<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 1999
REGISTRATION NO. 333-56603
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED ROAD SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7549 94-3278455
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8 AUTOMATION LANE
ALBANY, NEW YORK 12205
(518) 446-0140
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EDWARD T. SHEEHAN
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
UNITED ROAD SERVICES,
INC.
8 AUTOMATION LANE
ALBANY, NEW YORK 12205
(518) 446-0140
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
KAREN A. DEWIS, ESQ.
MCDERMOTT, WILL & EMERY
600 13TH STREET, N.W.
WASHINGTON, D.C. 20005-3096
(202) 756-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
5,000,000 SHARES
UNITED ROAD SERVICES, INC.
COMMON STOCK
This is an offering of shares of Common Stock of United Road Services, Inc. We
may offer and issue the shares of Common Stock covered by this prospectus from
time to time in connection with our acquisitions of other businesses or shares
may be issued upon exercise or conversion of warrants, options, convertible
notes or other similar instruments that we assume or acquire in connection with
any such acquisitions. This prospectus may also be used, with our prior
consent, by persons who have received shares in connection with acquisitions
and who wish to offer and sell such shares under circumstances requiring the
use of this prospectus or making such use desirable.
The Nasdaq National Market lists our Common Stock under the symbol "URSI". On
December 31, 1998, the last reported sale price of the Common Stock was $18 3/8
per share.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is January , 1999
<PAGE>
You should rely only on the information contained in this document or other
documents that we have referred you to. We have not authorized anyone to
provide you with information that is different.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Available Information............................................... ii
Prospectus Summary.................................................. 1
Risk Factors........................................................ 4
Securities Covered by this Prospectus............................... 11
Price Range of Common Stock......................................... 13
Dividend Policy..................................................... 13
Capitalization...................................................... 14
Selected Financial Data............................................. 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 17
Business............................................................ 24
Management.......................................................... 32
Certain Transactions................................................ 35
Principal Stockholders.............................................. 38
Description of Capital Stock........................................ 39
Legal Matters....................................................... 42
Experts............................................................. 42
Index to Financial Statements....................................... F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy reports, statements, or other
information at the SEC's public reference rooms in Washington, D.C., New York,
New York or Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov." You can also review
copies of our SEC filings at the offices of the Nasdaq Stock Market, Inc., 1735
K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-1 to register
shares of our Common Stock. This prospectus is part of that registration
statement and, as permitted by the SEC'S rules, does not contain all the
information set forth in the registration statement. For further information
with respect to us and the Common Stock, you may refer to the registration
statement and to the exhibits and schedules filed as part of the registration
statement. You can review and copy the registration statement and its exhibits
and schedules at the public reference facilities maintained by the SEC as
described above. The registration statement, including its exhibits and
schedules, is also available on the SEC's web site.
This prospectus may contain summaries of contracts or other documents. Because
they are summaries, they will not contain all of the information that may be
important to you. If you would like complete information about a contract or
other document, you should read the copy filed as an exhibit to the
registration statement.
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This prospectus contains certain forward-looking statements which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words
such as "may," "will," "expect," "anticipate," "intend," "estimate,"
"continue," "believe" or other similar words. Similarly, statements that
describe our future plans, objectives and goals are also forward-looking
statements. Our actual results, performance or achievements could differ
materially from those expressed or implied in these forward-looking statements
as a result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this prospectus.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information important to you. To understand this offering
fully, you should read the entire prospectus carefully, including the risk
factors and the financial statements.
Please note that throughout this prospectus we use the terms "Founding
Companies" which means the seven companies that we acquired at the time of our
initial public offering in May 1998, and "Selected Acquired Companies" which
means the eleven companies that we have acquired since May 1998 whose separate
audited financial statements are required to be included in this prospectus.
Additionally, references in this prospectus to "we","our" or "us" refer to
United Road Services, Inc.
THE COMPANY
United Road Services, Inc. was formed in July 1997 to become a leading national
provider of motor vehicle and equipment towing, recovery and transport
services. We believe that we are now one of the largest providers of these
services in the United States.
We offer a broad range of towing, recovery, transport and related services,
including:
. towing, impounding and storing motor vehicles;
. conducting lien sales and auctions of abandoned vehicles;
. recovering heavy-duty commercial vehicles; and
. transporting new and used vehicles and heavy construction equipment.
We derive revenue from towing, recovery and transport services based on
distance, time or fixed charges and from related impounding and storage fees.
If impounded vehicles are not claimed by their owners within certain time
periods, we are entitled to be paid from the proceeds of lien sales or
auctions.
Our customers include:
. commercial entities, such as automobile leasing companies and insurance
companies,
. automobile auction companies,
. automobile dealers,
. repair shops and fleet operators,
. municipalities,
. law enforcement agencies such as police, sheriff and highway patrol
departments, and
. individual motorists.
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<PAGE>
STRATEGY
We believe there are significant opportunities for a national provider of
towing, recovery and transport services with high quality service, to increase
revenue and profitability by expanding its scope of services and customer base,
achieving operating efficiencies and expanding through acquisitions. We also
believe that the fragmented nature of the towing, recovery and transport
markets presents an attractive opportunity for consolidation.
Our management team includes executives with experience in implementing
acquisition programs and effectively integrating acquired businesses as well as
local managers who have significant contacts and experience in towing, recovery
and transport services. We believe that this combination and the fragmented
industry provides us with the capability and opportunity to implement an
effective consolidation strategy.
In order to increase our revenue and profitability, we have developed the
following operating and acquisition strategies:
Operating Strategy:
. Provide High Quality Service
. Expand Scope of Services and Customer Base
. Achieve Operating Efficiencies
. Maintain Local Expertise
Acquisition Strategy:
. Enter New Geographic Markets
. Expand Within Existing Geographic Markets
RECENT DEVELOPMENTS
Between May 6, 1998, when we completed our initial public offering and the
Founding Company acquisitions and December 31, 1998, we acquired a total of 34
additional motor vehicle and equipment towing, recovery and transport service
businesses (including Keystone Towing, Inc. ("Keystone")) for aggregate
consideration of approximately $79.6 million in cash, 2,918,608 shares of
Common Stock and the assumption of approximately $23.2 million of indebtedness.
Among the companies we acquired were E&R Towing and Garage, Inc. and
Environmental Auto Removal, Inc. (collectively "E&R"), which we acquired on
August 21, 1998 for an aggregate purchase price of approximately $26.0 million,
consisting of approximately $22.8 million in cash and $3.2 million in shares of
Common Stock, and Pilot Transport, Inc. ("Pilot"), which we acquired on
December 9, 1998 for an aggregate purchase price of approximately $25.8
million, consisting of approximately $12.8 million in cash and $13.0 million in
shares of Common Stock. Financial statements and pro forma financial
information for E&R and Pilot are included among the financial information
contained in this prospectus.
On November 19, 1998, we entered into a Purchase Agreement with Charter URS LLC
("Charterhouse") providing for the issuance to Charterhouse of up to $75
million aggregate principal amount of our 8% Convertible Subordinated
Debentures due 2008. The Debentures are convertible into our Common Stock at an
initial exercise price of $15.00 per share, subject to adjustment as provided
in the Purchase Agreement. The conversion price exceeded the fair market value
of the Common Stock on the date of execution of the Purchase Agreement. We
issued $43.5 million aggregate principal amount of Debentures to Charterhouse
at a first closing on December 7, 1998. Issuance of the remaining $31.5 million
aggregate principal amount of Debentures to Charterhouse is subject to approval
of our stockholders.
You can contact us at the following address and telephone number: United Road
Services, Inc., 8 Automation Lane, Albany, New York 12205, 518-446-0140.
2
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma combined statement of operations data present
our historical financial data adjusted to give effect to (i) our purchases of
the Founding Companies and the Selected Acquired Companies as if they occurred
on January 1, 1997, and (ii) certain pro forma adjustments to the historical
statement of operations data described below. The unaudited pro forma combined
balance sheet data present our historical financial data adjusted to give
effect to those purchases of Selected Acquired Companies which occurred after
September 30, 1998, as if they occurred on September 30, 1998. The unaudited
pro forma data are not necessarily indicative of the results we would have
obtained had these events actually occurred on such dates or of our future
results. You should refer to other sections of this prospectus for more
information, including, "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and our Unaudited
Pro Forma Combined Financial Statements and historical financial statements for
the Founding Companies and the Selected Acquired Companies.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1997 1998
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............ $ 143,431 $ 129,382
Cost of revenue........ 101,139 90,320
----------- -----------
Gross profit........... 42,292 39,062
Selling, general and
administrative
expenses(1)........... 22,949 20,151
Goodwill
amortization(2)....... 3,769 2,965
----------- -----------
Income from operations. 15,574 15,946
Interest expense and
other, net............ 3,849 2,898
----------- -----------
Income before income
taxes................. 11,725 13,048
Income tax expense(3).. 5,887 6,085
----------- -----------
Net income............. $ 5,838 $ 6,963
=========== ===========
Diluted net income per
share................. $ 0.53 $ 0.63
=========== ===========
Shares used in
computing diluted net
income per share(4)... 10,981,738 10,981,738
=========== ===========
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------------------
ACTUAL PRO FORMA
<S> <C> COMBINED <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $ 1,235 $ (4,118)(5)
Total assets........... 196,628 256,296
Long-term obligations,
excluding current
installments.......... 28,253 48,675
Stockholders' equity... 146,448 175,594
</TABLE>
(1) Includes agreed upon reductions in salaries, bonuses and benefits to the
former owners of the Founding Companies and the Selected Acquired Companies
of $6.7 million for the year ended December 31, 1997 and $3.5 million for
the nine months ended September 30, 1998.
(2) Consists of amortization, over a 40-year estimated life, of goodwill to be
recorded as a result of the acquisitions of the Founding Companies and the
Selected Acquired Companies.
(3) Assumes a corporate income tax rate of 38% and the non-deductibility of
goodwill.
(4) Shares used in computing diluted net income per share include (i) 2,604,000
shares issued to members of our management in connection with our
formation, (ii) 218,736 shares issued to investors pursuant to subscription
agreements, (iii) 5,405,022 shares issued to owners of the Founding
Companies and the Selected Acquired Companies in connection with the
acquisitions; (iv) 2,594,863 of the shares issued in our initial public
offering, representing that portion of the total 7,590,000 shares issued in
our initial public offering necessary to pay the cash portion of the
purchase price for the acquisitions of the Founding Companies and expenses
related to the initial public offering and the acquisitions of the Founding
Companies; and (v) 159,117 shares reflecting the incremental effect of
options.
(5) Includes $50.0 million paid to owners of the Selected Acquired Companies,
representing the cash portion of the purchase price for the acquisitions of
the Selected Acquired Companies.
3
<PAGE>
RISK FACTORS
BEFORE YOU BUY SHARES OF COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION IN THIS
PROSPECTUS, BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON STOCK.
SOME OF THE INFORMATION IN THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE,"
"CONTINUE," "BELIEVE" AND SIMILAR WORDS. THESE STATEMENTS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OF OUR FUTURE RESULTS OF OPERATIONS OR
FINANCIAL CONDITION OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WHEN
CONSIDERING SUCH STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER
CAUTIONARY STATEMENTS IN THIS PROSPECTUS. THE RISK FACTORS NOTED IN THIS
SECTION AND OTHER FACTORS NOTED IN THIS PROSPECTUS COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
STATEMENT.
LIMITED COMBINED OPERATING HISTORY; RISKS OF INTEGRATING ACQUIRED COMPANIES
We conducted no operations and generated no net revenue prior to our initial
public offering in May 1998. At the time of our initial public offering we
purchased the seven Founding Companies. Between May 6, 1998 and December 31,
1998, we acquired a total of 34 additional businesses. Prior to their
acquisition by us, the companies we acquired were operated as independent
entities, and we cannot assure you that we will be able to integrate the
operations of these businesses successfully into our operations or to institute
the necessary systems and procedures (including accounting and financial
reporting systems) to manage the combined enterprise on a profitable basis. Our
management group has been assembled only recently, and they may not be able to
successfully manage the combined entity or to implement effectively our
operating strategy and acquisition program. The Unaudited Pro Forma Combined
Financial Statements included in this prospectus cover periods when the
companies we acquired were not under common control or management with us and
are not necessarily indicative of our future operating results. Our inability
to integrate these companies successfully would have a material adverse effect
on our business, financial condition and results of operations. See "Business-
Strategy" and "Management."
RISKS RELATED TO OUR ACQUISITION STRATEGY
Part of our strategy is to expand our operations by buying additional towing,
recovery and transport service businesses. We may not be able to identify,
acquire or manage profitably additional businesses or integrate successfully
any acquired businesses without substantial costs, delays or other operational
or financial problems. Further, acquisitions involve a number of special risks,
including failure of the acquired business to achieve expected results,
diversion of management's attention, failure to retain key personnel of the
acquired business and risks associated with unanticipated events or
liabilities. Some or all of these additional risks could have a material
adverse effect on our business, financial condition and results of operations.
We may consider acquiring complementary businesses that provide services that
we do not currently provide. We may not be able to successfully integrate these
complementary businesses.
4
<PAGE>
In addition, the companies that we have already acquired or other companies we
may acquire in the future may not achieve anticipated revenues and earnings.
RISKS RELATED TO ACQUISITION FINANCING
We cannot now predict the timing, size or success of our future acquisitions or
the associated capital requirements. We currently intend to finance future
acquisitions by using a combination of Common Stock, cash and debt. To the
extent we sell shares of Common Stock to finance future acquisitions, the
interests of existing stockholders will be diluted. If the Common Stock does
not maintain a sufficient market value, or if the owners of the businesses we
wish to acquire are unwilling to accept Common Stock as part of the purchase
price, we may be required to use more of our cash resources, if available, in
order to pursue our acquisition program. If we do not have sufficient cash
resources, our growth could be limited unless we are able to borrow money or
sell more stock. We may not be able to obtain the cash we will need for our
acquisition program on acceptable terms, or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
RISKS RELATED TO OPERATING STRATEGY
A key element of our operating strategy is to increase the revenue and improve
the profitability of the companies we acquire.
We intend to increase revenue by continuing to provide high quality service and
by expanding both the scope of services we offer and our customer base. Our
ability to increase revenue will be affected by various factors, including the
demand for towing, recovery and transport services, the level of competition in
the industry, our ability to expand the range of services we offer to existing
customers, our ability to attract new customers and our ability to attract and
retain a sufficient number of qualified personnel.
We intend to improve profitability by various means, including eliminating
duplicative operating costs and overhead, improving our asset utilization and
capitalizing on our enhanced purchasing power. Our ability to improve
profitability will be affected by various factors, including the costs
associated with centralizing our administrative functions, our ability to
benefit from the elimination of redundant operations, and our ability to
benefit from enhanced purchasing power. Many of these factors are beyond our
control, and our operating strategy may not be successful. See "Business--
Strategy."
MANAGEMENT OF GROWTH
Our strategy is to expand our operations through acquisitions and internal
growth. We expect to spend significant time and resources in evaluating,
completing and integrating acquisitions. Our systems, procedures and controls
may not be adequate to support our operations as they expand. Any future growth
will impose significant added responsibilities on members of our senior
management, including the need to recruit and integrate new senior level
managers and executives. We may not be able to successfully recruit and retain
such additional management. Our failure to manage our growth effectively or our
inability to attract and retain additional qualified management, could have a
material adverse effect on our business, financial condition and results of
operations.
5
<PAGE>
COMPETITION
The market for towing, recovery and transport services is extremely
competitive. Such competition is based primarily on quality, service,
timeliness, price and geographic proximity. We compete with certain large
companies on a regional and local basis, some of which may have greater
financial and marketing resources than we have. We also compete with thousands
of smaller local companies, which may have lower overhead cost structures than
we have and may, therefore, be able to provide their services at lower rates
than we can. We may also face competition for acquisition candidates from
companies that are attempting to consolidate towing, recovery and transport
service providers. Some of our current or future competitors may be better
positioned than we are to finance acquisitions, to pay higher prices for
businesses or to finance their internal operations.
NEED FOR INTEGRATED INFORMATION TECHNOLOGY SYSTEMS
Our accounting and financial reporting activities are centralized at our
headquarters in Albany, New York. In addition, we are in the process of
developing a national dispatch system for our transport operations. We
anticipate that we will need to upgrade and expand our information technology
systems on an ongoing basis as we expand our operations and complete
acquisitions. We may encounter unexpected delays and costs in implementing such
systems. Additionally, these systems, when installed, may not function as we
expect. See "Business--Dispatch and Information Systems."
DEPENDENCE ON MUNICIPALITY AND LAW ENFORCEMENT AGENCY RELATIONSHIPS
We provide services to certain municipalities and a number of law enforcement
agencies under contracts. These contracts typically have terms of five years or
less and in some cases are subject to competitive bidding upon expiration.
These contracts may not be renewed upon expiration or may be renewed on terms
less favorable to us. It is also possible that at some future time more of our
customers may implement a competitive bidding process for the award of towing
contracts. With some municipalities and law enforcement agencies, there is no
formal contract, and a particular customer may not continue to use our
services. See "Business--Operations and Services Provided."
REGULATION
Towing, recovery and transport services are subject to various federal, state
and local laws and regulations regarding equipment, driver certification,
training and recordkeeping, and workplace safety. Our vehicles and facilities
are subject to periodic inspection by the United States Department of
Transportation and similar state and local agencies. Our failure to comply with
these laws and regulations could subject us to substantial fines and could lead
to the closure of operations that are not in compliance. In addition, certain
government contracting laws and regulations may effect our ability to acquire
complementary businesses in a given city or county. Companies providing towing,
recovery and transport services are required to have numerous federal, state
and local licenses and permits. When we buy such companies, we must transfer or
apply for such licenses and permits in order to conduct the acquired business.
Any failure to obtain such licenses and permits or any delay in our receipt of
such licenses and permits could have a material adverse effect on our business,
financial condition and results of operations.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
Our operations are subject to a number of federal, state and local laws and
regulations relating to the storage of petroleum products, hazardous materials
and impounded vehicles, as well as safety
6
<PAGE>
regulations relating to the upkeep and maintenance of our vehicles. In
particular, our operations are subject to federal, state and local laws and
regulations governing leakage from salvage vehicles, waste disposal, the
handling of hazardous substances, environmental protection, remediation,
workplace exposure and other matters. It is possible that an environmental
claim could be made against us or that we could be identified by the
Environmental Protection Agency, a state agency or one or more third parties as
a potentially responsible party under federal or state environmental laws. If
that happens, we could be forced to incur substantial investigation, legal and
remediation costs. Such costs could have a material adverse effect on our
business, financial condition and results of operations.
POTENTIAL LIABILITIES ASSOCIATED WITH ACQUISITIONS
The companies that we have acquired or those that we acquire in the future may
have liabilities that we did not or may not discover during our pre-acquisition
due diligence investigations. Such liabilities may include liabilities arising
from environmental contamination or non-compliance by prior owners with
environmental laws or regulatory requirements. As a successor owner or
operator, we may be responsible for such liabilities. The businesses we acquire
generally handle and store petroleum and other hazardous substances at their
facilities. There may have been or there may be releases of these hazardous
substances into the soil or groundwater which we may be required under federal,
state or local law to investigate and clean up. Any such liabilities or related
investigations or clean-ups could have a material adverse effect on our
business, financial condition and results of operations.
LABOR RELATIONS
Although currently none of our employees are members of unions, it is possible
that some employees could unionize in the future or that we could acquire
companies with unionized employees. If our employees were to unionize or we
were to acquire a company with unionized employees, we could incur higher
ongoing labor cost and could experience a significant disruption of our
operations in the event of a strike or other work stoppage. Any of these
possibilities could have a material adverse effect on our business, financial
condition and results of operations.
LIABILITY AND INSURANCE
From time to time, we could be subject to various claims relating to our
operations, including (i) claims for personal injury or death caused by
accidents involving our vehicles and service personnel; (ii) worker's
compensation claims and (iii) other employment related claims. Although we
maintain insurance (subject to customary deductibles), our insurance may not
cover certain types of claims, such as claims for punitive damages or for
damages arising from intentional misconduct (which are often alleged in third-
party lawsuits). In the future, we may not be able to maintain adequate levels
of insurance on reasonable terms in the future, existing or future claims may
exceed the level of our insurance, or we may not have sufficient capital
available to pay any uninsured claims.
