter, P.C. counsel to the
Company and the Sellers, dated as of the Closing Date, in form and substance
reasonably satisfactory to Buyer.
9.4.1 Other Opinions. Such other opinions as any financing source to
--------------
Buyer may reasonably request, and such persons shall be entitled to rely upon
the opinions of Sellers' counsel hereunder.
9.5 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 IX as may be reasonably
----------
requested by Buyer.
9.6 Ancillary Agreements. The Company, Sellers, and the other parties
--------------------
thereto, as appropriate, shall have entered into the Ancillary Agreements.
9.7 Release of Encumbrances. The Company shall have filed or recorded
-----------------------
(where necessary) and delivered to Buyer all documents necessary to release the
Shares and assets of the Company from all Encumbrances (except for Encumbrances
permitted under Section 4.9), which documents shall be in a form reasonably
-----------
satisfactory to Buyer's counsel.
9.8 No Material Changes. There shall not have been any Material Adverse
-------------------
Change in the Company from March 31, 1998 to the Closing Date.
9.9 Governing Documents. Buyer shall have received from the Company a
-------------------
copy of its Articles of Incorporation certified by the Missouri Secretary of
State, a good standing certificate dated not more than ten days prior to Closing
by the Missouri Secretary of State, and a copy of the resolutions adopted by the
Company approving this Agreement and the Ancillary Agreements to which it is a
party, certified by its secretary. Buyer shall also have received from the
Becker Partners a copy of its partnership agreement and a copy of the
resolutions adopted by the Becker Partners approving this Agreement and the
Ancillary Agreements to which it is a party.
9.10 Completion of Environmental Remediation. The Sellers or their agents
---------------------------------------
shall have completed any required remediation pursuant to Section 7.3 unless
-----------
such remediation efforts are deferred pursuant to Section 7.3.4 hereof.
9.11 Financing. Buyer shall have obtained all lender approvals and
---------
financing to pay the Purchase Price. Sellers, the Company and their counsel
shall have provided such materials, opinions or certificates as necessary or
appropriate to facilitate financing of the transaction contemplated hereby.
39
<PAGE>
9.12 Affiliate Transactions. All agreements and arrangements, whether
----------------------
written or oral, by and between the Company and any of its Affiliates shall have
been terminated (with the exception of certain real property leases) on terms
and conditions reasonably acceptable to Buyer, and all amounts payable by or to
either party by the other will have been paid and fully settled. All
indebtedness owed to the Company by any Sellers, or Affiliates of the Company or
Sellers, shall have been paid and satisfied in full.
9.13 Resignations. Except as provided in the Ancillary Agreements, the
------------
officers and directors of the Company (including its Subsidiaries) shall have
resigned from such offices and released the Company from all obligations through
Closing.
9.14 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, 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, the Company, or Buyer under this
Agreement or otherwise for breach of any representations, warranties, or
covenants of such parties.
9.15 Termination. Company shall have provided to Buyer evidence of
-----------
termination of any of its benefit plans.
ARTICLE X
REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------
10.1 Survival of Representations, Etc. The representations, warranties,
--------------------------------
covenants and agreements of Sellers, the Company, and Buyer contained herein and
in the closing certificates and Ancillary Agreements 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 and
------------
5.2 (capitalization and title), 4.21 (taxes), 4.24 (environmental), and any
- --- ---- ----
Claims or causes of action based on intentional misrepresentation) shall
terminate upon expiration of three years after the Closing Date. The
representations and warranties in Sections 4.21, and 4.24 shall survive until
------------- ----
the expiration of the applicable statute of limitations (with extensions) with
respect to the matters addressed in such section, and the representations and
warranties in Section 4.5 and 5.2, shall survive indefinitely. There shall be
----------- ---
no limitation in respect of any Claim based upon fraud or intentional
misrepresentation or omission. 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.
10.2 Indemnification.
---------------
40
<PAGE>
10.2.1 By Sellers. Sellers shall indemnify, defend, save and hold
----------
harmless Buyer, its Affiliates and subsidiaries (including the Company from and
after the Effective 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, 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, audit or settlement of any of the foregoing to
the extent not covered by insurance (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 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 Post Closing Environmental Liability; (iv) any
liability arising from any other cause, including without limitation any
liabilities arising (on a date of occurrence basis or otherwise) on or prior to
the Effective Date relating to operation of the business of the Company or
ownership or lease of its assets, including without limitation, with respect to
environmental and tax matters which has not been adequately reserved for on the
Effective Date Balance Sheet; or (v) any Claim or contingent liability disclosed
in any schedule of the Company or Sellers to this Agreement. For purposes of
this Section 10.2 "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 the completion of all
Required Remediation in accordance with Section 7.3 hereof, and resulting from
any Environmental Condition described in the Environmental Assessments, but
excluding any liability to the extent such liability results from the negligent
acts or willful misconduct of Buyer or its Representatives.