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
We may experience significant fluctuations in quarterly operating results due
to a number of factors. These factors could include: (i) the timing of
acquisitions and related costs; (ii) our success in integrating acquired
companies; (iii) the loss of significant customers or contracts; (iv) the
timing of expenditures for new equipment and the disposition of used equipment;
(v) price changes in response
7
<PAGE>
to competitive factors; and (vi) general economic conditions. As a result, you
should not rely on operating results for any one quarter as an indication or
guarantee of performance in future quarters.
SEASONALITY
The demand for towing, recovery and transport services is subject to seasonal
variations. Specifically, the demand for towing and recovery services is
generally highest in extreme weather, such as heat, cold, rain and snow.
Consequently, the summer and winter seasons tend to be the busiest times.
Conversely, auto transport tends to be strongest in the months with the mildest
weather, since inclement weather tends to slow the delivery of vehicles.
RELIANCE ON KEY PERSONNEL
We are highly dependent upon our senior management team. In particular, the
loss of the services of Edward T. Sheehan, Dr. Allan D. Pass or Donald J. Marr
could have a material adverse effect on our business, financial condition and
results of operations. We do not presently maintain "key man" life insurance
with respect to members of senior management.
Our operating facilities are managed by regional and local managers who have
substantial knowledge and experience of the local towing, recovery and
transport markets served, including former owners and employees of the
companies we have acquired. The loss of one or more of these managers could
have a material adverse effect on our business, financial condition and results
of operations if we are unable to find a suitable replacement in a timely
manner.
The timely, professional and dependable service demanded by towing, recovery
and transport customers requires an adequate supply of skilled dispatchers,
drivers and support personnel. Accordingly, our success will depend on our
ability to employ, train and retain the personnel necessary to meet our service
requirements. From time to time, and in particular areas, there are shortages
of skilled personnel. In the future, we may not be able to maintain an adequate
skilled labor force necessary to operate efficiently, our labor expenses may
increase as a result of a shortage in the supply of skilled personnel, or we
may have to curtail our planned growth as a result of labor shortages.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Our executive officers and directors beneficially owned 2,168,163 shares, or
approximately 13.8% of the outstanding Common Stock, as of December 31, 1998.
Accordingly, these persons, if acting in concert, hold sufficient voting power
to significantly influence the election of all of our directors and the outcome
of all issues on which stockholders vote. Such concentration of ownership may
have the effect of delaying, deferring or preventing a change in control or
transactions in which our stockholders might receive a premium for their shares
over prevailing market prices. See "Principal Stockholders."
LACK OF SENIOR MANAGEMENT EXPERIENCE IN TOWING, RECOVERY AND TRANSPORT SERVICES
Our senior management has no prior experience in towing, recovery and transport
services. As a result, our senior management may not be able to conduct our
operations profitably, to effectively integrate the operations of acquired
companies or to hire and retain personnel with relevant experience. Any failure
by our senior management to accomplish any such things, could have a material
adverse effect on our business, financial condition and results of operations.
8
<PAGE>
EARN-OUT PAYMENTS
We may be required to make certain "earn-out" payments to the owners of
individual Founding Companies and Keystone, based on their future revenues. For
example, if the 1998 net revenues of any of these companies is at least equal
to 110% of its 1997 net revenue, we will be required to make a payment to the
former owners of the successful business. The target net revenue for the years
1999 through 2002 is 110% of the greater of the prior year's actual net revenue
or target net revenue. If target net revenue is achieved for a particular year,
we will be required to make an initial payment equal to 5% of the excess of
actual net revenue over the target level. In addition, once the target level of
net revenue for a particular year is met, we must make subsequent and equal
payments for each year through 2002, but only if the net revenue for each later
year exceeds the net revenue for the year the earn-out target was first
achieved.
To the extent any Founding Company or Keystone meets its net revenue growth
target without a corresponding increase in its operating results, this could
have a material adverse effect on our business, financial condition and results
of operations. See "Certain Transactions."
CERTAIN ANTI-TAKEOVER PROVISIONS
Our Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the terms, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of discouraging a
third party from attempting to buy a majority of our outstanding voting stock.
We have no current plans to issue shares of Preferred Stock.
Our bylaws and indemnification agreements provide that we will indemnify our
officers and directors against losses they may incur in legal proceedings
resulting from their service as directors and officers. In addition, our
certificate of incorporation provides for a classified Board of Directors and
limits the ability of stockholders to (i) fill vacancies on the Board of
Directors, (ii) call special meetings of the stockholders, (iii) take action by
written consent or (iv) bring certain matters before a meeting of the
stockholders without prior notice. In addition, Section 203 of the Delaware
General Corporation Law restricts certain business combinations with any
"interested stockholder" as defined by the statute. These provisions are also
intended to discourage potential acquisition proposals and could delay or
prevent a change in control. As a result, they may cause the market price of
the Common Stock to be lower than it otherwise would be. Such provisions also
may have the effect of preventing changes in our management. See "Description
of Capital Stock."
ABSENCE OF DIVIDENDS
We have never paid any cash dividends and, for the foreseeable future, intend
to retain any future earnings for the development of our business. See
"Dividend Policy."
LIMITED TRADING HISTORY OF COMMON STOCK; STOCK PRICE VOLATILITY
Our Common Stock was first publicly traded on May 1, 1998. The market price of
the Common Stock may fluctuate substantially due to a variety of factors. These
factors may include: (i) quarterly fluctuations in results of operations, (ii)
the liquidity of the market for the Common Stock, (iii) investor perceptions of
our company and the motor vehicle and equipment towing, recovery and
9
<PAGE>
transport industry in general, (iv) changes in earnings estimates by analysts,
(v) sales of Common Stock by existing holders, (vi) loss of key personnel,
(vii) general economic conditions, and (viii) other factors. The market price
for our Common Stock may also be affected by our ability to meet analysts'
expectations.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, such companies have been sued by
stockholders. If we were sued, it could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our financial condition and results of operations. See "Price
Range of Common Stock."
YEAR 2000 COMPLIANCE
We have taken a variety of steps in an effort to assess our readiness for
potential year 2000 problems. We have recently centralized our accounting and
financial reporting activities at our headquarters in Albany, New York. The
software that we have implemented to accomplish this is year 2000 compliant. In
addition, in order to make our operations more efficient, we are developing a
national dispatch system for our transport operations and are replacing all of
our local operating systems with standardized operational software. Both the
national transport dispatch system and the new local operating systems will be
year 2000 compliant and we currently expect that they will be installed prior
to January 1, 2000. If an unforeseeable event were to make us unable to install
these systems by 2000, we would need to rely on our local dispatch and
operating systems, which we believe may not be year 2000 compliant. If the
local systems become inoperable, we expect that we will be able to manually
perform such functions, although not as efficiently. We cannot now predict the
likelihood, extent or impact of such events on our results of operations or
financial condition.
We are currently developing a plan to review with our significant vendors,
customers and financial institutions their individual year 2000 compliance.
Such a review has not yet been formally commenced. We cannot now predict the
impact that year 2000 problems at our vendors, customers or financial
institutions will have on us.
Other than ensuring that our centralized systems are year 2000 compliant, and
given that our operations and our interactions with our vendors and customers
have historically been conducted in a substantially manual mode, we have not
developed a contingency plan to guide our responses to year 2000 problems when
they may arise. We intend to continue to examine the year 2000 issue as it
potentially impacts us and will develop a contingency plan if we believe one is
necessary.
No one knows the extent of the potential impact of the year 2000 problem
generally and we cannot predict the likelihood that year 2000 problems will
cause a significant disruption in the economy as a whole. If you would like
additional information regarding our year 2000 compliance, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
10
<PAGE>
SECURITIES COVERED BY THIS PROSPECTUS
We may offer the shares of Common Stock covered by this prospectus from time
to time in connection with future acquisitions of other businesses, assets or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under
Rule 415. We may also issue shares of Common Stock covered by this prospectus
upon the exercise or conversion of warrants, options, convertible notes or
similar instruments we assume or acquire in connection with any such
acquisitions. We may make such acquisitions directly or indirectly through a
subsidiary. Such acquisitions may relate to businesses similar or dissimilar to
ours or to assets of a type which we may or may not currently use and may be
made in connection with the settlement of litigation or other disputes.
The consideration we offer in such acquisitions, in addition to the shares of
Common Stock offered by this prospectus, may include cash, debt, or other
securities (which may be convertible into shares of Common Stock covered by
this prospectus), and we may assume liabilities associated with the business,
assets, or securities being acquired or of their owners. It is contemplated
that the terms of such acquisitions will be determined by negotiations with the
owners of the businesses, assets, or securities to be acquired. When we
negotiate the terms of our acquisitions, we typically take into account such
factors as the quality of management, the past and potential earning power,
growth and appreciation of the business, assets, or securities acquired, and
other relevant factors. We anticipate that shares of Common Stock issued in
such acquisitions will be valued at a price reasonably related to the market
value of the Common Stock either at the time the terms of the acquisition are
tentatively agreed upon or at or near the time or times the shares are
delivered.
In an effort to maintain an orderly market in the Common Stock, we may from
time to time negotiate agreements with those who receive Common Stock covered
by this prospectus that will limit the number of shares that they may sell at
specified time intervals. Such agreements may be more restrictive than
restrictions on sales made pursuant to the exemptions from registration
requirements of the Securities Act, including the requirements under Rule 144
or Rule 145(d), and those who sign such agreements may not otherwise be subject
to such Securities Act requirements. We anticipate that, in general, any such
agreed upon limitations will be of limited duration and will permit those who
sign such agreements to sell up to a specified number of shares per business
day or days.
This prospectus, as appropriately amended or supplemented, may, with our
consent, also be used from time to time by persons who have received our Common
Stock and who may wish to sell such stock under circumstances requiring or
making desirable its use ("Selling Stockholders"). Our consent to such use may
be conditioned upon such persons' agreeing not to offer more than a specified
number of shares of Common Stock in a given period of time and, upon the
happening of any event requiring this prospectus to be supplemented or amended,
only following appropriate supplements or amendments to the prospectus, which
we may agree to use our best efforts to prepare and file at certain intervals.
We may require that: (i) any such offering be effected in an orderly manner
through securities dealers, acting as brokers or dealers we select; (ii)
Selling Stockholders enter into custody agreements with one or more banks with
respect to such shares; and (iii) sales be made only by one or more methods
described in this prospectus.
When a Selling Stockholder notifies us that it has received an offer to sell
its shares, has entered into a material arrangement with a broker-dealer for
the sale of such shares, or has sold such shares, then, to the extent required,
we will deliver to the Selling Stockholder and file with the SEC a
11
<PAGE>
supplement to this prospectus. The prospectus supplement will set forth with
respect to such offer or trade the terms of the offer or trade, including (i)
the name of the Selling Stockholder, (ii) the number of shares of Common Stock
involved, (iii) the price at which the shares were sold, (iv) any participating
brokers, dealers or agents involved, (v) any discounts, commissions and other
items paid as compensation from, and the resulting net proceeds to, the Selling
Stockholder, (vi) that such broker-dealers did not conduct any investigation to
verify the information set out in this prospectus, and (vii) other facts
material to the transaction.
Sales made by Selling Stockholders by means of this prospectus may be made
from time to time: (i) in private transactions at prices to be individually
negotiated with the purchasers, or (ii) publicly through transactions on the
exchange or automated quotation system on which the Common Stock is then traded
or in the over-the-counter market (which may involve block transactions), at
prices reasonably related to market prices at the time of sale or at negotiated
prices. Broker-dealers or agents may purchase shares directly from a Selling
Stockholder or sell shares to someone else on behalf of a Selling Stockholder.
Broker-dealers may charge commissions to both Selling Stockholders and
purchasers buying shares sold by a Selling Stockholder. If a broker buys shares
directly from a Selling Stockholder, the broker may resell the shares through
another broker, and the other broker may receive compensation from the Selling
Stockholder for the resale.
Selling Stockholders may also offer shares of stock covered by this
prospectus by means of prospectuses under other registration statements or
pursuant to exemptions from the registration requirements of the Securities
Act, including sales which meet the requirements of Rule 144 or Rule 145(d)
under the Securities Act, and stockholders should seek the advice of their own
counsel with respect to the legal requirements for such sales.
We will receive none of the proceeds from any sales of Common Stock offered
by Selling Stockholders. We will pay for printing, certain legal, filing and
other similar expenses of this offering. Selling Stockholders will bear any
other expenses relating to their sales of shares, including brokerage fees and
any underwriting discounts or commissions.
Selling Stockholders and any brokers, dealers, agents, or others that
participate with the Selling Stockholders in the distribution of shares of
Common Stock covered by this prospectus may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions or fees received
by such persons and any profit on the resale of the shares purchased by such
persons may be deemed to be underwriting commissions or discounts under the
Securities Act.
We may agree to indemnify any Selling Stockholders under the Securities Act
against certain liabilities, including liabilities arising under the Securities
Act. Agents may be entitled under agreements entered into with the Selling
Stockholders to indemnification against certain civil liabilities, including
liabilities under the Securities Act.
In addition to any other applicable laws or regulations, Selling Stockholders
must comply with certain regulations relating to distributions by Selling
Stockholders, including Regulation M under the Securities Exchange Act of 1934,
as amended.
Certain states may require that registration, exemption from registration or
notification requirements be met before Selling Stockholders may sell their
shares. Certain states may also require Selling Stockholders to sell shares
only through broker-dealers.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq National Market on May 1, 1998
under the symbol "URSI." The following table sets forth the high and low sale
prices of the Common Stock since May 1, 1998, as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1998
Second Quarter (from May 1)............................ $19 9/16 $15 1/8
Third Quarter ......................................... 26 9 1/2
Fourth Quarter (through December 31)................... 19 1/4 5 3/4
</TABLE>
On December 31, 1998, the last reported sale price of the Common Stock was $18
3/8 per share. As of December 31, 1998, there were approximately 101 holders of
record of Common Stock.
DIVIDEND POLICY
We have never paid any cash dividends and intend, for the foreseeable future,
to retain any future earnings for the development of our business. Our credit
facility restricts our ability to pay dividends. Our future dividend policy
will be determined by the Board of Directors on the basis of various factors,
including our results of operations, financial condition, capital requirements
and investment opportunities.
13
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, (i) our actual
capitalization and (ii) our capitalization on a pro forma combined basis
adjusted to give effect to our purchases of those Selected Acquired Companies
that occurred after September 30, 1998. You should read this table with the
Unaudited Pro Forma Combined Financial Statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-----------------------
PRO FORMA
ACTUAL COMBINED
(IN THOUSANDS)
<S> <C> <C>
Short-term obligations, including current
installments......................................... $ 3,803 $ 8,823
======== ========
Long-term obligations, excluding current installments. $ 28,253 $ 48,675
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding......... -- --
Common stock, $0.001 par value, 35,000,000 shares
authorized; 14,497,384 shares issued and outstanding
actual; and 16,493,735 shares issued and outstanding
pro forma combined................................... 14 16
Additional paid-in capital............................ 144,413 173,557
Retained earnings (deficit)........................... 2,021 2,021
-------- --------
Total stockholders' equity.......................... 146,448 175,594
-------- --------
Total capitalization................................ $174,701 $224,269
======== ========
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
We purchased the Founding Companies simultaneously with our initial public
offering in May 1998. During the remainder of 1998 we purchased a total of 34
additional businesses. The following selected historical financial data as of
December 31, 1997 and for the period from July 25, 1997 (inception) to December
31, 1997 have been derived from our audited financial statements. The selected
financial data as of September 30, 1998 and for the nine-month period then
ended have been derived from, and are qualified by reference to, our unaudited
financial statements included elsewhere in this prospectus.
For financial statement presentation purposes, Northland Auto Transporters,
Inc. and Northland Fleet Leasing, Inc., ("Northland"), one of the Founding
Companies, has been designated as our predecessor entity. The following
selected historical financial data for Northland as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31, 1997
have been derived from the audited financial statements of Northland.
In our opinion, the unaudited data shown below contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The results of the interim periods are not necessarily indicative
of the results for the full year. You should read the following selected
financial data in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Pro Forma
Combined Financial Statements and the historical financial statements for the
Founding Companies and the Selected Acquired Companies included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM YEAR ENDED ENDED
JULY 25, 1997 DECEMBER 31, 1997 SEPTEMBER 30, 1998
(INCEPTION) TO ----------------- -----------------------
DECEMBER 31, 1997 PRO FORMA PRO FORMA
----------------- COMBINED ACTUAL COMBINED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA--UNITED ROAD
SERVICES:
Net revenue............. $ -- $ 143,431 $ 44,842 $ 129,382
Cost of revenue......... -- 101,139 32,073 90,320
---------- ---------- --------- ----------
Gross profit............ -- 42,292 12,769 39,062
Selling, general and
administrative
expenses(1)............ 174 22,949 7,565 20,151
Goodwill
amortization(2)........ -- 3,769 883 2,898
---------- ---------- --------- ----------
Income (loss) from
operations............. (174) 15,574 4,321 15,946
Interest income
(expense) and other,
net.................... -- (3,849) 89 (2,898)
---------- ---------- --------- ----------
Income (loss) before
income tax............. (174) 11,725 4,410 13,048
Income tax expense(3)... -- 5,887 2,215 6,085
---------- ---------- --------- ----------
Net income (loss)....... $ (174) $ 5,838 $ 2,195 $ 16,963
========== ========== ========= ==========
Diluted net income
(loss) per share....... $ (0.08) $ 0.53 $ 0.25 $ 0.63
========== ========== ========= ==========
Shares used in computing
diluted net income
(loss) per share....... 2,055,300 (4) 10,981,738 (4) 8,937,442(4) 10,981,738
========== ========== ========= ==========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT AT SEPTEMBER 30, 1998
DECEMBER 31, -----------------------
1997 PRO FORMA
ACTUAL COMBINED
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA--UNITED ROAD SERVICES:
Working capital (deficit)................ $(104) $ 1,235 $ (4,188)(6)
Total assets............................. 50 196,628 256,296
Long-term obligations, excluding current
installments............................ -- 28,253 48,675
Stockholders' equity (deficit)........... (104) 146,448 175,594
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995 1996 1997
HISTORICAL STATEMENT OF OPERATIONS DATA-- (IN
NORTHLAND: THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenue.......................... $4,736 $3,769 $4,671 $6,353 $10,159
Operating income (loss).............. (128) (44) 324 346 1,438
Other income (expense), net.......... 199 117 (18) -- (49)
Net income........................... 71 67 275 346 1,054
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1993 1994 1995 1996 1997
HISTORICAL BALANCE SHEET DATA-- (IN
NORTHLAND: THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital...................... $ 387 $ 52 $ 375 $ 235 $ 399
Total assets......................... 1,193 2,368 2,653 3,268 5,465
Long-term obligations, excluding
current installments................ 60 205 257 331 1,074
Stockholders' equity................. 815 1,369 1,645 1,991 3,045
</TABLE>
- ---------------------
(1) Includes agreed upon reductions in salaries, bonuses and benefits to the
former owners of the Founding Companies and the Selected Acquired Companies
of $6.7 million for the year ended December 31, 1997 and $3.5 million for
the nine months ended September 30, 1998.
(2) Consists of amortization, over a 40-year estimated life, of goodwill to be
recorded as a result of the acquisitions of the Founding Companies and
Selected Acquired Companies.
(3) Assumes a corporate income tax rate of 38% and the non-deductibility of
goodwill.
(4) Represents the actual weighted average outstanding shares, adjusted for the
incremental effect of options.
(5) Shares used in computing diluted net income per share include (i)
2,604,000 shares issued to members of our management in connection with
our formation, (ii) 218,736 shares issued to investors pursuant to
subscription agreements, (iii) 5,405,022 shares issued to owners of the
Founding Companies and the Selected Acquired Companies in connection with
the acquisitions; (iv) 2,594,863 of the shares issued in our initial
public offering, representing that portion of the total 7,590,000 shares
issued in our initial public offering necessary to pay the cash portion of
the purchase price for the acquisitions of the Founding Companies and
expenses related to the initial public offering and the acquisitions of
the Founding Companies; and (v) 159,117 shares reflecting the incremental
effect of options.
(6) Includes $50.0 million paid to owners of the Selected Acquired Companies,
representing the cash portion of the purchase price for the acquisitions of
the Selected Acquired Companies.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the
Financial Statements and "Selected Financial Data" which we have provided in
this prospectus. In addition to the historical information that we provide, the
discussion in this prospectus contains forward-looking statements that involve
risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. You should read the cautionary statements made in
this prospectus as being applicable to all related forward-looking statements
wherever they appear in this prospectus. Our actual results could differ
materially from those we discuss in this prospectus. Factors that could cause
or contribute to such differences include those discussed below, as well as
those discussed elsewhere in this prospectus.
INTRODUCTION
We provide a broad range of towing, recovery, transport and related services.
The services we offer include:
. towing, impounding and storing motor vehicles;
. conducting lien sales and auctions of abandoned vehicles;
. recovering heavy-duty commercial vehicles; and
. transporting new and used vehicles and heavy construction equipment.
We derive revenue from towing, recovery and transport services based on
distance, time or fixed charges and from related impounding and storage fees.
If an impounded vehicle is not collected within a period prescribed by law
(typically between 30 and 90 days), we complete lien proceedings and sell the
vehicle at auction or to a scrap metal facility, depending on the value of the
vehicle. Depending on the jurisdiction, we either may keep all the proceeds
from the vehicle sales, or we may keep the proceeds up to the amount of the
towing and storage fees and pay the remainder to the municipality or law
enforcement agency. We provide these services in some cases under contracts
with municipalities or police, sheriff and highway patrol departments. In other
cases, we provide these services to municipalities or law enforcement agencies
without a long-term contract. The prices we charge for towing and storage of
impounded vehicles for municipalities or law enforcement agencies are limited
by contractual provisions or local regulation.
Our cost of revenue consists primarily of the following:
. salaries and benefits of drivers, dispatchers, supervisors and other
employees;
. fees charged by subcontractors;
. fuel;
. depreciation, repairs and maintenance;
. insurance;
. parts and supplies;
. other vehicle expenses; and
. equipment rentals.
17
<PAGE>
Our selling, general and administrative expenses consist primarily of the
following:
. compensation and benefits to sales and administrative employees;
. fees for professional services;
. depreciation of administrative equipment and software;
. advertising; and
. other general office expenses.
In the case of law enforcement and private impound towing, we are paid either
by the owner of the impounded vehicle when the owner claims the vehicle or from
the proceeds of lien sales or auctions. With respect to our other operations,
we bill customers upon completion of our services, with payment due within 30
days. We recognize revenue as follows:
. towing revenue is recognized at the completion of each towing engagement;
. transport and recovery revenue is recognized upon the delivery of the
vehicle or equipment to its final destination; and
. revenue from auction sales is recorded when title to the vehicles has
been transferred.
We recognize expenses related to the generation of revenue as they are
incurred.
At the time of our initial public offering in May 1998, we acquired the seven
Founding Companies. Between May 6, 1998 and December 31, 1998, we acquired a
total of 34 additional motor vehicle and equipment towing, recovery and
transport service businesses for aggregate consideration of approximately $79.6
million in cash, 2,918,608 shares of Common Stock and the assumption of
approximately $23.2 million of indebtedness.
Due to the number of acquisitions we have completed to date, this management's
discussion and analysis addresses both our historical and pro forma results of
operations and financial condition. The historical discussion addresses our
actual results of operations as shown in our financial statements for the nine
months ended September 30, 1998 and the year ended December 31, 1997 (our first
year of operations). The historical results for the nine months ended September
30, 1998 include the results of all businesses we acquired prior to September
30, 1998 from their respective dates of acquisition.
The pro forma discussion addresses our results of operations for the nine
months ended September 30, 1998 and the year ended December 31, 1997, assuming
that we acquired the Founding Companies and the Selected Acquired Companies on
January 1, 1997, with certain pro forma adjustments as described in the notes
to the Unaudited Pro Forma Combined Financial Statements contained elsewhere in
this prospectus. The pro forma results of operations are not necessarily
indicative of the results we would have obtained had we actually acquired these
businesses on January 1, 1997 or of the Company's future results.
If all of the companies that we have acquired since inception were to be
included in our pro forma results of operations as if these acquisitions had
occurred on January 1, 1997, our net sales, net
18
<PAGE>
income and diluted net income per share for the year ended December 31, 1997
and the nine months ended September 30, 1998 would have been:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
1997 SEPTEMBER 30, 1998
------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net revenue............................... $155,807 $140,726
======== ========
Net income................................ $ 6,344 $ 7,515
======== ========
Diluted net income per share.............. $ 0.53 $ 0.63
======== ========
</TABLE>
All of the acquisitions that we have completed have been accounted for using
the purchase method of accounting. As a result, the amount by which the fair
value of the consideration we paid in the acquisitions exceeds the fair value
of the net assets we bought ($88.7 million), has been recorded as goodwill.
This goodwill will be amortized over its estimated useful life of 40 years as a
non-cash charge to operating income.
The results of operations of the Founding Companies and the Selected Acquired
Companies reflect different tax structures (S corporations or C corporations)
which have influenced the historical level of owner compensation. Gross profit
margins and selling, general and administrative expenses as a percentage of net
revenue may not be comparable among the various acquired companies. Owners of
such companies have agreed to certain reductions in their compensation and
benefits in connection with our acquisition of their business. The aggregate
amount of such reductions, had they been in effect in 1997, would have been
$6.7 million and the aggregate amount of such reductions, had they been in
effect during the nine months ended September 30, 1998, would have been $3.5
million. These reductions have been reflected as adjustments in the Unaudited
Pro Forma Combined Statement of Operations.
RESULTS OF OPERATIONS
PRO FORMA RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Revenue. Pro forma net revenue was $129.4 million for the nine months ended
September 30, 1998. Pro forma cost of revenue was $90.3 million for the nine
months ended September 30, 1998, or 69.8% of pro forma net revenue. The growth
in pro forma revenue reflects the results of all businesses acquired since the
date of acquisition. The most significant component of pro forma cost of
revenue consisted of labor and subcontractor costs. Pro forma gross profit was
$39.1 million for the nine months ended September 30, 1998, or 30.2% of pro
forma net revenue.
Selling, General and Administrative Expenses. Pro forma selling, general and
administrative expenses were $20.2 million for the nine months ended September
30, 1998, or 15.6% of pro forma net revenue. The most significant component of
pro forma selling, general and administrative expenses consisted of
administrative salaries and benefits. Pro forma amortization of goodwill was
$3.0 million, or 2.3% of pro forma net revenue. These expenses resulted in pro
forma income from operations of $15.9 million, or 12.3% of pro forma net
revenue, for the nine months ended September 30, 1998. Pro forma other
expenses, net were $2.9 million, or 2.2% of pro forma net revenue, for the nine
months ended September 30, 1998.
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Income Tax Expense. Pro forma income tax expense was $6.1 million, or 4.7% of
pro forma net revenue, for the nine months ended September 30, 1998.
Net Income. Pro forma net income was $7.0 million, or 5.4% of pro forma net
revenue, for the nine months ended September 30, 1998.
PRO FORMA RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997
Net Revenue. Pro forma net revenue was $143.3 million for the year ended
December 31, 1997. Pro forma cost of revenue was $101.1 million for the year
ended December 31, 1997, or 70.5% of pro forma net revenue. The most
significant component of pro forma cost of revenue consisted of labor and
subcontractor costs. Pro forma gross profit was $42.3 million for the year
ended December 31, 1997, or 29.5% of pro forma net revenue.
Selling, General and Administrative Expenses. Pro forma selling, general and
administrative expenses were $22.9 million for the year ended December 31,
1997, or 16.0% of pro forma net revenue. The most significant component of pro
forma selling, general and administrative expenses consisted of administrative
salaries and benefits. Pro forma amortization of goodwill was $3.8 million, or
2.6% of pro forma net revenue. These expenses resulted in pro forma income from
operations of $15.6 million, or 10.9% of pro forma net revenue, for the year
ended December 31, 1997. Pro forma other expenses, net were $3.8 million, or
2.7% of pro forma net revenue, for the year ended December 31, 1997.
Income Tax Expense. Pro forma income tax expense was $5.9 million, or 4.1% of
pro forma net revenue, for the year ended December 31, 1997.
Net Income. Pro forma net income was $5.8 million, or 4.1% of pro forma net
revenue, for the year ended December 31, 1997.
HISTORICAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Revenue. Net revenue was $44.8 million for the nine months ended September
30, 1998. Cost of revenue was $32.1 million, or 71.5% of net revenue, for the
nine months ended September 30, 1998, consisting primarily of $17.0 million in
labor and subcontractor costs. This resulted in a gross profit of $12.8
million, or 28.5% of net revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $7.6 million, or 16.9% of net revenue, for the
nine months ended September 30, 1998. These expenses consisted primarily of
$3.9 million in salary and wages and resulted in income from operations of $4.3
million, or 9.6% of net revenue. Other income (expense) was $89,000, or 0.2% of
net revenue, for the nine months ended September 30, 1998.
HISTORICAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997
No net revenue or cost of revenue was generated for the period July 25, 1997
(inception) through December 31, 1997. Selling, general and administrative
expenses were $174,000 for this period. No
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other income (expense) or tax benefit were generated, resulting in a net loss
of $174,000 for the period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, we had approximately:
. $2.3 million of cash and cash equivalents,
. $1.2 million of working capital, and
. $29.9 million of outstanding indebtedness.
In the nine months ended September 30, 1998, we (i) generated $4.8 million of
cash from operations, primarily due to increases in our accounts payable and
accrued expenses, (ii) used $98.4 million of cash in investing activities
(primarily relating to acquisitions of businesses) and (iii) used $95.8 million
of cash in financing activities. Our financing activities consisted of
reductions in long-term debt and capital lease obligations of $20.6 million.
These amounts were offset by cash proceeds from issuance of stock and debt, net
of $117.0 million.
We have a credit facility with a group of banks that enables us to borrow up to
$90.0 million on a revolving basis. The credit facility terminates in October
2001, at which time all outstanding indebtedness will be due. Borrowings under
the credit facility accrue interest, at our option, at either (a) the base rate
(which is equal to the greater of (i) the federal funds rate plus 0.5% and (ii)
Bank of America's reference rate), or (b) the eurodollar rate (which is equal
to Bank of America's reserve adjusted eurodollar rate plus a margin ranging
from 1.5% to 2.5% per annum).
Our obligations under the credit facility are guaranteed by each of our
subsidiaries. Our obligations and the obligations of our subsidiaries under the
credit facility and related guarantees are secured by substantially all of our
assets, the assets of our subsidiaries and the stock of our subsidiaries. Under
the credit facility we must comply with various loan covenants, including
maintenance of certain financial ratios, restrictions on additional
indebtedness, and restrictions on liens, guarantees, advances and dividends. In
addition, our ability to borrow under the credit facility is subject to
customary drawing conditions. The credit facility also requires prior approval
by the banks of certain acquisitions. As we borrow amounts under the credit
facility to finance capital expenditures, our interest expense will increase.
In connection with the credit facility, we issued to Bank of America a warrant
to purchase 117,789 shares of Common Stock at an exercise price of $13.00 per
share subject to adjustment as provided in the Warrant Agreement. The warrant
expires on June 16, 2003.
On November 19, 1998, we entered into a Purchase Agreement with Charterhouse
providing for the issuance to Charterhouse of up to $75 million aggregate
principal amount of Debentures. The Debentures are convertible into our Common
Stock at any time, at Charterhouse's option, at an initial exercise price of
$15.00 per share, subject to adjustment as provided in the Purchase Agreement.
The conversion price exceeded the fair market value of the Common Stock on the
date of execution of the Purchase Agreement. Following five years after the
date of first issuance, the Debentures are redeemable at our option at 100% of
their principal amount if the average closing price of our Common Stock exceeds
150% of the conversion price over a thirty day period. We issued $43.5 million
aggregate principal amount of Debentures to Charterhouse at a first closing on
December 7, 1998. Issuance of the remaining $31.5 million aggregate principal
amount of Debentures to Charterhouse is subject to approval of our
stockholders. The Debentures bear interest
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at a rate of 8% annually, payable in kind for the first five years following
issuance, and thereafter either in kind or in cash, at our discretion. Pursuant
to the Purchase Agreement, we have agreed to pay Charterhouse a fee of 1% of
the principal amount of the Debentures issued at each closing. We have also
agreed to pay certain fees and expenses incurred by Charterhouse in connection
with the transaction.
Our accounting and financial reporting activities are centralized at our
headquarters in Albany, New York. In addition, we are in the process of
developing a national dispatch system for our transport operations. As of
September 30, 1998, we had spent approximately $3.2 million to install our
integrated information system. Although we expect that we will need to upgrade
and expand this system in the future, we cannot currently quantify the amount
that we will need to spend to do so.
The Founding Companies spent an aggregate of $2.4 million on purchases of
property and equipment, including towing, recovery and transport vehicles,
during the three months ended March 31, 1998. We spent $5.1 million on
purchases of property and equipment (including amounts spent in connection with
installation of the integrated information system) during the nine months ended
September 30, 1998. We expect to make capital expenditures of an additional
$3.9 million during the remainder of 1998. We expect to fund these expenditures
from earnings and related cash flow.
Between May 6, 1998, when we completed our initial public offering and the
acquisitions of the Founding Companies and December 31, 1998, we acquired 34
other motor vehicle and equipment towing, recovery and transport businesses for
aggregate consideration of $79.6 million in cash, 2,918,608 shares of Common
Stock and the assumption of approximately $23.2 million of indebtedness. We
funded the cash portion of these acquisitions through proceeds from the initial
public offering and long term borrowings under our credit facility. We have
entered into a definitive agreement to acquire MPG Transco, Ltd., for aggregate
consideration of approximately $29.5 million, consisting of approximately $10.4
million in cash, 996,351 shares of Common Stock and the assumption of
approximately $4.4 million of indebtedness.
We intend to continue to pursue acquisition opportunities and to expand through
internal growth. We expect to fund future acquisitions and our ongoing
liquidity needs through the issuance of additional Common Stock, borrowings,
including use of amounts available under the credit facility, and cash flow
from operations.
YEAR 2000 COMPLIANCE
There has been a great deal of public discussion regarding the possibilities of
a "year 2000 problem." The issue arises because many existing computer programs
only use the last two digits to refer to a year and therefore do not properly
recognize that a year that ends with "00" (i.e. "2000") should follow the year
that ends with "99" (i.e. "1999"). If not corrected, it is possible that many
computer applications will fail or create errors. No one knows the extent of
the potential impact of the year 2000 problem generally.
We have taken a variety of steps in an effort to assess our readiness for this
year 2000 situation. We have considered whether we will have a year 2000
problem with regard to:
National Operations. We have recently centralized our accounting and financial
reporting activities at our headquarters in Albany, New York. The software that
we have implemented in this regard is
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year 2000 compliant. In addition, in order to make our transport operations
more efficient, we are in the process of developing a national dispatch system
to replace the local systems that are currently in use. The proposed national
transport system is year 2000 compliant and we expect that it will be installed
prior to January 1, 2000. If an unforseeable event were to make us unable to
install the national transport system by 2000, we would need to rely on our
local transport dispatch systems, which we believe may not be year 2000
compliant. If the local transport systems become inoperable, we expect that we
will be able to manually perform such functions, although not as efficiently.
We cannot now predict the likelihood, extent or impact of such effects on our
results of operations or financial condition. Our payroll operations are
managed by a national payroll processor which has informed us that they are
year 2000 compliant.
Local Operations. Certain of the operating functions of some of the companies
we have acquired are computerized. We have reviewed these systems and
determined that some are not year 2000 compliant. In order to make our
operations more efficient (and to address year 2000 issues) we intend to
replace all of the local operating systems with standardized operational
software which will be year 2000 compliant. We expect this replacement to be
completed by January 1, 2000. In the event that we are not able to install new
software, we would need to rely on our existing systems. While the computerized
systems make us more efficient, if they become inoperable, we believe we can
manually perform all necessary functions, although not as efficiently. We
cannot now predict the likelihood, extent or impact of such effects on our
results of operations or financial condition.
Vendors and Customers. We are currently developing a plan to review with our
significant vendors, customers and financial institutions their individual year
2000 compliance. Such a review has not yet been formally commenced. As a
result, it is difficult to predict the impact that year 2000 problems at our
vendors, customers or financial institutions will have on us.
As of September 30, 1998, we had spent approximately $3.2 million to install
our integrated information system. We are not now able to estimate the costs we
will incur to fully install our national transport system or to replace our
local operating systems. Other than ensuring that our centralized systems are
year 2000 compliant, given that our operations and our interactions with our
vendors and customers have historically been conducted in a substantially
manual mode, we have not developed a contingency plan to guide our responses to
year 2000 problems when they may arise. We intend to continue to examine the
year 2000 issue as it potentially impacts us and will develop a contingency
plan if we believe one is necessary. We cannot predict the likelihood that year
2000 problems will cause a significant disruption in the economy as a whole.
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BUSINESS
We were formed in July 1997 to become a leading national provider of motor
vehicle and equipment towing, recovery and transport services. At the time of
our initial public offering in May 1998 we acquired the seven Founding
Companies. Between May 6, 1998 and December 31, 1998, we acquired a total of 34
additional businesses. Among the companies we acquired were E&R, which we
acquired on August 21, 1998 for an aggregate purchase price of approximately
$26.0 million, consisting of approximately $22.8 million in cash and $3.2
million in shares of Common Stock, and Pilot, which we acquired on December 9,
1998 for an aggregate purchase price of approximately $25.8 million, consisting
of approximately $12.8 million in cash and $13.0 million in shares of Common
Stock. We believe that we are now one of the largest providers of motor vehicle
and equipment towing, recovery and transport services in the United States.
We offer a broad range of towing, recovery, transport and related services,
including:
. towing, impounding and storing motor vehicles;
. conducting lien sales and auctions of abandoned vehicles;
. recovering heavy-duty commercial vehicles; and
. transporting new and used vehicles and heavy construction equipment.
We derive revenue from towing, recovery and transport services based on
distance, time or fixed charges and from related impounding and storage fees.
If impounded vehicles are not claimed by their owners within certain time
periods, we are entitled to be paid from the proceeds of lien sales or
auctions.
Our customers include:
. commercial entities, such as automobile leasing companies and insurance
companies;
. automobile auction companies;
. automobile dealers;
. repair shops and fleet operators;
. municipalities;
. law enforcement agencies such as police, sheriff and highway patrol
departments; and
. individual motorists.
THE INDUSTRY
We estimate that motor vehicle and equipment towing and transport services
generated net revenue in excess of $14 billion in the United States in 1997.
Based on available data, we believe that there are over 36,000 motor vehicle
and equipment towing and transport businesses in the United States, most of
which are small, local and owner-operated, with limited access to capital for
modernization and expansion.
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We believe that the demand for towing, recovery and transport services has been
impacted by the following factors:
. an increase in the number and average age of registered vehicles, which
increases the demand for all types of towing, recovery and transport
services;
. a rise in government mandates (and increased enforcement of such
mandates) against unlicensed or uninsured drivers and unregistered
vehicles, which results in higher demand for towing and impounding
services;
. the growing popularity of leasing (which, according to the National
Automobile Dealers Association, has risen from 5% of all new auto sales in
1985 to 30% in 1996) which increases the demand for transport services to
move off-lease vehicles to auctions and dealers for sale; and
. the increasing mobility of the United States workforce, which increases
demand for automobile transport in connection with career-related moves.
STRATEGY
We believe there are significant opportunities for a national provider of
towing, recovery and transport services with high quality service, to increase
revenue and profitability by expanding its scope of services and customer base,
achieving operating efficiencies and expanding through acquisitions. As certain
areas within the automobile industry experience growth and consolidation, such
as new and used automobile dealerships, rental car companies and automobile
auction companies, we believe that the demand will increase for a provider of
towing, recovery and transport services with the resources and geographic
coverage to serve the expanding needs of these businesses. We further believe
that effective implementation of our operating and acquisition strategies as
described below will position us to secure operating and competitive advantages
over smaller competitors.
We also believe that the fragmented nature of the towing, recovery and
transport markets presents an attractive opportunity for consolidation. Our
management team includes executives with experience in implementing acquisition
programs and effectively integrating acquired businesses as well as local
managers who have significant contacts and experience in towing, recovery and
transport services. We believe that this combination and the fragmented nature
of the towing, recovery and transport markets provides us with the capability
and opportunity to implement an effective consolidation strategy.
OPERATING STRATEGY
. Provide High Quality Service. We believe that timely, professional and
dependable service is the primary generator of repeat towing, recovery and
transport service business. We intend to continue to implement proven
practices throughout our operations in areas such as dispatching technology,
driver training and professionalism, preventive maintenance and safety. By
doing this we intend to continue to offer high quality service to all of our
customers.
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. Expand Scope of Services and Customer Base. We intend to continue to expand
the scope of our services by introducing certain capabilities of businesses we
acquire into other markets where we believe such services can be successfully
marketed. For example, we intend to capitalize on our lien sale and auction
experience by using such practices at selected acquired operations that have
not offered such services in the past. We believe that our size and financial
and other resources will permit us to attract customers and contracts that
require greater towing, recovery, transporting and storage capabilities than
those possessed by local owner-operators. We intend to utilize our geographic
diversity to pursue additional business from new and existing customers that
operate on a regional or national basis, such as leasing companies, insurance
companies and automobile auction companies. We also will seek to develop
additional capabilities and services to complement our existing operations.