10.2.2 By Buyer. Buyer shall indemnify and save and hold harmless
--------
Sellers, their Affiliates (other than the Company) 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 Buyer in
or pursuant to this Agreement; (ii) any breach of any covenant or agreement made
by Buyer in or pursuant to this Agreement; or (iii) any claims made against any
Seller arising from events occurring subsequent to the Closing Date and not
including claims which may arise against any Seller or Richard Becker in their
capacity as an employee of Buyer after the Closing.
10.2.3 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 10.2.5 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.
41
<PAGE>
10.2.4 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 give written
notice (a "Claim Notice") to the indemnifying party 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
here under. The Claim Notice shall include the amounts the indemnified party
believes in good faith are subject to indemnification and a brief basis of the
claim with reasonable specificity of the facts and circumstances giving rise to
such claim for indemnification. The indemnified party may revise its estimate of
any claim by notice to the other party.
10.2.5 Third Party Claims. If any 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 as set forth in Section 10.1
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 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 could adversely affect or interrupt the
Buyer's ongoing business operations, then, notwithstanding the foregoing, the
Buyer 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, provided, however, Buyer shall consult with
Sellers in connection with any defense or settlement. 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
42
<PAGE>
settlement. The indemnifying party shall be liable for any settlement of any
action effected pursuant to and in accordance with this Section 10.2.5 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.
10.2.6 Buyer's Right of Offset. In addition to any other report or
-----------------------
remedy available to Buyer, Buyer may withhold and set off any amount as to which
Sellers are obligated to indemnify Buyer pursuant to this Article X against the
---------
Escrow and the Short-Term Holdback Amount.
10.2.7 Limits on Indemnity. Neither Buyer nor Sellers shall be
-------------------
liable to the other under this Article X for any Damages until the amount
---------
otherwise due the party being indemnified exceeds $100,000 in the aggregate, in
which case subject to the other limitations set forth in this Agreement 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, the
foregoing limitation shall not apply with respect to (A) Claims arising out of a
breach of a representation or warranty contained in Sections 4.5 and 5.2, and
------------ ---
any Claims arising out of Section 4.24 related to tax or estate planning of
------------
Richard Becker, Kathleen Becker or Becker Partners prior to Closing or (B) any
Claims based on fraud or intentional misrepresentation or omission of any
Sellers or the Company. There shall be an aggregate limitation on the liability
of Sellers in the amount of $5,000,000.
10.2.8 Indemnification Exclusive Remedy. Indemnification pursuant to
--------------------------------
the provisions of this Article X shall be the exclusive remedy of the parties
---------
for any misrepresentation or breach of any warranty or covenant contained herein
or in any closing document executed and delivered pursuant to the provisions
hereof, provided, however, Buyer may seek injunctive relief for the breach of
any noncompete confidentiality provisions set forth in any Ancillary Agreement.
The only legal action which may be asserted by any party with respect to any
matter which is the subject of this Article X shall be a contract action to
enforce, or to recover damages for the breach of, this Article X. Without
limiting the generality of the preceding sentence, no legal action sounding in
tort or strict liability may be maintained by any party.
10.2.9 Right to Cure. Notwithstanding anything in this Agreement to
-------------
the contrary, if it is possible to cure a breach, Sellers shall have up to 15
days from the date a Claim Notice is sent by Buyer to cure such alleged breach,
unless such period to cure would result in Buyer suffering additional financial
loss.
10.3 Sellers' Representative.
-----------------------
10.3.1 Appointment. The Sellers irrevocably make, constitute and
-----------
appoint Richard Becker as their agent (the "Sellers Representative") and
authorize and empower him to fulfill the role of Sellers Representative
hereunder. In the event of the resignation, death or incapacity of a Sellers
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 Sellers or a Representative
43
<PAGE>
of a Sellers or shall otherwise be reasonably 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 Sellers Representative appointed in any manner permitted above shall
be final and binding upon all of the Sellers. The decisions and actions of any
successor Sellers Representative shall be, for all purposes, those of a Sellers
Representative as if originally named herein.
10.3.2 Authority. Each of the Sellers have made, constituted and
---------
appointed and by the execution of this Agreement hereby irrevocably makes,
constitutes and appoints the Sellers Representative as such person's true and
lawful attorney in fact and agent, for such person and in such person's name,
(i) to receive all notices and communications directed to such Sellers 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 Sellers could act for himself or herself, including without
limitation, the settlement or compromise of any dispute or controversy, and (ii)
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
Sellers could do personally, and each such Sellers hereby ratifies and confirms
as his or her own act, all that the Sellers Representative shall do or cause to
be done pursuant to the provisions hereof.