For example, as a key part of our development of a national network of
transport operations, we intend to establish regional marshalling yards, which
will enable us to collect vehicles in one location and allocate them to
particular transport vehicles and routes to maximize asset utilization.
. Achieve Operating Efficiencies. We will seek to achieve operating
efficiencies though improved asset utilization by implementing a "hub-and-
spoke" strategy within identified towing markets, with a centralized "hub" for
management, dispatch and maintenance operations that supports multiple
satellite truck and impound yards. We believe that this strategy will allow us
to provide timely service throughout a particular market, while also enabling
us to consolidate certain duplicative dispatch systems and facilities. By
doing this we expect to spread certain fixed costs over a larger vehicle
fleet. We also expect to continue to realize cost savings by continuing to
centralize certain administrative functions at our headquarters in Albany, New
York. Such functions include insurance, employee benefits, accounting and risk
management. We also intend to use our purchasing power to seek improved
pricing in areas such as fuel, vehicles and parts.
. Maintain Local Expertise. We anticipate that management of companies that we
have acquired and companies that we acquire in the future will continue to
maintain local control of their daily operations. We believe that this
strategy allows us to take advantage of the local and regional market
knowledge, name recognition and customer relationships possessed by each
business we acquire.
ACQUISITION STRATEGY
. Enter New Geographic Markets. As part of our "hub-and-spoke" operating
strategy, we intend to acquire established, high-quality companies in markets
where we can establish a leading market position to serve as our "hubs" into
which additional operations may be consolidated. We also intend to acquire
transport businesses with complementary transport routes and capabilities in
markets across North America in order to create an integrated national
transport network. We further believe that by virtue of our regional towing
and storage operations we will accumulate many vehicles that need to be
delivered to auctions, repair shops or scrap metal facilities. As a result,
we expect these operations will feed our transport services.
. Expand Within Existing Geographic Markets. Once we have established a core
presence in a market, we will seek to strengthen our market position by
buying other large companies that offer similar services. We will also pursue
"tuck-in" acquisitions of smaller companies, whose
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businesses can be integrated into our operations, thereby using our existing
infrastructure over a broader vehicle fleet and revenue base. In addition,
we may seek to vertically integrate our operations by buying businesses
which offer complementary services that we do not currently offer. In cases
where acquired companies have developed local and regional goodwill and
customer relationships, we will continue to maintain the existing business
names and identities.
We believe that businesses we seek to buy will regard us as an attractive
acquirer because of the following factors:
. our strategy for creating a national, comprehensive and professionally
managed towing, recovery and transport service company;
. our decentralized operating strategy, which emphasizes an ongoing role
for owners, management and key personnel of the businesses we buy, as
well as meaningful equity positions for these people which will enable
them to participate in our growth;
. our visibility and access to financial resources as a public company; and
. the potential for increasing the profitability of the businesses we buy
as a result of our centralization of administrative functions, access to
increased marketing resources and purchasing economies.
As consideration for our acquisitions, we intend to continue to use a
combination of Common Stock, cash and debt. The consideration for each future
acquisition will vary on a case-by-case basis, with the major factors in
establishing the purchase price being the historical operating results and
future prospects of the business to be bought and the ability of that business
to complement the services we offer.
OPERATIONS AND SERVICES PROVIDED
We provide a broad range of towing, recovery and transport services for a
diverse group of commercial, governmental and individual customers. Towing,
recovery and transport services typically begin with a telephone call
requesting assistance or transport. The call may come from a law enforcement
officer, a commercial fleet dispatcher, a private business or an individual.
The dispatcher records the relevant information regarding the vehicle to be
towed, recovered or transported, checks the location and status of our vehicle
fleet (typically using a computerized positioning system) and assigns the job
to a particular vehicle. The driver collects the vehicle and tows or
transports it to one of several locations, depending on the nature of the
customer.
Municipality and Law Enforcement Agency Towing. We provide towing services to
various municipalities and law enforcement agencies. In this market, vehicles
are typically towed to one of our facilities where the vehicle is impounded
and placed in storage. The vehicle remains in storage until its owner pays us
the towing fee (which is typically based on an hourly charge) and any daily
storage fees, and pays any fines due to the municipality or law enforcement
agency. If the vehicle is not claimed within a period prescribed by law
(typically between 30 and 90 days), we complete lien proceedings and sell the
vehicle at auction or to a scrap metal facility, depending on the value of the
vehicle. Depending on the jurisdiction, we either may keep all of the proceeds
from vehicle sales, or keep proceeds up to the amount of towing and storage
fees and pay the remainder to the municipality or law enforcement agency. We
provide services in some cases under contracts with municipalities or
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police, sheriff and highway patrol departments, typically for terms of five
years or less. Such contracts often may be terminated for material breach and
are typically subject to competitive bidding upon expiration. In other cases,
we provide these services to municipalities or law enforcement agencies without
a long-term contract. Whether pursuant to a contract or an ongoing
relationship, we generally provide these services for a designated geographic
area, which may be shared with one or more other companies.
New and Used Automobile Transport. We provide new and used automobile transport
services to leasing companies, automobile manufacturers, automobile dealers,
automobile auction companies, long-distance transporters, brokers and
individuals. We typically provide services as needed by a customer and charge
the customer according to pre-set rates based on mileage. We transport large
numbers of vehicles from automobile auctions (where off-lease vehicles are
sold) to individual dealers. In addition, we provide transport services for
dealers who transfer new cars from one region to another and local collection
and delivery support to long-haul automobile transporters.
Insurance Salvage Towing. We provide insurance salvage towing services to
insurance companies and automobile auction companies for a per-vehicle fee
based on the towing distance. This business involves secondary towing, since
the vehicles involved typically have already been towed to a storage facility.
For example, after an accident, a damaged or destroyed vehicle is usually towed
to a garage or impound yard. Our insurance salvage towing operations collect
these towed vehicles and deliver them to repair shops, automobile auction
companies or scrap metal facilities as directed by the customer.
Private Impound Towing. We provide impound towing services to private
customers, such as shopping centers, retailers and hotels, which engage us to
tow vehicles that are parked illegally on their property. As in law enforcement
agency towing, we generate revenues through the collection of towing and
storage fees from vehicle owners, and from the sale of vehicles that are not
claimed.
Commercial Road Service. We provide road services to a broad range of
commercial customers, including automobile dealers and repair shops. We
typically charge a flat fee and a mileage premium for these towing services.
Commercial road services also include towing and recovery of heavy-duty trucks,
recreational vehicles, buses and other large vehicles, typically for commercial
fleet operators. We charge an hourly rate based on the towing vehicle used for
these specialized services.
Heavy Equipment Transport. We provide heavy equipment transport services to
construction companies, contractors, municipalities and equipment leasing
companies. We base our service fees on the vehicle used and the distance
traveled.
Consumer Road Service. We also tow disabled vehicles for individual motorists
and national motor clubs. We generally tow such vehicles to repair facilities
for a flat fee paid by either the individual motorist or the motor club.
SALES AND MARKETING; CUSTOMERS
We believe that our commitment to consistent high quality service has provided
long-term relationships with many existing customers. We believe that this
positions us to expand market penetration through the use of enhanced sales and
marketing efforts. Prior to joining our company,
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the companies we have acquired have largely focused on building and maintaining
personal relationships with customers, while also using limited print
advertising in newspapers and industry periodicals. We intend to focus our
marketing efforts on large governmental and commercial accounts, including
leasing companies, insurance companies and law enforcement agencies. We also
intend to augment the capabilities and contacts of the owners and general
managers of the businesses we have bought with a sales program designed to
identify significant target customers and to expand working relationships with
existing customers.
Although we generally have a diverse customer base, one customer, General
Motors Corporation ("GM"), accounted for approximately 11% of our pro forma
combined net revenue in 1997 and approximately 13% of our pro forma combined
net revenue in the nine months ended September 30, 1998. We expect that GM will
continue to account for a significant percentage of our revenue for the
foreseeable future. The loss of a significant customer, including GM, could
have a material adverse effect on our business financial condition and results
of operations.
DISPATCH AND INFORMATION SYSTEMS
Each of the companies we have acquired operates a local dispatch system to
assign individual towing, recovery and transport vehicles to particular service
calls. Some of these companies use computerized positioning systems which
identify and track vehicle location and status. This decreases response times
and increases asset use. We are in the process of implementing a national
dispatch system to support our transport operations and intend to explore the
possibility of building regional towing dispatch systems in identified markets
where we have established a leading market position.
Our accounting and financial reporting activities are centralized at our
headquarters in Albany, New York. We anticipate that we will need to upgrade
and expand our information technology systems on an ongoing basis as we expand
our operations and complete acquisitions.
For a discussion of year 2000 issues as they relate to our systems and our
operations, you should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
COMPETITION
The market for towing, recovery and transport services is extremely
competitive. Competition is based primarily on quality, service, timeliness,
price and geographic proximity. We compete with certain large companies on a
regional and local basis, some of which may have greater financial and
marketing resources than we have. We also compete with thousands of smaller
local companies, which may have lower overhead cost structures than we have and
may, therefore, be able to provide their services at lower rates than we can.
We may also face competition for businesses we seek to buy from companies which
are attempting to consolidate towing, recovery or transport service providers.
Some of our competitors may be better
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positioned than we are to finance acquisitions, to pay higher prices for the
businesses we pursue or to finance their internal operations.
We believe that we are able to compete effectively because of our high quality
service, geographic scope, broad range of services offered, experienced
management and operational economies of scale. We seek to differentiate
ourselves from our competition in terms of service and quality by investing in
training, systems and equipment and by offering a broad range of products and
services. We also seek to differentiate ourselves in terms of timeliness and
geographic proximity by establishing facilities and vehicles in targeted
geographic markets so that we are positioned to provide timely responses to
service calls.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Towing, recovery and transport services are subject to various federal, state
and local laws and regulations regarding equipment, driver certification,
training and recordkeeping, and workplace safety. Our vehicles and facilities
are subject to periodic inspection by the United States Department of
Transportation and similar state and local agencies. Our failure to comply with
such laws and regulations could subject us to substantial fines and could lead
to the closure of operations that are not in compliance. In addition, certain
government contracting laws and regulations may effect our ability to acquire
complementary businesses in a given city or county. Companies providing towing,
recovery and transport services are required to have numerous federal, sate and
local licenses and permits. When we buy such companies, we must transfer or
apply for such licenses and permits in order to conduct the business. Any
failure to obtain such licenses and permits or any delay in our receipt of such
licenses and permits could have a material adverse effect on our business,
financial condition and results of operations.
Our operations are subject to a number of federal, state and local laws and
regulations relating to the storage of petroleum products, hazardous materials
and impounded vehicles, as well as safety regulations relating to the upkeep
and maintenance of our vehicles. In particular, our operations are subject to
federal, state and local laws and regulations governing leakage from salvage
vehicles, waste disposal, the handling of hazardous substances, environmental
protection, remediation, workplace exposure and other matters. We believe that
we are in substantial compliance with all such laws and regulations. We do not
currently expect to spend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety
requirements. It is possible that an environmental claim could be made against
us or that we could be identified by the Environmental Protection Agency, a
state agency or one or more third parties as a potentially responsible party.
If we are subject to such a claim or are so identified, we may incur
substantial investigation, legal and remediation costs. Such costs could have a
material adverse effect on our business, financial condition and results of
operations.
SAFETY AND TRAINING
We use a variety of programs to improve safety and promote an accident-free
environment. These programs include regular driver training and certification,
drug testing and safety bonuses. These programs are designed to ensure that all
employees comply with our safety standards, our insurance
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carriers' safety standards and federal, state and local laws and regulations.
We believe that our emphasis on safety and training will assist us in
attracting and retaining quality employees.
FACILITIES AND VEHICLES
As of December 31, 1998, we operated approximately 59 facilities to (i) garage,
repair and maintain towing, recovery and transport vehicles, (ii) impound and
store towed vehicles and (iii) conduct lien sales and auctions. All of our
facilities are leased from other parties. Many of our facilities can be used at
higher capacities, if necessary. We will seek to consolidate facilities and
vehicle storage capacity in the future where appropriate.
As of December 31, 1998, we operated a fleet of approximately 1,100 towing,
recovery and transport vehicles, which we believe are generally well-maintained
and adequate for our current operations.
RISK MANAGEMENT, INSURANCE AND LITIGATION
Our primary liability risks include bodily injury, property damage, workers'
compensation claims and, potentially, environmental and land use claims. We
maintain insurance on a company-wide basis, subject to customary deductibles.
Although, from time to time, we are a party to litigation arising in the
ordinary course of business (most of which involve claims for personal injury
or property damage incurred in connection with our operations) we are not
currently involved in any litigation that we believe will have a material
adverse effect on our business, financial condition or results of operations.
EMPLOYEES
As of December 31, 1998, we had approximately 1,750 employees and used
approximately 400 independent contractors. None of our employees are members of
unions.
31
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the name, age and position of our directors and
officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Edward T. Sheehan................ 56 Chairman of the Board, Chief Executive Officer and Secretary
Allan D. Pass.................... 49 President and Chief Operating Officer
Donald J. Marr................... 40 Senior Vice President and Chief Financial Officer
Robert J. Adams, Jr. ............ 36 Senior Vice President and Chief Acquisition Officer
Edward W. Morawski............... 50 Vice President and Director
Robert L. Berner, III............ 37 Director
Merril M. Halpern................ 64 Director
Grace M. Hawkins................. 53 Director
Richard A. Molyneux.............. 48 Director
Donald F. Moorehead, Jr.......... 48 Director
Todd Q. Smart.................... 33 Director
Mark J. Henninger................ 41 Director
</TABLE>
- ---------------------
Edward T. Sheehan has served as our Chairman of the Board and Chief Executive
Officer since October 1997. Mr. Sheehan was President of United Waste Systems,
Inc. ("United") from December 1992 to August 1997, and Chief Operating Officer
of United from 1994 to August 1997, when United was sold to USA Waste Services,
Inc. ("USA Waste"). He was Senior Vice President and Chief Financial Officer of
Clean Harbors, Inc., a publicly-held environmental services company, from
September 1990 to April 1992. From 1966 to 1990, Mr. Sheehan held several
financial and operating positions with General Electric Company ("GE"),
including Manager--Finance for GE's power generation service businesses,
factory automation operations and Europe, Africa and Middle East Divisions. Mr.
Sheehan currently serves as a director of Gundle/SLT Environmental, Inc., an
environmental products company.
Allan D. Pass, Ph.D has served as our President and Chief Operating Officer
since September 1998. From January 1998 until September 1998, he served as our
Senior Vice President and Chief Operating Officer. From 1986 until February
1998, Dr. Pass served as the Chief Executive Officer and President of National
Behavioral Science Consultants, Inc., a consulting firm specializing in
innovative productivity and profitability enhancement and human resource
programs. From September 1991 until June 1995, Dr. Pass also served as a
Corporate Vice President for Chambers Development Corporation.
Donald J. Marr has served as our Senior Vice President and Chief Financial
Officer since January 1998. From 1986 through 1997, he held a series of
management positions with KeyCorp, most recently as Senior Vice President,
Planning and Analysis. From January 1984 to October 1986, he held various
positions at the accounting firm of Coopers & Lybrand. Mr. Marr is a certified
public accountant.
Robert J. Adams, Jr. has served as our Senior Vice President and Chief
Acquisition Officer since June 1998. From February 1998 to May 1998, Mr. Adams
provided acquisition-related consulting services to the Company. From April
1996 through January 31, 1998, Mr. Adams served as a Manager of Corporate
Development for Republic Industries, Inc. From October 1995 through March 1996,
Mr. Adams was employed by RJA, Inc. and from June 1990 through September 1995
he was employed by Waste Management, Inc. as an operations manager.
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<PAGE>
Edward W. Morawski has served as our Vice President and a director since May
1998. Mr. Morawski founded Northland Auto Transporters, Inc. and Northland
Fleet Leasing, Inc. ("Northland"), one of the Founding Companies, in 1977 and
served as its President from inception until its acquisition by the Company in
May 1998.
Robert L. Berner, III has been a director since December 1998. Mr. Berner is a
Managing Director of Charterhouse and a member of its Investment Committee. Mr.
Berner joined Charterhouse in January 1997. From 1986 through December 1996, he
was a Principal in the Merger and Acquisitions Department at Morgan Stanley &
Co. Mr. Berner is on the Board of Directors of Cellu-Tissue Holdings, Inc., a
manufacturer of specialty paper, United Design Inc., a manufacturer of giftware
and home accessories and Wham-O, Inc., a marketer of classic toys.
Merril M. Halpern has been a director since December 1998. Mr. Halpern founded
Charterhouse Group International, Inc. in 1973 and serves as its Chairman of
the Board and Chief Executive Officer. Mr. Halpern is also a director of
Microwave Power Devices, Inc., a manufacturer of highly linear power amplifiers
primarily for the wireless telecommunications market; NetCare Health Systems,
Inc., an integrated health provider network; Mennen Medical Ltd., a
manufacturer of medical equipment; Cellu-Tissue Holdings, Inc., a manufacturer
of specialty papers; and Sage Networks, Inc., which consolidates businesses
serving the web-hosting segment of the Internet.
Grace M. Hawkins has been a director since May 1998. Since 1991, Ms. Hawkins
has been President of Lotus Publications, Inc., a publishing company
specializing in marketing for the transportation industry. From 1985 to 1991,
she served as President of T.T. Publications, Inc., a magazine publisher. She
has authored numerous articles relating to the towing industry.
Richard A. Molyneux has been a director since June 1998. Since March 1998, Mr.
Molyneux has been a partner of MCT L.L.C. From 1975 through 1997, Mr. Molyneux
served in various executive positions with KeyBank, National Association, and
its affiliates, most recently as Chief Executive Officer.
Donald F. Moorehead, Jr. has been a director since May 1998. Since August 1997,
Mr. Moorehead has served as a consultant to USA Waste, the largest solid waste
management company in the United States. Since June 1, 1998, Mr. Moorehead has
also served as Chairman and Chief Executive Officer of EarthCare Co., a liquid
waste management company. From June 1995 to August 1997, he served as Vice
Chairman and Chief Development Officer of USA Waste. From October 1990 to June
1995, he served as USA Waste's Chairman, and from October 1990 to May 1994, he
also served as its Chief Executive Officer. From 1985 to 1990, Mr. Moorehead
was Chairman and Chief Executive Officer of Mid-American Waste Services, Inc.
Mr. Moorehead currently serves as a director of FYI, Inc., a document
reproduction and storage company, and EarthCare Co. Group, Inc.
Todd Q. Smart has been a director since May 1998. Mr. Smart also provides us
with acquisition-related consulting services. In 1987, Mr. Smart founded
Absolute Towing and Transporting, Inc. ("Absolute"), one of the Founding
Companies, and served as its President from inception until we acquired it in
May 1998. Since June 1998, Mr. Smart has operated an official police garage in
the City of Los Angeles.
33
<PAGE>
Mark J. Henninger has been a director since August 14, 1998. Mr. Henninger also
provides us with acquisition-related consulting services. Mr. Henninger founded
Keystone in 1991 and served as its President from inception until we acquired
it in August 1998.
In connection with the purchase by Charterhouse of $43.5 million aggregate
principal amount of Debentures in December 1998, the Board of Directors was
expanded from eight members to ten members and Messrs. Berner and Halpern, both
designees of Charterhouse, were appointed to fill the resulting vacancies on
the Board. If our stockholders approve the issuance of an additional $31.5
million aggregate principal amount of Debentures to Charterhouse, the Board of
Directors will be expanded to eleven members and an additional Charterhouse
designee will be added to the Board. Pursuant to the Purchase Agreement with
Charterhouse we agreed that we will not take any action that would require
stockholder approval without the approval of a majority of the Charterhouse
designees to the Board who are present at the relevant Board meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has an Audit Committee and a Compensation Committee. The
Audit Committee: (i) makes recommendations to the Board of Directors with
respect to the independent auditors who conduct the annual examination of our
accounts; (ii) reviews the scope of the annual audit and meets periodically
with our independent auditors to review their findings and recommendations;
(iii) approves major accounting policies or changes thereto; and (iv)
periodically reviews our principal internal financial controls. The
Compensation Committee reviews the compensation of our executive officers and
makes recommendations regarding such compensation to the Board of Directors.
COMPENSATION OF DIRECTORS
Certain directors who are not our employees or consultants are entitled to
receive (i) upon their election as a director and on the date of each annual
meeting of stockholders thereafter a grant of options to purchase 20,000 shares
of Common Stock at the fair market value on the date of grant and (ii) cash
compensation of approximately $2,500 for each meeting attended. Directors who
are our employees or consultants do not receive additional compensation for
serving as directors. All directors are reimbursed for expenses incurred in
attending meetings of the Board or its committees.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
We were incorporated in July 1997 and conducted no operations during 1997 other
than activities related to the acquisitions of the Founding Company and our
initial public offering. We did not pay any of our executive officers
compensation during 1997. We anticipate that during 1998 our most highly
compensated executive officers will be Messrs. Sheehan, Marr and Adams and Dr.
Pass.
We have entered into employment agreements with each of these executive
officers. Pursuant to such agreements, each executive is entitled to receive a
base salary and will be eligible to receive a performance bonus as determined
by the Board of Directors. The annual base salaries of the executives are as
follows: Mr. Sheehan--$200,000; Dr. Pass--$150,000; Mr. Adams--$140,000; and
Mr. Marr--$75,000. Each employment agreement has an initial term of three years
(beginning in February 1998 in the case of Mr. Sheehan, June 1998 in the case
of Mr. Adams and January 1998 in the case of Dr. Pass and Mr. Marr), unless
terminated by either party prior to the end of such initial
34
<PAGE>
term. Each agreement also may be terminated upon the death or disability of the
executive or by us for "cause" upon notice to the executive. The employment
agreements provide that if the executive is terminated without cause, he will
be paid a severance amount equal to his base salary for the following periods:
Mr. Sheehan--six months; Dr. Pass--two years; Mr. Marr--one year; and Mr.
Adams--one year. For purposes of such severance payments, a voluntary
termination of employment by Mr. Marr or Dr. Pass within six months after a
termination of employment of Mr. Sheehan for any reason constitutes a
termination without cause. Mr. Sheehan's employment agreement contains a
covenant not to solicit our employees or customers for a period of one year
after termination of his employment. The employment agreements of each of the
other executive officers contain covenants not to compete and covenants not to
solicit our employees or customers for a period of one year following
termination of the agreements.
1998 STOCK OPTION PLAN
Our 1998 Stock Option Plan is intended to provide our directors, officers,
employees and consultants with an opportunity to invest in our Common Stock and
to advance our interests and the interests of our stockholders by enabling us
to attract and retain qualified personnel. The 1998 Stock Option Plan provides
for the grant of incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, and nonqualified stock options.
The maximum number of shares of Common Stock that may be subject to options
granted under the 1998 Stock Option Plan may not exceed, in the aggregate,
1,278,885 shares. Shares of Common Stock that are attributable to grants that
have expired or been terminated, cancelled or forfeited are available for
issuance in connection with future grants. The Compensation Committee
administers the 1998 Stock Option Plan, makes awards of stock options to
executive officers and establishes the terms and conditions of such awards.
The authority to make awards of stock options to non-executives, and to
establish the terms and conditions of such awards, has been delegated to our
Chief Executive Officer.
In September 1998, we adopted a Non-Qualified Stock Option Plan pursuant to
which non-qualified stock options may be granted to our employees and
consultants who are neither directors nor officers. The maximum number of
shares of Common Stock that may be subject to options granted under the Non-
Qualified Stock Option Plan may not exceed, in the aggregate, 500,000 shares.
Shares of Common Stock that are attributable to grants that have expired or
been terminated, cancelled or forfeited are available for issuance in
connection with future grants. The Chief Executive Officer administers the Non-
Qualified Stock Option Plan, selects the individuals who receive awards and
establishes the terms and conditions of such awards.
Options to purchase a total of 672,050 shares of Common Stock with a weighted
average exercise price of $13.58 per share had been granted to our directors,
officers and employees as of September 30, 1998. Of these options, we granted
options exercisable into: 40,000 shares to Mr. Sheehan, 415,000 shares to Dr.
Pass; 85,000 shares to Mr. Marr; 70,000 shares to Mr. Adams; and 20,000 shares
to each of Mr. Molyneux, Mr. Moorehead and Ms. Hawkins. Each option we have
granted was granted at the fair market value on the date of grant, vests at the
rate of 33 1/3% per year, commencing on the first anniversary of the date of
grant, and will expire ten years after the date of grant.
35
<PAGE>
CERTAIN TRANSACTIONS
In November 1997, we sold 744,000 shares of Common Stock to Mr. Sheehan for
cash consideration of $20,000. Mr. Sheehan bought the shares pursuant to an
agreement which provides us with a right to repurchase them, at our discretion,
at the price Mr. Sheehan paid. This right may only be exercised in the event
that Mr. Sheehan voluntarily terminates his employment or is discharged for
"cause." The repurchase right expired with respect to 372,000 shares upon our
initial public offering, and will expire with respect to the remaining 372,000
shares in August 1999.
In January 1998, we sold an aggregate of 218,736 shares of Common Stock to
private investors for cash consideration of $735,000. Mr. Moorehead purchased
29,760 of these shares for $100,000. All of these investors, including Mr.
Moorehead have agreed not to sell any shares they bought for the period ending
one year from the date of our initial public offering.
Each of Messrs. Henninger, Morawski and Smart (all of whom are members of our
Board of Directors) is a former owner of a business we acquired. The following
table sets forth the consideration we paid and the indebtedness we assumed when
we bought Northland (which was formerly owned by Mr. Morawski), Absolute (which
was formerly owned by Mr. Smart) and Keystone (which was formerly owned by Mr.
Henninger):
<TABLE>
<CAPTION>
SHARES OF TOTAL
NAME CASH COMMON STOCK INDEBTEDNESS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Northland................................. $8,307 692,277 $1,433
Absolute.................................. 3,567 297,267 651
Keystone.................................. 4,531 377,624 712
</TABLE>
In addition, we must make earn-out payments for each of the years 1998 through
2002 to each of Messrs. Morawski, Smart and Henninger, if the company he owned
achieves target levels of net revenue. The target level of net revenue that
must be reached in 1998 is generally 110% of the 1997 net revenue of the
particular company. The target net revenue for the years 1999 through 2002 is
110% of the greater of (i) the prior year's actual net revenue or (ii) target
net revenue. If the target net revenue is achieved for a particular year, we
must make an initial payment equal to 5% of the excess of actual net revenue
over the target level. In addition, once the target level of net revenue for a
particular year is met, we must make subsequent and equal payments for each
year through 2002, but only if the actual net revenue for the respective
subsequent year exceeds the actual net revenue for the year that the earn-out
target was first achieved. Any required earn-out payments will be made in the
form of Common Stock.
Prior to our acquisition of Absolute, Absolute distributed to Mr. Smart
personal assets not included in the transaction with a book value of $65,000.
Prior to our acquisition of Keystone, Keystone made a cash distribution of less
than $150,000 to Mr. Henninger to pay taxes on S corporation earnings. In
addition, Keystone distributed to Mr. Henninger personal assets not included in
the transaction with a book value of $56,000.
Pursuant to the agreements entered into in connection with our purchases of
Northland, Absolute and Keystone, Messrs. Morawski, Smart and Henninger have
agreed not to compete with us for a period of five years from the date of our
initial public offering in defined business and geographic areas.
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<PAGE>
In connection with our purchases of Absolute and Keystone, we entered into
consulting agreements with Mr. Smart and Mr. Henninger. Pursuant to these
agreements, Mr. Smart and Mr. Henninger are each entitled to receive a
consulting fee equal to two percent of the gross revenue of each company that
they assist us in buying, with the fee to be based on the acquired company's
gross revenue for the twelve months immediately preceding our purchase of it.
Each consulting agreement is for a term of three years. From February 1998
until June 1998 (when he became our Senior Vice President and Chief Acquisition
Officer) Mr. Adams was a party to a consulting agreement with us. Mr. Adams'
agreement contained terms substantially similar to our consulting agreements
with Messrs. Henninger and Smart.
In addition, in connection with our purchase of Northland, we entered into an
employment agreement with Mr. Morawski pursuant to which he serves as one of
our Vice Presidents for a term of three years, with an annual base salary of
$150,000.
The employment and consulting agreements described above also contain covenants
not to compete for one year after the termination of the agreement.
In June 1998, Mr. Smart was awarded a contract for police towing in a police
district in Los Angeles. Mr. Smart conducts these operations through a newly
formed entity that he controls. We have the option to buy Mr. Smart's company,
beginning 18 months after our purchase of Absolute and ending three years
thereafter. The purchase price under this option is equal to 13 times the
after-tax net income of the entity for the 12-month period prior to the
exercise of the option. Mr. Henninger is also seeking the award of a contract
for police towing in another district in Los Angeles. If Mr. Henninger is
awarded the contract, he will also conduct these operations through a newly
formed entity that he controls. We will have a right to buy Mr. Henninger's
company on the same terms described above, beginning one year after our
purchase of Keystone and ending three years thereafter.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of our Common Stock as of December 31, 1998, by (a) each
person who we know to own beneficially more than five percent of the
outstanding shares of Common Stock, (b) each of our directors, (c) each of our
executive officers, and (d) all directors and executive officers as a group.
Except as otherwise indicated, we believe that the beneficial owners of the
securities listed below, based on information provided by such owners, have
sole investment and voting power with respect to the Common Stock shown below
as being beneficially owned by them, subject to community property laws where
applicable. Unless otherwise indicated, the address of each beneficial owner is
c/o United Road Services, Inc., 8 Automation Lane, Albany, New York 12205.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT
<S> <C> <C>
Edward T. Sheehan(1)......................................... 714,235 4.9%
Edward W. Morawski........................................... 692,277 4.8
Todd Q. Smart................................................ 297,267 2.1
Donald F. Moorehead, Jr...................................... 86,760 *
Richard A. Molyneux.......................................... -- --
Robert J. Adams, Jr. ........................................ -- --
Allan D. Pass................................................ -- --
Donald J. Marr............................................... -- --
Grace M. Hawkins............................................. -- --
Mark J. Henninger............................................ 377,624 2.6
Robert L. Berner, III........................................ -- --
Merril M. Halpern............................................ -- --
Charter URS LLC(2)........................................... 2,900,000 15.6
Mark McKinney(3)............................................. 930,000 6.4
Ross Berner(4)............................................... 930,000 6.4
All directors and executive officers as a group (12
persons).................................................... 2,168,163 13.8
</TABLE>
- ---------------------
* Less than one percent.
(1) Includes 10,235 shares held by children of Mr. Sheehan. Mr. Sheehan
disclaims beneficial ownership of such shares.
(2) According to a Schedule 13D dated December 7, 1998, these shares are owned
of record by Charter URS LLC, a Delaware limited liability company
("Charterhouse"). Charterhouse Equity Partners III, L.P., a Delaware
limited partnership ("CEP III"), is the sole member of Charterhouse. The
general partner of CEP III, is CHUSA Equity Investors III, L.P., whose
general partner is Charterhouse Equity III, Inc., a wholly-owned subsidiary
of Charterhouse Group International, Inc., a Delaware corporation
("Charterhouse International"). Each of Charterhouse and CEP III may be
deemed to beneficially own the shares held of record by Charterhouse
("Charterhouse International"). Each of Charterhouse and CEP III have
shared voting and dispositive power over these shares. Mr. Halpern serves
as Chairman of the Board and Chief Executive officer of Charterhouse
International and Mr. Berner serves as Managing Director of Charterhouse
International.
(3)The address of this stockholder is 1298 Green Oaks Dr., Littleton, CO 80121.
(4)The address of this stockholder is 1360 Lombard #302, San Francisco, CA
94109.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 40,000,000 shares. Of these shares,
35,000,000 shares are Common Stock, $0.001 par value, and 5,000,000 shares are
Preferred Stock, $0.001 par value. As of December 31, 1998, there were
15,707,085 shares of Common Stock and no shares of Preferred Stock outstanding.
The following discussion of the material features of our capital stock is
intended as a summary only. As a result, for complete information you should
read our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, which are included as exhibits to the registration statement
of which this prospectus is a part.
COMMON STOCK
All holders of our Common Stock are entitled to one vote for each share they
own on all matters submitted to a vote of stockholders. Subject to the terms of
any Preferred Stock we may issue, holders of Common Stock are entitled to
receive ratably any dividends as may be declared from time to time by the Board
of Directors. In the event we liquidate, dissolve or wind up, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive rights or rights to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
Our Board of Directors (the "Board") has the authority, without action by the
stockholders, to designate and issue up to 5,000,000 shares of Preferred Stock
in one or more series and to designate the dividend rate, voting rights and
other rights, preferences and restrictions of each series, any or all of which
may be greater than the rights of the Common Stock. We have no present plans to
issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable our Board
to discourage an attempt to obtain control of the Company by means of a tender
offer, proxy contest, merger or otherwise and to protect the continuity of our
management. The issuance of shares of Preferred Stock may adversely affect the
rights of holders of Common Stock. For example, any Preferred Stock we issue
may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares of
Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
CLASSIFIED BOARD OF DIRECTORS; FILLING VACANCIES
Our Amended and Restated Certificate of Incorporation provides that our Board
of Directors shall be divided into three classes and that the number of
directors in each class shall be as nearly equal as is possible based upon the
number of directors constituting the entire Board. The certificate of
incorporation effectively provides that the term of office of the first class
of directors will expire at
39
<PAGE>
our first annual meeting of stockholders following the initial public offering,
the term of office of the second class of directors will expire at our second
annual meeting of stockholders following the initial public offering, and the
term of office of the third class of directors will expire at our third annual
meeting of stockholders following the initial public offering. At each annual
meeting of stockholders, successors to directors of the class whose term
expires at such meeting will be elected to serve for three-year terms and until
their successors are elected and qualified.
The classification of our Board of Directors has the effect of making it more
difficult for stockholders to change the composition of the Board. At least two
annual meetings of stockholders, instead of one, will generally be required to
change the majority of the Board. Such a delay may help to provide the Board
with sufficient time to analyze an unsolicited proxy contest, a tender or
exchange offer or any other extraordinary corporate transaction. However, such
classification provisions could also have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to our stockholders. The classification of the Board could thus
increase the likelihood that incumbent directors will retain their positions.
Under Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. Our certificate of incorporation does not override
this provision. Our certificate of incorporation does provide that, subject to
the rights of any holders of Preferred Stock, newly created directorships
resulting from an increase in the authorized number of directors or vacancies
on the Board resulting from death, resignation, retirement, disqualification or
removal of directors or any other cause may be filled only by the Board (and
not by the stockholders unless there are no directors in office). Accordingly,
the Board could prevent any stockholder from enlarging the Board and filling
the new directorships with such stockholder's own nominees.
The provisions of the certificate of incorporation governing the removal of
directors and the filling of vacancies may have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of the Company, or of attempting to change the
composition or policies of the Board, even though such attempts might be
beneficial to our stockholders. These provisions of the certificate of
incorporation could thus increase the likelihood that incumbent directors will
retain their positions.
STOCKHOLDER MEETING PROVISIONS
Our certificate of incorporation and bylaws provide that (subject to the rights
of any holders of Preferred Stock) (i) only a majority of the Board of
Directors or the Chief Executive Officer is able to call a special meeting of
stockholders; and (ii) stockholder action may be taken only at a duly called
and convened annual or special meeting of stockholders and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration of stockholder proposals over the opposition of the
Board, except at an annual meeting.
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as director, or to bring other business
before an annual meeting of our stockholders.
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<PAGE>
The notice procedure provides that, subject to the rights of any holders of
Preferred Stock, only persons who are nominated by or at the direction of the
Board, any committee appointed by the Board, or by a stockholder who has given
timely written notice to our Secretary prior to the meeting at which directors
are to be elected will be eligible for election as directors. At an annual
meeting, only such business may be conducted as has been brought before the
meeting by the Board, any committee appointed by the Board, or by a stockholder
who has given timely written notice to our Secretary of such stockholder's
intention to bring such business before such meeting. To be timely, we must
receive notice of stockholder nominations or proposals not less than 60 days
nor more than 90 days prior to the scheduled date of the meeting (or, if less
than 70 days' notice or prior public disclosure of the date of the meeting is
given, then not later than the 15th day following the earlier of (i) the day
such notice was mailed or (ii) the day such public disclosure was made). These
notices must contain certain prescribed information.
This notice procedure affords our Board of Directors an opportunity to consider
the qualifications of proposed director nominees or the merit of stockholder
proposals, and, to the extent deemed appropriate by the Board, to inform
stockholders about such matters. The notice procedure also provides a more
orderly procedure for conducting annual meetings of stockholders.
Although our bylaws do not give our Board of Directors any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, the provisions described above may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals. These provisions may also discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or to
approve its own proposal.
DELAWARE LAW
We are a Delaware corporation and are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prevents
an "interested stockholder" (defined generally as a person owning 15% or more
of a corporation's outstanding voting stock) from engaging in a "business
combination" with a Delaware corporation for three years following the date
such person became an interested stockholder. This restriction is subject to
certain exceptions such as approval of the board of directors and of the
holders of at least two-thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision is
expected to have an anti-takeover effect, possibly inhibiting attempts that
might result in a premium over the market price for the shares of Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the provisions of the Delaware General Corporation Law, we have
adopted provisions in our certificate of incorporation which provide that our
directors shall not be personally liable for monetary damages for a breach of
fiduciary duty as a director. However, the directors will be liable if the
damages result from (i) a breach of the director's duty of loyalty to the
Company or our stockholders; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) an act
related to the unlawful stock repurchase or payment of a dividend under Section
174 of Delaware General Corporation Law; and (iv) transactions from which the
director derived an improper personal benefit. Also, the limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
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<PAGE>
Our bylaws require us to indemnify our officers and directors, and permit us to
indemnify our other agents, to the fullest extent permitted under Delaware law.
We have entered into separate indemnification agreements with our directors and
officers which are, in some cases, broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements require us, among other things, to indemnify our
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities
arising from willful misconduct), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance if available on reasonable
terms.
TRANSFER AGENT
The transfer agent and registrar for our Common Stock is American Stock
Transfer and Trust Company.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed on for the
Company by the international law firm of McDermott, Will & Emery.
EXPERTS
The financial statements of United Road Services, Inc., the combined financial
statements of Northland Auto Transporters, Inc. and Northland Fleet Leasing,
Inc., the combined financial statements of Caron Auto Works, Inc. and Caron
Auto Brokers, Inc., the combined financial statements of 5-L Corporation, and
ADP Transport, Inc., the consolidated financial statements of Smith-Christensen
Enterprises, Inc. and subsidiary, the consolidated financial statements of ASC
Transportation Services and subsidiary, the consolidated financial statements
of E&R Towing & Garage, Inc. and subsidiaries, and the financial statements of
Falcon Towing and Auto Delivery, Inc., Absolute Towing and Transporting, Inc.,
Keystone Towing, Inc., Neil's Used Truck & Car Sales, Incorporated,
Environmental Auto Removal, Inc., Alert Auto Transport, Inc., Fast Towing,
Inc., Car Transporters Corporation, Schroeder Auto Carriers, Inc., MPG Transco,
Ltd. and Pilot Transport, Inc. to the extent and for the periods indicated in
their reports, have been included herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNITED ROAD SERVICES, INC.
Unaudited Pro Forma Combined Financial Statements--Basis of Presenta-
tion................................................................... F-4
Unaudited Pro Forma Combined Balance Sheet.............................. F-5
Unaudited Pro Forma Combined Statement of Operations.................... F-6
Notes to Unaudited Pro Forma Combined Financial Statements.............. F-8
UNITED ROAD SERVICES, INC.
Independent Auditors' Report............................................ F-11
Balance Sheet........................................................... F-12
Statement of Operations................................................. F-13
Statement of Stockholders' Equity (Deficit)............................. F-14
Statement of Cash Flows................................................. F-15
Notes to Financial Statements........................................... F-16
FOUNDING COMPANIES
NORTHLAND AUTO TRANSPORTERS, INC. AND NORTHLAND FLEET LEASING, INC.
Independent Auditors' Report............................................ F-20
Combined Balance Sheets................................................. F-21
Combined Statements of Operations....................................... F-22
Combined Statements of Stockholder's Equity............................. F-23
Combined Statements of Cash Flows....................................... F-24
Notes to Combined Financial Statements.................................. F-25
FALCON TOWING AND AUTO DELIVERY, INC.