10.3.3 Death; Incapacity. The death or incapacity of any Sellers
-----------------
shall not terminate the authority and agency of the Sellers Representative.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Certain Tax Matters.
-------------------
11.1.1 The Sellers acknowledge and agree that in connection with the
sale of the Shares, all tax attributes of the Company including but not limited
to tax net operating losses, tax credits and other similar items generated
through and subsequent to the Closing Date will remain as tax attributes of the
Company. Accordingly, any refunds or benefits obtained from any Tax carryback
or carryforward or other realization of such Tax attributes of Company or its
successors shall remain as sole property of the Company.
11.1.2 After the Closing, in the event that any tax audits arise
which cover only tax years of the Company prior to the Effective Date, Sellers
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 after the Effective Date,
Sellers 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 both prior to and following the
Effective Date, Sellers 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
44
<PAGE>
a fraction, the numerator of which is the additional taxes pa yable pursuant to
such audits for years of the Company 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.
11.2 Cooperation and Records Retention. Sellers, the Company 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.
11.3 Negotiations. Without limiting any of Sellers' or Company's
------------
representations, warranties, or covenants herein, Buyer hereby acknowledges
that as of the Closing, (i) Buyer has had an opportunity to examine the assets
and liabilities of Company; (ii) Buyer has asked Sellers questions relating to
the business of Company and Sellers have answered all such questions; (iii)
Sellers have provided Buyer with the information Buyer has requested; and (iv)
the terms agreed upon between the parties have been established through an arms-
length negotiation.
11.4 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, except pursuant to Article X, no other person shall have
---------
any right, benefit or obligation under this Agreement as a third party
beneficiary or otherwise.
11.5 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:
45
<PAGE>
If to Sellers, addressed to:
Jerry O. Grayson
2302 Peach Grove Drive
O'Fallon, Missouri 63366
Michael Mathon
7203 Picasso Drive
O'Fallon, Missouri 63366
Becker Partners
c/o Richard Becker
765 St. Paul
Ellisville, Missouri 63021
with a copy to:
Mark Mantovani, Esq.
Behr, Mantovani, McCarter & Potter, P.C.
7777 Bonhomme, Suite 1810
Clayton, MO 63104
If to Buyer, addressed to:
Walker Jones Equipment, Inc.
c/o Rental Service Corporation
6929 East Greenway Parkway
Scottsdale, Arizona 85254
Attn: Legal Department
with a copy to:
Snell & Wilmer, L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Attn: Maria Nutile, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
11.6 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
Missouri (without reference to the
46
<PAGE>
choice of law provisions thereof), except with respect to matters of law
concerning the internal affairs of any person (other than a natural person)
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 person derives its powers
shall govern.
11.7 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.
11.8 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.
11.9 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.
11.10 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.
11.11 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.
11.12 Cumulative Remedies. Subject to the provisions of Article X, 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.
11.13 Arbitration. Except as specifically provided herein, any controversy
-----------
arising after the Closing out of or relating to this Agreement (excluding for
purposes of this Section 11.13, the employment and non-competition agreements,
-------------
forms of which are attached as Exhibits hereto), or
47
<PAGE>
relating to the breach hereof, shall be settled by arbitration conducted in
St. Louis, Missouri 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.
11.14 Guarantor. Richard Becker hereby agrees to guarantee the payment and
---------
performance of the obligations of Becker Partners set forth in this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed on their respective behalf, where appropriate by
their respective officers or fiduciaries thereunto duly authorized, all as of
the day and year first above written.
WALKER JONES EQUIPMENT, INC.
By: /s/ Douglas A. Waugaman
----------------------------------------
Name: Douglas A. Waugaman
Its: Assistant Secretary
("Buyer")
M. J. STRUCKEL, INC.
By: /s/ Richard C. Becker
----------------------------------------
Name: Richard C. Becker
Its: President
("Company")
/s/ Michael A. Mathon
----------------------------------------
Michael A. Mathon
("Seller")
/s/ Jerry O. Grayson
----------------------------------------
Jerry O. Grayson
("Seller")
BECKER PARTNERS
By its general partners
Becker St. Paul Corporation
By: /s/ Richard C. Becker
----------------------------------------
Its: President
----------------------------------------
/s/ Kathleen Becker
----------------------------------------
Kathleen Becker
("Seller")
49
<PAGE>
BECKER ST. PAUL CORPORATION
By: /s/ Richard C. Becker
----------------------------------------
Its: President
----------------------------------------
("Partner")
/s/ Kathleen Becker
----------------------------------------
Kathleen Becker
("Partner")
/s/ Richard Becker
------------------
Richard Becker
("Guarantor")
50