Independent Auditors' Report............................................ F-31
Balance Sheets.......................................................... F-32
Statements of Operations................................................ F-33
Statements of Stockholder's Equity...................................... F-34
Statements of Cash Flows................................................ F-35
Notes to Financial Statements........................................... F-36
SMITH-CHRISTENSEN ENTERPRISES, INC. AND SUBSIDIARY
Independent Auditors' Report............................................ F-41
Consolidated Balance Sheets............................................. F-42
Consolidated Statements of Operations................................... F-43
Consolidated Statements of Stockholders' Equity......................... F-44
Consolidated Statements of Cash Flows................................... F-45
Notes to Consolidated Financial Statements.............................. F-46
CARON AUTO WORKS, INC. AND CARON AUTO BROKERS, INC.
Independent Auditors' Report............................................ F-53
Combined Balance Sheets................................................. F-54
Combined Statements of Operations....................................... F-55
Combined Statements of Stockholders' Equity............................. F-56
Combined Statements of Cash Flows....................................... F-57
Notes to Combined Financial Statements.................................. F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ABSOLUTE TOWING AND TRANSPORTING, INC.
Independent Auditors' Report............................................. F-64
Balance Sheets........................................................... F-65
Statements of Operations................................................. F-66
Statements of Stockholder's Equity....................................... F-67
Statements of Cash Flows................................................. F-68
Notes to Financial Statements............................................ F-69
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
Independent Auditors' Report............................................. F-73
Consolidated Balance Sheet............................................... F-74
Consolidated Statement of Operations..................................... F-75
Consolidated Statement of Stockholders' Deficit.......................... F-76
Consolidated Statement of Cash Flows..................................... F-77
Notes to Consolidated Financial Statements............................... F-78
</TABLE>
<TABLE>
<S> <C>
SELECTED ACQUIRED COMPANIES
</TABLE>
<TABLE>
<CAPTION>
MPG TRANSCO, LTD.
<S> <C>
Independent Auditors' Report............................................ F-83
Balance Sheets.......................................................... F-84
Statements of Operations................................................ F-85
Statements of Stockholders' Equity...................................... F-86
Statements of Cash Flows................................................ F-87
Notes to Consolidated Financial Statements.............................. F-88
<CAPTION>
PILOT TRANSPORT, INC.
<S> <C>
Independent Auditors' Report............................................ F-94
Balance Sheets.......................................................... F-95
Statements of Operations................................................ F-96
Statements of Stockholders' Deficit..................................... F-97
Statements of Cash Flows................................................ F-98
Notes to Consolidated Financial Statements.............................. F-99
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-103
Consolidated Balance Sheet.............................................. F-104
Consolidated Statement of Operations and Retained Earnings ............. F-105
Consolidated Statement of Cash Flows.................................... F-106
Notes to Consolidated Financial Statements.............................. F-107
ENVIRONMENTAL AUTO REMOVAL, INC.
Independent Auditors' Report............................................ F-112
Balance Sheet .......................................................... F-113
Statement of Operations and Retained Earnings (Deficit)................. F-114
Statement of Cash Flows................................................. F-115
Notes to Financial Statements........................................... F-116
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
Independent Auditors' Report............................................ F-120
Balance Sheet........................................................... F-121
Statement of Operations................................................. F-122
Statement of Stockholders' Equity....................................... F-123
Statement of Cash Flows................................................. F-124
Notes to Financial Statements........................................... F-125
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5-L CORPORATION AND ADP TRANSPORT, INC.
Independent Auditors' Report............................................ F-128
Combined Balance Sheet.................................................. F-129
Combined Statement of Operations........................................ F-130
Combined Statement of Stockholders' Equity.............................. F-131
Combined Statement of Cash Flows........................................ F-132
Notes to Combined Financial Statements.................................. F-133
CAR TRANSPORTERS CORPORATION
Independent Auditors' Report............................................ F-136
Balance Sheet........................................................... F-137
Statement of Operations................................................. F-138
Statement of Stockholders' Deficit...................................... F-139
Statement of Cash Flows................................................. F-140
Notes to Financial Statements........................................... F-141
SCHROEDER AUTO CARRIERS, INC.
Independent Auditors' Report............................................ F-145
Balance Sheet........................................................... F-146
Statement of Operations................................................. F-147
Statement of Stockholders' Equity....................................... F-148
Statement of Cash Flows................................................. F-149
Notes to Financial Statements........................................... F-150
KEYSTONE TOWING, INC.
Independent Auditors' Report............................................ F-153
Balance Sheets.......................................................... F-154
Statements of Operations................................................ F-155
Statements of Stockholder's Equity...................................... F-156
Statements of Cash Flows................................................ F-157
Notes to Financial Statements........................................... F-158
FAST TOWING, INC.
Independent Auditors' Report............................................ F-163
Balance Sheet........................................................... F-164
Statement of Operations................................................. F-165
Statement of Stockholders' Equity....................................... F-166
Statement of Cash Flows................................................. F-167
Notes to Financial Statements........................................... F-168
ALERT AUTO TRANSPORT, INC.
Independent Auditors' Report............................................ F-172
Balance Sheet........................................................... F-173
Statement of Earnings and Retained Earnings............................. F-174
Statement of Cash Flows................................................. F-175
Notes to Financial Statements........................................... F-176
</TABLE>
F-3
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to certain acquisitions completed by United Road Services, Inc. since its
inception in July 1997. All of these acquisitions were accounted for using the
purchase method of accounting.
The September 30, 1998 unaudited pro forma combined balance sheet gives
effect to the acquisitions of MPG Transco, Ltd. ("MPG") and Pilot Transport,
Inc. ("Pilot") as if they had occurred on September 30, 1998.
The unaudited pro forma combined statements of operations give effect to the
acquisitions by United Road Services, Inc. of the Founding Companies and the
Selected Acquired Companies, as if they had occurred on January 1, 1997.
To the extent the former owners of the Founding Companies and Selected
Acquired Companies have agreed to reductions in salary, bonuses and benefits,
these reductions have been reflected in the unaudited pro forma combined
statements of operations.
The pro forma adjustments are based on estimates, available information and
certain assumptions, and may be revised, as additional information becomes
available. The pro forma financial information does not purport to represent
what United Road Services, Inc.'s financial position or results of operations
would actually have been had such transactions occurred on these dates and are
not necessarily representative of United Road Services, Inc.'s financial
position or results of operations for any future period. Since United Road
Services, Inc., the Founding Companies and the Selected Acquired Companies
were not under common control or management during the periods presented,
historical combined results may not be comparable to, or indicative of, future
performance. See "Risk Factors" included elsewhere herein. The unaudited pro
forma combined financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
prospectus.
F-4
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNITED
ROAD PRO FORMA PRO
SERVICES, ACQUISITION FORMA
INC. MPG PILOT ADJUSTMENTS COMBINED
--------- ------ ----- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 2,290 348 181 (1,952)(a)(b) 867
Accounts receivable..... 16,096 2,058 1,945 -- 20,099
Less: allowance........ 1,317 100 -- -- 1,417
--------- ------ ----- ------ -------
Accounts receivable,
net.................... 14,779 1,958 1,945 -- 18,682
Accounts receivable from
related parties and
employees.............. 285 42 -- -- 327
Inventory............... 564 -- -- -- 564
Notes receivables....... 430 -- -- -- 430
Prepaid and other
current assets......... 2,078 283 616 -- 2,977
--------- ------ ----- ------ -------
Total Current Assets... 20,426 2,631 2,742 (1,952) 23,847
Property and equipment,
net.................... 37,094 10,630 3,681 (341)(a) 51,064
Other non-current
assets, net............ 1,592 347 -- -- 1,939
Goodwill................ 137,516 -- -- 41,930 (a) 179,446
--------- ------ ----- ------ -------
Total Assets........... $ 196,628 13,608 6,423 39,637 256,296
========= ====== ===== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current installment of
notes payable.......... $ 170 2,005 -- -- 2,175
Current installment of
lease obligations...... 1,435 -- -- -- 1,435
Borrowings under lines
of credit.............. -- 986 2,005 -- 2,991
Payable to related
parties................ 1,134 -- -- -- 1,134
Accounts payable........ 10,011 818 240 -- 11,069
Income taxes payable.... 616 740 -- -- 1,356
Payable to
stockholders........... 1,064 24 -- -- 1,088
Other accrued
liabilities............ 4,761 891 1,065 -- 6,717
--------- ------ ----- ------ -------
Total Current
Liabilities........... 19,191 5,464 3,310 -- 27,965
Credit facility
borrowings............. 26,000 -- -- 19,000 (b) 45,000
Notes payable, excluding
current installments... -- 1,422 -- -- 1,422
Capital lease
obligations, excluding
current installments... 2,253 -- -- -- 2,253
Deferred income taxes... 2,736 1,462 -- (136)(a) 4,062
--------- ------ ----- ------ -------
Total Liabilities...... 50,180 8,348 3,310 18,864 80,702
Stockholders' Equity:
Common stock............ 14 1 10 (9)(a) 16
Additional paid-in
capital................ 144,413 1,417 -- 27,727 (a) 173,557
Retained earnings....... 2,021 3,842 3,103 (6,945)(a) 2,021
--------- ------ ----- ------ -------
Total Stockholders'
Equity................ 146,448 5,260 3,113 20,773 175,594
--------- ------ ----- ------ -------
Total Liabilities and
Stockholders' Equity.. $ 196,628 13,608 6,423 39,637 256,296
========= ====== ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
F-5
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
UNITED FOUNDING
ROAD COMPANIES
SERVICES, 1/1/98 -
INC. 5/5/98 MPG PILOT E&R EAR NEIL'S 5-L/ADP CTC SCHROEDER KEYSTONE FAST TOW ALERT
--------- --------- ------ ------ ----- ----- ------ ------- ----- --------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue...... $44,842 19,035 17,082 14,405 2,929 8,539 5,891 5,069 4,500 3,169 1,998 1,851 1,472
Cost of revenue.. 32,073 13,851 11,639 8,906 1,645 6,022 4,813 4,289 3,862 2,537 1,329 915 1,375
------- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ------ -----
Gross profit.... 12,769 5,184 5,443 5,499 1,284 2,517 1,078 780 638 632 669 936 97
Selling general
and
administrative
expenses......... 7,565 3,525 3,420 3,091 662 1,740 375 335 623 396 652 1,123 148
Goodwill
amortization..... 883 -- -- -- -- -- -- -- -- -- -- -- --
------- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ------ -----
Income (loss)
from operations.. 4,321 1,659 2,023 2,408 622 777 703 445 15 236 17 (187) (51)
Other income
(expense):
Interest
expense......... (526) (451) (292) (114) (25) (7) (47) -- (299) (18) (26) -- (1)
Interest income. 615 19 19 -- 43 52 -- -- -- -- -- 1 --
Gain (loss) on
sale of assets.. -- (24) (325) (32) 19 13 -- -- -- -- -- (140) 21
Other........... -- (232) (2) -- 1 1 -- 23 (54) 1 94 -- --
------- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ------ -----
Income (loss)
before income
taxes............ 4,410 971 1,423 2,262 660 836 656 468 (338) 219 85 (326) (31)
Income tax
expense
(benefit)........ 2,215 437 591 -- 240 16 -- -- -- -- -- 29 (11)
------- ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- ------ -----
Net income
(loss)........... $ 2,195 534 832 2,262 420 820 656 468 (338) 219 85 (355) (20)
======= ====== ====== ====== ===== ===== ===== ===== ===== ===== ===== ====== =====
Basic earnings
per share (g).... -- -- -- -- -- -- -- -- -- -- -- -- --
Diluted earnings
per share (g).... -- -- -- -- -- -- -- -- -- -- -- -- --
<CAPTION>
PRO FORMA
ACQUISITION PRO FORMA
ADJUSTMENTS COMBINED
---------------- ---------
<S> <C> <C>
Net revenue...... (1,400)(f) 129,382
Cost of revenue.. (2,936)(b)(f) 90,320
---------------- ---------
Gross profit.... 1,536 39,062
Selling general
and
administrative
expenses......... (3,504)(a) 20,151
Goodwill
amortization..... 2,082(c) 2,965
---------------- ---------
Income (loss)
from operations.. 2,958 15,946
Other income
(expense):
Interest
expense......... (1,205)(d) (3,011)
Interest income. -- 749
Gain (loss) on
sale of assets.. -- (468)
Other........... -- (168)
---------------- ---------
Income (loss)
before income
taxes............ 1,753 13,048
Income tax
expense
(benefit)........ 2,568 6,085
---------------- ---------
Net income
(loss)........... (815) 6,963
================ =========
Basic earnings
per share (g).... -- $ 0.64
=========
Diluted earnings
per share (g).... -- $ 0.63
=========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements
F-6
<PAGE>
UNITED ROAD SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNITED
ROAD TOTAL
SERVICES, FOUNDING 5-L/
INC. COMPANIES MPG PILOT E&R EAR NEIL'S ADP CTC SCHROEDERS KEYSTONE FAST ALERT
--------- --------- ------ ------ ----- ------ ------ ----- ----- ---------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue...... $ -- 42,599 21,745 17,119 8,528 14,104 9,553 9,852 6,676 5,799 3,943 3,355 2,958
Cost of revenue.. -- 31,258 15,416 10,067 5,193 10,889 8,246 8,390 5,708 4,568 2,607 1,776 2,418
----- ------ ------ ------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Gross profit.... -- 11,341 6,329 7,052 3,335 3,215 1,307 1,462 968 1,231 1,336 1,579 540
Selling general
and
administrative
expenses......... 174 8,070 5,536 4,009 2,851 2,671 790 927 830 889 1,140 1,432 301
Goodwill
amortization..... -- -- -- -- -- -- -- -- -- -- -- -- --
----- ------ ------ ------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Income (loss)
from operations.. (174) 3,271 793 3,043 484 544 517 535 138 342 196 147 239
Other income
(expense):
Interest
expense......... -- (835) (569) (168) (114) (27) (71) (10) (738) (31) (71) (7) (9)
Interest income. -- 48 8 -- 48 41 -- -- -- -- 2 -- --
Gain (loss) on
sale of assets.. -- 207 (92) (167) 63 12 -- -- 22 9 36 (9) 24
Other........... -- 201 (13) -- -- (6) -- 11 (200) 4 76 -- --
----- ------ ------ ------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Income (loss)
before income
taxes............ (174) 2,892 127 2,708 481 564 446 536 (778) 324 239 131 254
Income tax
expense
(benefit)........ -- 826 68 -- 188 10 -- -- -- -- -- 47 89
----- ------ ------ ------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Net income
(loss)........... $(174) 2,066 59 2,708 293 554 446 536 (778) 324 239 84 165
===== ====== ====== ====== ===== ====== ===== ===== ===== ===== ===== ===== =====
Basic earnings
per share(g)..... -- -- -- -- -- -- -- -- -- -- -- -- --
Diluted earnings
per share(g)..... -- -- -- -- -- -- -- -- -- -- -- -- --
<CAPTION>
PRO FORMA
ACQUISITION PRO FORMA
ADJUSTMENTS COMBINED
---------------- ---------
<S> <C> <C>
Net revenue...... (2,800)(f) 143,431
Cost of revenue.. (5,397)(b)(f) 101,139
---------------- ---------
Gross profit.... 2,597 42,292
Selling general
and
administrative
expenses......... (6,671)(a) 22,949
Goodwill
amortization..... 3,769 (c) 3,769
---------------- ---------
Income (loss)
from operations.. 5,499 15,574
Other income
(expense):
Interest
expense......... (1,524)(d) (4,174)
Interest income. -- 147
Gain (loss) on
sale of assets.. -- 105
Other........... -- 73
---------------- ---------
Income (loss)
before income
taxes............ 3,975 11,725
Income tax
expense
(benefit)........ 4,659 5,887
---------------- ---------
Net income
(loss)........... (684) 5,838
================ =========
Basic earnings
per share(g)..... -- $0.54
=========
Diluted earnings
per share(g)..... -- $0.53
=========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements
F-7
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL:
United Road Services, Inc. was founded in July 1997 to become a leading
national provider of motor vehicle and equipment towing and transport
services. United Road Services, Inc. acquired the Founding Companies
simultaneously with its initial public offering and acquired the Selected
Acquired Companies subsequent to its initial public offering.
The historical financial data reflect the financial position and results of
operations of United Road Services, Inc., the Founding Companies and the
Selected Acquired Companies and were derived from the respective financial
statements included elsewhere herein. The information included in these
financial statements for the Founding Companies is for the period January 1,
1998 through May 5, 1998 and for the year ended December 31, 1997, with the
exception of Caron Auto Works, Inc. and Caron Auto Brokers, Inc. for which the
information is as of and for the six months ended June 30, 1998 and for the
fiscal year ended September 30, 1997. The information included in these
financial statements for the Selected Acquired Companies is as of and for the
nine-months ended September 30, 1998 and for the year ended December 31, 1997,
with the exception of E&R, EAR, Neil's, 5-L/ADP, CTC, Schroeder, Keystone and
Fast Tow which are for the six-month period ended June 30, 1998 and for the
year ended December 31, 1997, and Alert for which the information is as of and
for the six-month period ended May 31, 1998 and for the twelve-month period
ended February 28, 1998.
2. ACQUISITION OF THE SELECTED ACQUIRED COMPANIES:
United Road Services, Inc. acquired all of the Selected Acquired Companies
in transactions accounted for using the purchase method of accounting.
The following table sets forth the consideration paid in cash and in shares
of Common Stock for the Selected Acquired Companies (without giving effect to
any indebtedness of the Selected Acquired Companies that was assumed by the
Company).
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
(DOLLARS IN THOUSANDS)
<S> <C> <C>
MPG................................................ $ 10,363 996,351
Pilot.............................................. 10,589 1,000,000
E&R................................................ 13,250 --
EAR................................................ 9,563 173,498
Neil's............................................. 6,000 --
5-L/ADP............................................ 2,533 212,023
CTC................................................ 1,350 --
Schroeder.......................................... 969 125,000
Keystone........................................... 4,531 377,624
Fast............................................... 5,255 --
Alert.............................................. 1,146 144,785
---------- ------------
Total............................................ $65,549 3,029,281
========== ============
</TABLE>
F-8
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Reflects the acquisitions of MPG and Pilot by United Road Services, Inc.
for a purchase price of $50.0 million consisting of $21.0 million in cash and
1,996,351 shares of Common Stock. The purchase price less the net assets
acquired, including an adjustment for property and equipment to reflect fair
market value, including the resulting tax effect, results in goodwill of $41.9
million. Based upon management's preliminary analysis, it is anticipated that
the historical value of the assets and liabilities of the acquired companies,
with the exception of the adjustments made for property and equipment, will
approximate fair value. Management has not identified any other material
tangible or intangible assets to which a portion of the purchase price could
be reasonably allocated.
(b) Reflects $19.0 million of credit facility borrowings utilized to fund
acquisitions.
4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS:
Nine-months ended September 30, 1998 and year ended December 31, 1997
(a) Reflects the reductions in salaries, bonuses and benefits to which the
former stockholders of the Founding Companies and the Selected Acquired
Companies have agreed in the amounts of $3.5 million and $6.7 million for the
nine-months ended September 30, 1998 and for the year ended December 31, 1997,
respectively.
(b) Adjusts the depreciation of vehicles based upon adjusted carrying values
utilizing lives of 10 to 15 years.
(c) Reflects the amortization over a 40-year estimated life of goodwill to
be recorded as a result of the acquisition of the Founding Companies and the
Selected Acquired Companies.
(d) Reflects the interest expense relating to the credit facility borrowings
utilized to fund acquisitions and the reduction in interest expense related to
$1.6 million and $1.5 million of debt at December 31, 1997 and September 30,
1998 respectively which has been repaid.
(e) Reflects the incremental provision for federal and state income taxes
relating to all entities being combined and other statements of operations
adjustments including the non-deductibility of goodwill at an estimated rate
of 38%.
(f) Reflects the elimination of $1.4 million and $2.8 million of
intercompany revenue and related cost of revenue between E&R and EAR for the
nine-months ended September 30, 1998 and the year ended December 31, 1997,
respectively.
F-9
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) The number of shares used in the calculations of basic and diluted
earnings per share have been derived as follows:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
<S> <C>
Shares issued in connection with the formation of United Road
Services, Inc. ................................................ 2,604,000
Shares issued in the initial public offering.................... 2,594,863
Shares issued in January 1998................................... 218,736
Shares issued in connection with the acquisitions of the
Founding Companies and the Selected Acquired Companies......... 5,405,022
----------
Basic shares estimated to be outstanding........................ 10,822,621
Incremental effect of options on shares outstanding............. 159,117
----------
Diluted shares estimated to be outstanding...................... 10,981,731
==========
</TABLE>
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
United Road Services, Inc.:
We have audited the accompanying balance sheet of United Road Services, Inc.
as of December 31, 1997, and the related statement of operations,
stockholders' equity (deficit), and cash flows for the period from July 25,
1997 (inception) through December 31, 1997. These financial statements are the
responsibility of United Road Services, Inc.'s management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of United Road Services, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the period from July 25, 1997 (inception) through December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
February 24, 1998, except as
to Notes (4), 4(g) and 4(h),
which are as of May 8, 1998,
May 6, 1998 and December 7,
1998, respectively
F-11
<PAGE>
UNITED ROAD SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 49,987 $ 2,290,000
Trade receivables, net............................ -- 14,779,000
Other receivables................................. -- 1,040,000
Prepaid expenses and deposits..................... -- 2,317,000
--------- ------------
Total current assets............................ 49,987 20,426,000
Property and equipment, net......................... -- 37,092,000
Goodwill, net....................................... -- 137,516,000
Deferred financing costs, net....................... -- 997,000
Other non-current assets............................ -- 597,000
--------- ------------
Total assets.................................... $ 49,987 $196,628,000
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt and capitalized
leases.......................................... $ -- $ 1,435,000
Notes payable.................................... -- 170,000
Accounts payable................................. 62,077 10,011,000
Accrued income taxes............................. -- 616,000
Other accrued liabilities........................ -- 4,761,000
Due to related parties........................... 91,874 2,198,000
--------- ------------
Total current liabilities....................... 153,951 19,191,000
--------- ------------
Credit facility borrowings.......................... -- 26,000,000
Long-term debt and capitalized lease obligations
less current portion............................... -- 2,253,000
Deferred income taxes............................... -- 2,736,000
--------- ------------
Total liabilities............................... 153,951 50,180,000
--------- ------------
Stockholders' equity (deficit):
Preferred stock; 5,000,000 shares authorized; no
shares issued or outstanding..................... -- --
Common stock, $.001 par value; 35,000,000 shares
authorized; Issued and outstanding 2,604,000 and
14,497,384 shares, respectively.................. 2,604 14,000
Additional paid-in capital........................ 67,396 144,413,000
Retained earnings (accumulated deficit)........... (173,964) 2,021,000
--------- ------------
Total stockholders' equity (deficit)............ (103,964) 146,448,000
--------- ------------
Total liabilities and stockholders' equity
(deficit)...................................... $ 49,987 $196,628,000
========= ============
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
UNITED ROAD SERVICES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JULY 25, 1997
(INCEPTION) NINE-MONTHS
THROUGH ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Revenue................................... $ -- $44,842,000
Cost of revenue........................... -- 30,765,000
Amortization of goodwill.................. -- 883,000
Depreciation.............................. -- 1,308,000
Selling, general and administrative ex-
penses................................... 173,964 7,565,000
--------- -----------
(Loss) income from operations......... (173,964) 4,321,000
Other income (expense):
Interest income....................... -- 615,000
Interest expense...................... -- (526,000)
--------- -----------
Income before income taxes............ -- 4,410,000
Income tax expense........................ -- 2,215,000
--------- -----------
Net (loss) income..................... $(173,964) $ 2,195,000
========= ===========
Per share amounts:
Basic earnings........................ $ (.08) $ .25
========= ===========
Diluted earnings...................... $ (.08) $ .25
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
UNITED ROAD SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED TOTAL
COMMON PAID-IN EQUITY STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY (DEFICIT)
------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Initial capitalization....... $ 2,604 $ 67,396 $ -- $ 70,000
Net loss--1997............... -- -- (173,964) (173,964)
------- ------------ ---------- ------------
Balance at December 31, 1997. 2,604 67,396 (173,964) (103,964)
Issuance of common stock--
nine-months ended September
30, 1998 (unaudited)........ 11,396 144,345,604 -- 144,357,000
Net income--nine-months ended
September 30, 1998
(unaudited)................. -- -- 2,194,964 2,194,964
------- ------------ ---------- ------------
Balance at September 30, 1998
(unaudited)................. $14,000 $144,413,000 $2,021,000 $146,448,000
======= ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
UNITED ROAD SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM NINE-MONTHS
JULY 25, 1997 ENDED
(INCEPTION) THROUGH SEPTEMBER 30,
DECEMBER 31, 1997 1998
------------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................... $(173,964) $ 2,194,964
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation............................. -- 1,308,000
Amortization of goodwill................. -- 883,000
Amortization of deferred loan costs...... -- 96,000
Deferred income taxes.................... -- 516,000
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Increase in trade receivables............ -- (3,994,000)
Decrease in other receivables............ -- 1,081,000
Decrease in prepaid expenses and
deposits................................ -- 79,000
Increase in other non-current assets..... -- (186,000)
Increase in accounts and notes payable... 62,077 2,367,049
Increase in accrued income taxes......... -- 616,000
Decrease in other accrued liabilities.... -- (127,000)
--------- ------------
Net cash (used in) provided by
operating activities.................. (111,887) 4,834,013
--------- ------------
Cash flows from investing activities:
Acquisition of companies, net of cash
acquired.................................. -- (95,336,000)
Purchase of property and equipment......... -- (5,127,000)
Amounts payable to related parties......... 91,874 2,106,000
--------- ------------
Net cash provided by (used in)
investing activities.................. 91,874 (98,357,000)
--------- ------------
Cash flows from financing activities:
Proceeds from issuance of stock, net....... 70,000 90,982,000
Borrowings on credit facility.............. -- 26,000,000
Payment of deferred financing costs........ -- (622,000)
Payments on long-term debt and capital
leases.................................... -- (20,597,000)
--------- ------------
Net cash provided by financing
activities............................ 70,000 95,763,000
--------- ------------
Net increase in cash and cash equivalents.... 49,987 2,240,013
Cash and cash equivalents at beginning of pe-
riod........................................ -- 49,987
--------- ------------
Cash and cash equivalents at end of period... $ 49,987 $ 2,290,000
========= ============
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
United Road Services, Inc. (formerly Towing America, Inc.), a Delaware
corporation was formed in July 1997 to become a leading national provider of
motor vehicle and equipment towing and transport services. United Road
Services, Inc. elected to incorporate under the S-corporation provisions of
the Internal Revenue Code. United Road Services, Inc. changed its status to a
C-corporation effective January 1, 1998. From inception through September 30,
1998, United Road Services, Inc. has acquired thirty-three businesses (the
"Acquisitions"), seven of which closed simultaneously with the consummation of
an initial public offering ("Offering") of its common stock on May 6, 1998.
United Road Services, Inc. commenced operations when it acquired the
Founding Companies on May 6, 1998. As such, it has a limited combined
operating history and future success is dependent upon a number of factors
which include, among others, the ability to integrate operations, reliance on
the identification and integration of satisfactory acquisition candidates, the
availability of acquisition financing, and the ability to manage growth and
attract and retain quality management.
(b) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments the fair value
of United Road Services, Inc.'s financial instruments approximates their
carrying values.
(c) Use of Estimates
Management of United Road Services, Inc. has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(d) Income Taxes
From July 25, 1997 (inception) to December 31, 1997, United Road Services,
Inc. elected to file federal and State income tax returns under S-corporation
provisions. As such, earnings or losses flow through to the stockholder level.
Accordingly, no income tax expense or benefit has been recorded by United Road
Services, Inc. as of December 31, 1997.
Effective January 1, 1998, United Road Services, Inc. elected to file
federal and State income tax returns under C-corporation provisions. As a
result of United Road Services, Inc. profit for the nine-months ended
September 30, 1998, a tax expense has been recorded at September 30, 1998 at
the effective tax rate expected by United Road Services, Inc. for the year
ending December 31, 1998.
(e) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary
F-16
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
for a fair presentation of the results for the interim periods presented.
Results of operations for the nine-months ended September 30, 1998 is not
necessarily indicative of results to be expected for the full year ended
December 31, 1998.
Subsequent to the Offering, regional subsidiaries were formed in order to
facilitate the management of businesses acquired throughout the United States.
In addition to these regional subsidiaries, thirteen of the businesses acquired
are subsidiaries of United Road Services, Inc. Consequently, the interim
financial information consists of consolidated amounts.
(f) Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 130 requires all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed in equal
prominence with the other financial statements. United Road Services, Inc.
adopted SFAS No. 130 during the period ended March 31, 1998, however the
adoption of SFAS No. 130 did not have any effect on the reporting and display
of the financial position, results of operations or cash flows of United Road
Services, Inc. There is no difference in the nine months ended September 30,
1998 between net income and comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 established standards for the
way public companies are to report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 focuses on a "management approach" concept as the
basis for identifying reportable segments. The management approach is based on
the way that management organizes the segments within the enterprise for making
operating decisions and assessing performance. United Road Services, Inc.
continues to evaluate the provisions of SFAS No. 131 and will adopt SFAS No.
131 as of and for the period ending December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
certain costs related to the development or purchase of internal-use software
be capitalized and amortized over the estimated useful life of the software.
SOP 98-1 also requires the costs related to the preliminary project stage and
post-implementation/operations state of an internal-use computer software
development project be expensed as incurred. United Road Services, Inc. adopted
SOP 98-1 as of January 1, 1998.
In March 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires the expensing of certain costs such as pre-
operating expenses and organizational costs associated with the company's
start-up activities. The effect of adoption is required to be accounted for as
a cumulative change in accounting principle. United Road Services, Inc. adopted
SOP 98-5 as of January 1, 1998. Since January 1, 1998, all start-up costs as
defined under SOP 98-5 have been expensed.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Management is currently evaluating the impact of SFAS No. 133 on the
United Road Services, Inc. consolidated financial statements.
F-17
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) STOCKHOLDER'S EQUITY AND PER SHARE AMOUNTS
United Road Services, Inc. effected a 100-for-one stock split on December
18, 1997 for each share of common stock of United Road Services, Inc. ("Common
Stock") then outstanding. In addition United Road Services, Inc. increased
authorized shares of Common Stock to 1,000,000 shares with a $.001 par value.
Subsequently, and pursuant to an amended and restated certificate of
incorporation of United Road Services, Inc., filed on February 23, 1998, the
authorized number of shares have been increased to 40,000,000 (35,000,000
common shares and 5,000,000 preferred shares). Also on February 23, 1998,
United Road Services, Inc. effected a 3.72 for 1 stock split for all
outstanding common shares. Common stock has been retroactively reflected in
the accompanying financial statements and related notes.
On December 18, 1997, United Road Services, Inc. authorized the issuance of
188,976 shares pursuant to the terms and conditions of a subscription
agreement. At December 31, 1997 United Road Services, Inc. had obtained
subscription agreements to purchase all authorized shares. These shares were
issued and fully paid on January 1, 1998 for $3.36 per share.
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding after giving effect to the stock-splits referred
to above. The weighted average number of shares used in the computation was
2,055,300 for period ended December 31, 1997.
Basic and diluted earnings per share for the nine months ended September 30,
1998 was calculated using weighted average shares of 8,799,686 and 8,937,442,
respectively.
(3) RELATED PARTY TRANSACTIONS
United Road Services, Inc. is indebted to two of the primary stockholders
under unsecured notes, bearing interest at 8.5% per annum. The notes and
unpaid interest were repaid subsequent to the offering.
(4) SUBSEQUENT EVENTS
(a) United Road Services, Inc. has signed definitive agreements to acquire
seven companies (Founding Companies) to be effective simultaneously with the
Offering and one company, Keystone Towing, Inc., to be acquired after the
Offering. The companies to be acquired are:
Northland Auto Transporters, Inc. and Northland Fleet Leasing, Inc.
Falcon Towing and Auto Delivery, Inc.,
Smith-Christensen Enterprises, Inc. and subsidiary ("City Towing, Inc."
d/b/a Quality Towing)
Caron Auto Works, Inc. and Caron Auto Brokers, Inc.
Absolute Towing and Transporting, Inc.
Keystone Towing, Inc.
ASC Transportation Services and subsidiary ("Auto Service Center" d/b/a ASC
Truck Service)
Milne Tow Service
(b) The aggregate consideration to acquire the Founding Companies is
approximately $27.8 million in cash and 2,375,741 in shares of Common Stock.
Additionally, upon consummation of the Keystone Towing, Inc. acquisition, the
stockholder will receive cash consideration of $4.5 million and 377,624 shares
of Common Stock.
(c) United Road Services, Inc. has received a commitment for a revolving
line of credit of $50 million. The funding is intended to be used for
acquisitions, capital expenditures, refinancing of debt not paid out of the
proceeds of the Offering and for general corporate purposes.
(d) Concurrently with the Acquisitions, United Road Services, Inc. may enter
into an agreement with the stockholders to lease the building used in United
Road Services, Inc.'s operation for negotiated amounts and terms.
F-18
<PAGE>
UNITED ROAD SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) Prior to the Acquisitions, several Founding Companies and Keystone
Towing, Inc. intend to make distributions of certain net assets not to exceed
approximately $930,000.
(f) In January 1998, United Road Services, Inc. issued 29,760 shares to a
member of the board of directors for a purchase price of $3.36 per share. In
addition, options to purchase 215,000 shares were issued during January and
February 1998 to several employees of United Road Services, Inc. and outside
consultants. Stock options were issued at a price of $9.00 per share and vest
over a three-year period. Additional options to purchase 40,000 shares are
expected to be issued after the consummation of the Offering at the Offering
price per share.
(g) On May 6, 1998, United Road Services, Inc. effectively acquired the
Founding Companies as a result of the successful completion of the Offering,
as described in note 1(a).
(h) On November 19, 1998, United Road Services, Inc. entered into a Purchase
Agreement with Charter URS LLC ("Charterhouse") providing for the issuance to
Charterhouse of up to $75 million aggregate principal amount of 8% Convertible
Subordinated Debentures ("Debentures") due 2008. The Debentures are
convertible into United Road Services, Inc. Common Stock at an initial
exercise price of $15.00 per share, subject to adjustment as provided in the
Purchase Agreement. The conversion price exceeded the fair market value of the
Common Stock on the date of execution of the Purchase Agreement. United Road
Services, Inc. issued $43.5 million aggregate principal amount of Debentures
to Charterhouse at a first closing on December 7, 1998. Issuance of the
remaining $31.5 million aggregate principal amount of Debentures to
Charterhouse is subject to approval of the stockholders of United Road
Services, Inc.
(5) ACQUISITIONS (UNAUDITED)
On May 6, 1998, United Road Services, Inc. acquired the seven businesses
referred to as the Founding Companies. Between May 7, 1998 and September 30,
1998, United Road Services, Inc. acquired 26 other businesses for aggregate
consideration (excluding assumed indebtedness) of approximately $63.7 million
in cash and 1,708,907 shares of Common Stock with a recorded value of $28.8
million. The acquired companies are located throughout the United States, with
the majority located in the Western Region of the country. These companies are
engaged in the motor vehicle and equipment towing, recovery and transport
services. The acquisitions have been accounted for using the purchase method
of accounting. The excess of the purchase price over the fair value of the
assets acquired of $83.7 million has been recorded as goodwill and is being
amortized on a straight-line basis over 40 years.
The following unaudited pro forma financial information presents the
combined results of operations as if all the acquisitions that have been made
by United Road Services, Inc. through December 31, 1998, had occurred as of
the beginning of the period presented, after giving effect to certain
adjustments, including amortization of goodwill, additional depreciation
expense, reduction in salaries and bonuses to former shareholders and related
income tax effects. This pro forma financial information does not necessarily
reflect the results of operations that would have occurred had a single entity
operated during such periods.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
---------------------------------------- ----------------------------------------
PROFORMA COMBINED PROFORMA COMBINED
FOUNDING COMPANIES FOUNDING COMPANIES
AND SELECTED ALL OTHER AND SELECTED ALL OTHER
ACQUIRED COMPANIES ACQUISITIONS TOTAL ACQUIRED COMPANIES ACQUISITIONS TOTAL
------------------ ------------ -------- ------------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $143,431 $12,376 $155,807 $129,382 $11,344 $140,726
======== ======= ======== ======== ======= ========
Net income.............. $ 5,838 $ 506 $ 6,344 $ 6,963 $ 552 $ 7,515
======== ======= ======== ======== ======= ========
Diluted net income per
share.................. $ 0.53 $ 0.63
======== ========
</TABLE>
United Road Services Inc. is committed to acquire one business with a
purchase price of $10.4 million in cash, 996,351 shares of common stock and an
assumption of $4.4 million of debt.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
Northland Auto Transporters, Inc. and
Northland Fleet Leasing, Inc.:
We have audited the accompanying combined balance sheets of Northland Auto
Transporters, Inc. and Northland Fleet Leasing, Inc. (collectively
"Northland") as of December 31, 1996 and 1997, and the related combined
statements of operations, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These combined
financial statements are the responsibility of Northland's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Northland
Auto Transporters, Inc. and Northland Fleet Leasing, Inc. as of December 31,
1996 and 1997, and the results of their combined operations and their combined
cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
January 28, 1998,
except as to note 14(b),
which is as of May 6, 1998
F-20
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 432,949 $ 407,309 $ 806,933
Trade accounts receivable, net of allowance
for doubtful accounts of $40,000 in 1996
and $75,000 in 1997....................... 416,220 942,432 814,778
Accounts receivable from employees......... 4,955 3,445 40,822
Notes receivable........................... 35,068 17,453 20,933
Income tax receivable (note 7)............. 37,584 -- --
Prepaid and other current assets (note 2).. 74,302 113,558 76,555
Deferred income taxes (note 7)............. 9,000 17,000 17,000
---------- ---------- ----------
Total current assets..................... 1,010,078 1,501,197 1,777,021
Property and equipment, net (notes 3, 5 and
6).......................................... 2,204,802 3,924,055 3,886,336
Notes receivable............................. 44,044 31,468 14,347
Other assets................................. 8,862 8,426 8,426
---------- ---------- ----------
Total assets............................. $3,267,786 $5,465,146 $5,686,130
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of notes payable (note
5)........................................ $ 282,824 $ 346,859 $ 324,347
Current installments of obligations under
capital leases (note 6)................... 4,408 147,538 131,883
Payable to related parties (note 10)....... 159,505 53,849 47,756
Accounts payable........................... 210,998 188,064 204,058
Income taxes payable (note 7).............. -- 261,933 317,465
Accrued payroll and related costs.......... 18,062 52,676 105,949
Other accrued liabilities (note 4)......... 98,914 51,300 28,705
---------- ---------- ----------
Total current liabilities................ 774,711 1,102,219 1,160,163
Long-term liabilities:
Notes payable, excluding current
installments (note 5)..................... 318,382 279,963 219,074
Obligations under capital leases, excluding
current installments (note 6)............. 12,833 793,774 710,171
Deferred income taxes (note 7)............. 171,000 244,000 244,000
---------- ---------- ----------
Total liabilities........................ 1,276,926 2,419,956 2,333,408
---------- ---------- ----------
Stockholder's equity:
Common stock, $1 par value. Authorized,
issued and outstanding 2,000 shares in
1996 and 1997............................. 2,000 2,000 2,000
Retained earnings.......................... 1,988,860 3,043,190 3,350,722
---------- ---------- ----------
Total stockholder's equity............... 1,990,860 3,045,190 3,352,722
---------- ---------- ----------
Total liabilities and stockholder's
equity.................................. $3,267,786 $5,465,146 $5,686,130
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-21
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31
----------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............. $4,671,164 $6,353,290 $10,159,113 $2,081,610 $3,057,307
Cost of revenue......... 3,683,119 5,132,828 7,341,748 1,237,243 2,451,066
---------- ---------- ----------- ---------- ----------
Gross profit........ 988,045 1,220,462 2,817,365 844,367 606,241
Selling, general and
administrative
expenses............... 663,723 874,559 1,378,872 201,071 281,946
---------- ---------- ----------- ---------- ----------
Income from
operations......... 324,322 345,903 1,438,493 643,296 324,295
---------- ---------- ----------- ---------- ----------
Other income (expense):
Interest expense...... (48,825) (79,384) (139,099) (18,122) (10,674)
Interest income....... 16,624 37,701 35,723 19,904 31,498
Gain (loss) on sale of
assets............... (14,540) -- (34,568) 23,000 60,127
Other................. 29,078 41,282 88,781 (24,183) --
---------- ---------- ----------- ---------- ----------
Income before income
taxes.............. 306,659 345,502 1,389,330 643,895 405,246
Income tax expense
(benefit)
(note 7)............... 31,400 (710) 335,000 155,258 97,714
---------- ---------- ----------- ---------- ----------
Net income.......... $ 275,259 $ 346,212 $ 1,054,330 $ 488,637 $ 307,532
========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994................... $2,000 $1,367,389 $1,369,389
Net income--1995............................... -- 275,259 275,259
------ ---------- ----------
Balance at December 31, 1995................... 2,000 1,642,648 1,644,648
Net income--1996............................... -- 346,212 346,212
------ ---------- ----------
Balance at December 31, 1996................... 2,000 1,988,860 1,990,860
Net income--1997............................... -- 1,054,330 1,054,330
------ ---------- ----------
Balance at December 31, 1997................... 2,000 3,043,190 3,045,190
Net income--three-months ended March 31, 1998
(unaudited)................................... -- 307,532 307,532
------ ---------- ----------
Balance at March 31, 1998 (unaudited).......... $2,000 $3,350,722 $3,352,722
====== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
-------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 275,259 $ 346,212 $1,054,330 $ 488,637 $ 307,532
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization........ 181,634 224,637 289,479 66,815 73,596
Deferred income
taxes............... (11,000) (6,000) 65,000 -- --
Loss (gain) on sale
of property and
equipment........... 14,540 -- 34,568 (23,000) (60,127)
Decrease (increase)
in trade accounts
receivable.......... (115,982) 138,452 (526,212) (275,875) 127,654
Decrease (increase)
in accounts
receivable from
employees........... 1,185 (4,100) 1,510 (24,420) (37,377)
Decrease (increase)
in income tax
receivable.......... -- -- 37,584 (5,791) --
Decrease (increase)
in prepaid and other
current assets...... (17,892) 16,331 (39,256) (23,374) 37,003
Increase (decrease)
in accounts payable. 716 23,236 (22,934) (28,080) 15,994
Increase in income
taxes payable....... -- -- 261,933 -- 55,532
Increase (decrease)
in accrued payroll
and related costs... (85,348) (14,137) 34,614 1,313 53,273
Increase (decrease)
in amounts payable
to related parties.. 20,552 16,410 (105,656) 16,303 (6,093)
Increase (decrease)
in other accrued
liabilities......... 25,946 2,880 (47,614) (12,816) (22,595)
--------- --------- ---------- --------- ---------
Net cash provided
by operating
activities........ 289,610 743,921 1,037,346 179,712 544,392
--------- --------- ---------- --------- ---------
Cash flows from
investing activities:
Purchases of property
and equipment......... (229,888) (395,881) (762,597) (271,868) (54,450)
Proceeds from sale of
equipment............. 53,044 -- 67,656 23,000 78,700
Decrease in notes
receivable............ 8,159 (30,984) 30,191 38,697 13,641
--------- --------- ---------- --------- ---------
Net cash (used in)
provided by
investing
activities........ (168,685) (426,865) (664,750) (210,171) 37,891
--------- --------- ---------- --------- ---------
Cash flows from
financing activities:
Proceeds from long-
term debt............. -- -- 24,629 -- 15,434
Principal payments on
long-term debt........ (139,745) (156,620) (317,543) (76,931) (98,835)
Principal payments on
obligations under
capital leases........ -- (1,351) (105,322) (603) (99,258)
--------- --------- ---------- --------- ---------
Net cash used in
financing
activities........ (139,745) (157,971) (398,236) (77,534) (182,659)
--------- --------- ---------- --------- ---------
Net (decrease)
increase in cash.. (18,820) 159,085 (25,640) (107,993) 399,624
Cash and cash
equivalents at
beginning of period.... 292,684 273,864 432,949 432,949 407,309
--------- --------- ---------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 273,864 $ 432,949 $ 407,309 $ 324,956 $ 806,933
========= ========= ========== ========= =========
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for:
Interest............. $ 48,825 $ 79,384 $ 139,099 $ 18,122 $ 10,674
========= ========= ========== ========= =========
Income taxes......... $ 7,024 $ 79,835 $ 6,480 $ 161,049 $ 42,182
========= ========= ========== ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Northland Auto Transporters, Inc. and Northland Fleet Leasing, Inc.
(referred to collectively as "Northland") were founded in 1977 and 1992,
respectively. Northland's primary business is transporting vehicles for auto
auctions, leasing companies, auto dealers, manufacturers and individuals,
primarily in the Midwestern United States. Northland has three facilities in
Detroit. It operates approximately 55 vehicles. Northland Fleet Leasing, Inc.
owns a fleet of trucks and trailers and contracts out work primarily with
Northland Auto Transporters, Inc., and to a limited extent, third party
contractors.
(b) Principles of Combination
The combined financial statements include the financial statements of
Northland Auto Transporters, Inc., the auto hauling company, and Northland
Fleet Leasing, Inc., a truck leasing company. Northland Auto Transporters,
Inc. is a C-corporation while Northland Fleet Leasing, Inc. is an S-
corporation. All sales relating to intercompany leasing arrangements have been
eliminated. Both entities have the same management and principal stockholder
ownership.
(c) Revenue Recognition
Northland operates as one segment related to the transportation of vehicles
and equipment for customers.
Northland's revenue is derived from customers who require transportation of
vehicles and equipment. Transport revenue is recognized upon the delivery of
the vehicles to their final destination. Expenses related to the generation of
revenue are recognized as incurred.
(d) Cash and Cash Equivalents
Cash and cash equivalents of $432,949 and $407,309 at December 31, 1996 and
1997, respectively, consist of bank accounts and certificates of deposit with
an initial term of less than three months. For purposes of the statements of
cash flows, Northland considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
(e) Property and Equipment
Property and equipment are stated at cost. Plant and equipment under capital
leases are stated at the present value of minimum lease payments. Depreciation
is determined for financial statement purposes using the straight-line method
over the estimated useful lives of the individual assets. Accelerated methods
of depreciation have been used for income tax purposes. For financial
statement purposes, Northland provides for depreciation of property and
equipment over the following estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment....................................... 10-20 years
Furniture and Fixtures......................................... 7 years
Office Equipment............................................... 5 years
Automobiles.................................................... 5 years
</TABLE>
(f) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Northland on bank loans with
similar terms and maturities, the fair value of Northland's financial
instruments approximates their carrying values.
F-25
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Income Taxes
Income taxes are accounted for under the asset and liability method for
Northland Auto Transporters, Inc. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Northland Fleet Leasing, Inc. is a subchapter S-corporation. As such, all
taxable events are recorded by the stockholder currently on his personal tax
returns.
(h) Use of Estimates
Management of Northland has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(i) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------- MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid insurance............................. $14,818 $ 28,172 $17,638
Prepaid vehicle registration.................. 25,978 35,778 23,852
Deposits on trucks............................ 12,403 16,633 29,843
Miscellaneous advances........................ 12,716 9,320 205
Prepaid property and other taxes.............. 8,387 23,655 5,017
------- -------- -------
$74,302 $113,558 $76,555
======= ======== =======
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation equipment.............. $2,745,094 $4,457,178 $4,336,121
Furniture and fixtures................ 123,585 147,035 141,338
Office equipment...................... 34,449 34,244 34,244
Automobiles........................... 64,781 126,926 124,009
---------- ---------- ----------
Total............................... 2,967,909 4,765,383 4,635,712
Less accumulated depreciation and
amortization......................... (763,107) (841,328) (749,376)
---------- ---------- ----------
$2,204,802 $3,924,055 $3,886,336
========== ========== ==========
</TABLE>
Depreciation of property and equipment in 1995, 1996 and 1997 totaled
$181,198, $224,201 and $289,043, respectively.
F-26
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) OTHER ACCRUED LIABILITIES
Other accrued liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued highway use tax............................. $ 9,487 $14,300 $ 4,247
Accrued insurance................................... 12,324 6,880 5,397
Accrued profit sharing.............................. 64,196 -- --
Other............................................... 12,907 30,120 19,061
------- ------- -------
$98,914 $51,300 $28,705
======= ======= =======
</TABLE>
(5) INDEBTEDNESS
Northland's long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Navistar Financial Corp.,
payable in monthly installments of $1,188,
including interest at 8.755%, maturing June
2000. Secured by equipment. ................ $ 43,095 $ 31,081 $ 43,113
Note payable to First of America Bank,
payable in monthly installments of $11,029,
including interest at 8.25%, maturing May
1999. Secured by equipment. ................ 288,698 176,248 146,308
Note payable to First of America Bank,
payable in monthly principal installments of
$7,320, plus interest at .75% above the
prime lending rate (9.0% and 9.25% at
December 31, 1996 and 1997, respectively),
maturing July 1998. Secured by equipment. .. 141,143 49,628 25,492
Note payable to First of America Bank,
payable in monthly installments of $6,290,
including interest at 8.25%, maturing
October 1998. Secured by equipment. ........ 128,270 60,948 28,150
Note payable to First of America Bank,
payable in monthly principal installments of
$6,771, including interest at the Bank's
base lending rate (8.50% at December 31,
1997), maturing April 10, 2001. secured by
equipment. ................................. -- 288,656 281,234
Various notes payable secured by equipment... -- 20,261 19,124
--------- --------- ---------
Total long-term debt....................... 601,206 626,822 543,421
Less installments due within one year........ (282,824) (346,859) (324,347)
--------- --------- ---------
Long-term debt, excluding current
installments.............................. $ 318,382 $ 279,963 $ 219,074
========= ========= =========
</TABLE>
Annual maturities of long-term debt for the next four years are as follows:
<TABLE>
<S> <C>
1998.............................................................. $346,859
1999.............................................................. 147,902
2000.............................................................. 87,161
2001.............................................................. 44,900
--------
$626,822
========
</TABLE>
F-27
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) LEASES
Northland leases equipment under capital leases which expire in stages from
August 2000 to July 2002.
Northland leases its operating facility from a third party under a
cancelable operating lease. Rent expense in 1995, 1996 and 1997 was $40,054,
$58,515 and $41,700, respectively.
Following is a summary of transportation equipment held under capital
leases:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- MARCH 31,
1996 1997 1998
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation equipment................. $18,000 $1,047,298 $1,047,298
Less accumulated amortization............ (3,600) (298,619) (372,374)
------- ---------- ----------
$14,400 $ 748,679 $ 674,924
======= ========== ==========
</TABLE>
Future minimum capital lease payments as of December 31, 1997 are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL
------------------------ LEASES
<S> <C>
1998........................................................... $ 213,228
1999........................................................... 216,655
2000........................................................... 214,758
2001........................................................... 210,973
2002........................................................... 298,065
----------
Total........................................................ 1,153,679
Less amount representing interest.............................. (212,367)
----------
Present value of net minimum capital lease payments............ $ 941,312
==========
</TABLE>
(7) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1995, 1996 and
1997 consists of:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal...................................... $ 42,400 $ 5,290 $270,000
Deferred....................................... (11,000) (6,000) 65,000
-------- ------- --------
$ 31,400 $ (710) $335,000
======== ======= ========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate.
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Computed expected tax expense............. $104,264 $ 117,471 $ 472,372
Effect of earnings from S-corporation..... (77,750) (123,441) (141,644)
Non-deductible meals and entertainment
expenses................................. 4,886 5,260 4,272
-------- --------- ---------
$ 31,400 $ (710) $ 335,000
======== ========= =========
</TABLE>
F-28
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of December 31, 1996 and 1997 are
presented below:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 9,000 $ 17,000
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation lives and methods................... (171,000) (244,000)
--------- ---------
Net deferred tax liability...................... $(162,000) $(227,000)
========= =========
</TABLE>
At December 31, 1995, the net deferred tax liability was $168,000.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not Northland will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(8) NON-CASH TRANSACTIONS
During 1995, 1996 and 1997, Northland leased transportation equipment
totaling $200,000, $360,523 and, $1,347,923 respectively, through capital
leases with several lending institutions.
(9) EMPLOYEE BENEFITS
Northland has a retirement savings plan pursuant to section 401(k) of the
Internal Revenue Code that is available to all employees with at least one
year of service to Northland and that are at least 21 years of age. Eligible
participants may contribute up to 15% of their compensation. Northland
provides discretionary matching contributions to the Plan which amounted to,
$12,985, $64,196 and $0 in 1995, 1996 and 1997, respectively.
(10) RELATED PARTY TRANSACTIONS
Northland has borrowed funds from its principal stockholder and has
outstanding notes payable as of December 31, 1996 and 1997 of $159,505 and
$53,849. Such amounts are included in notes payable on the combined balance
sheets. The notes accrue interest at 8%, compounded monthly.
(11) CONTINGENT LIABILITIES
Various legal claims arise against Northland during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(12) CONCENTRATION OF BUSINESS RISKS
Two customers, GE Capital and C.T. Services, accounted for a combined 10.7%
and 16.4% of Northland's sales in 1996 and 1997, respectively. The loss of one
or both of these customers could significantly effect Northland's performance.
F-29
<PAGE>
NORTHLAND AUTO TRANSPORTERS, INC. AND
NORTHLAND FLEET LEASING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(13) ALLOWANCE FOR DOUBTFUL ACCOUNTS
During 1995, 1996 and 1997, Northland recorded provisions for the allowance
for doubtful accounts in the amounts of $32,000, $30,000 and $52,000,
respectively. During 1995, 1996 and 1997, Northland wrote-off an average of
$17,000 in each year.
(14) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Northland to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Services, Inc., is contingent and effective upon the initial public offering
of the common stock of United Road Services, Inc. The anticipated selling
price of Northland exceeds its net assets as of December 31, 1997.
(b) On May 6, 1998, United Road Services, Inc. effectively acquired
Northland as a result of the successful completion of the initial public
offering of the common stock of United Road Services, Inc.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
Falcon Towing and Auto Delivery, Inc.:
We have audited the accompanying balance sheets of Falcon Towing and Auto
Delivery, Inc. ("Falcon") as of December 31, 1996 and 1997, and the related
statements of operations, stockholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of Falcon's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Falcon Towing and Auto
Delivery, Inc. as of December 31, 1996 and 1997 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Albany, New York
January 17, 1998,
except as to note 11(c),
which is as of May 6, 1998
F-31
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 23,505 $ 3,527 $ 3,024
Trade accounts receivable, net of allowance
for doubtful accounts of $67,650 in 1996
and $188,500 in 1997...................... 476,896 717,560 563,353
Inventories................................ 24,868 26,068 26,068
Prepaid and other current assets (note 2).. 46,537 131,328 149,729
---------- ---------- ----------
Total current assets..................... 571,806 878,483 742,174
Property and equipment, net (notes 3, 5 and
6).......................................... 1,656,635 2,423,368 2,453,169
---------- ---------- ----------
Total assets............................. $2,228,441 $3,301,851 $3,195,343
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt
(note 5).................................. $ 123,722 $ 264,081 $ 355,393
Current installments of obligations under
capital leases
(note 6).................................. 252,527 368,590 368,590
Borrowings under lines of credit (note 5).. 36,150 47,121 45,316
Accounts payable........................... 178,357 546,301 595,073
Accrued payroll and related costs.......... 57,000 67,701 67,701
Income taxes payable (note 8).............. 98,698 207,399 216,261
Other accrued liabilities (note 4)......... 137,600 214,979 219,959
---------- ---------- ----------
Total current liabilities................ 884,054 1,716,172 1,868,293
Long-term liabilities:
Long-term debt, excluding current
installments (note 5)..................... 225,386 250,196 72,831
Obligations under capital leases, excluding
current installments (note 6)............. 630,677 716,288 624,140
Deferred income taxes (note 8)............. 11,733 10,555 10,555
---------- ---------- ----------
Total liabilities........................ 1,751,850 2,693,211 2,575,819
---------- ---------- ----------
Stockholder's equity:
Common stock, no par or stated value.
Authorized 1,000 shares; issued and
outstanding 750 shares in 1996 and 1997... -- -- --
Retained earnings.......................... 476,591 608,640 619,524
---------- ---------- ----------
Total stockholder's equity............... 476,591 608,640 619,524
---------- ---------- ----------
Total liabilities and stockholder's
equity.................................. $2,228,441 $3,301,851 $3,195,343
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $4,351,847 $6,203,104 $7,784,766 $1,697,166 $1,965,856
Cost of revenue......... 3,492,248 4,638,239 5,955,423 1,265,627 1,430,094
---------- ---------- ---------- ---------- ----------
Gross profit........ 859,599 1,564,865 1,829,343 431,539 535,762
Selling, general and
administrative
expenses............... 952,260 1,190,631 1,614,386 420,944 505,544
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations......... (92,661) 374,234 214,957 10,595 30,218
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest expense...... (77,176) (129,150) (147,700) (35,021) (10,472)
Gain (loss) on sale of
equipment............ (417) -- 98,735 (9,323) --
Other................. 38,508 12,167 73,580 16,041 --
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes....... (131,746) 257,251 239,572 (17,708) 19,746
Income tax expense
(benefit) (note 8)..... 15,707 94,723 107,523 (7,947) 8,862
---------- ---------- ---------- ---------- ----------
Net income (loss)... $ (147,453) $ 162,528 $ 132,049 $ (9,761) $ 10,884
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994................... $-- $ 461,516 $ 461,516
Net loss--1995................................. -- (147,453) (147,453)
---- --------- ---------
Balance at December 31, 1995................... -- 314,063 314,063
Net income--1996............................... -- 162,528 162,528
---- --------- ---------
Balance at December 31, 1996................... -- 476,591 476,591
Net income--1997............................... -- 132,049 132,049
---- --------- ---------
Balance at December 31, 1997................... -- 608,640 608,640
Net loss--three-months ended March 31, 1998
(unaudited)................................... -- 10,884 10,884
---- --------- ---------
Balance at March 31, 1998 (unaudited).......... $-- $ 619,524 $ 619,524
==== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------------- ------------------
1995 1996 1997 1997 1998
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $(147,453) $ 162,528 $ 132,049 $ (9,761) $ 10,884
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 343,595 431,828 621,673 139,697 121,399
Deferred income taxes. 15,707 (3,975) (1,178) -- --
(Gain) loss on sale of
equipment............ 417 -- (98,735) 9,323 --
Decrease (increase) in
trade accounts
receivable........... (1,169) (236,557) (240,664) (2,334) 154,207
Increase in
inventories.......... -- -- (1,200) (1,200) --
Decrease (increase) in
prepaid and other
current assets....... (10,524) (9,236) (84,791) 1,817 (18,401)
Increase (decrease) in
accounts payable..... 104,440 (8,097) 367,944 58,796 48,772
Increase in accrued
payroll and related
costs................ 71,443 53,937 10,701 -- --
Increase (decrease) in
income taxes payable. (20,542) 98,698 108,701 (7,947) 8,862
Increase (decrease) in
other accrued
liabilities.......... 7,434 (12,591) 77,379 434 4,980
--------- --------- --------- -------- --------
Net cash provided by
operating
activities......... 363,348 476,535 891,879 188,825 330,703
--------- --------- --------- -------- --------
Cash flows used in
investing activities:
Purchases of property
and equipment.......... (290,177) (169,861) (919,049) (93,685) (151,200)
Proceeds from sale of
property and
equipment.............. -- -- 141,100 -- --
--------- --------- --------- -------- --------
Net cash used in
investing
activities......... (290,177) (169,861) (777,949) (93,685) (151,200)
--------- --------- --------- -------- --------
Cash flows from financing
activities:
Proceeds from long-term
debt................... 75,047 -- 384,609 -- --
Payments on notes
payable and capital
leases................. (120,031) (282,833) (529,488) (122,471) (178,201)
Net borrowings under
lines of credit........ (36,066) (2,784) 10,971 8,259 (1,805)
--------- --------- --------- -------- --------
Net cash used in
financing
activities......... (81,050) (285,617) (133,908) (114,212) (180,006)
--------- --------- --------- -------- --------
Net (decrease) increase
in cash................. (7,879) 21,057 (19,978) (19,072) (503)
Cash at beginning of
period.................. 10,327 2,448 23,505 23,505 3,527
--------- --------- --------- -------- --------
Cash at end of period.... $ 2,448 $ 23,505 $ 3,527 $ 4,433 $ 3,024
========= ========= ========= ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid during the year
for:
Interest................ $ 74,280 $ 125,435 $ 144,806 $ 35,021 $ 10,472
========= ========= ========= ======== ========
Income taxes............ $ -- $ 12,591 $ -- $ -- $ --
========= ========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Falcon Towing and Auto Delivery, Inc. ("Falcon") was founded in 1985.
Falcon's primary business is transporting vehicles for dealers, leasing
companies, auction companies and long-haul transporters in the Western United
States. Falcon has facilities in Los Angeles, San Francisco and Phoenix. It
operates approximately 50 vehicles.
(b) Revenue Recognition
Falcon operates as one segment related to the transportation of vehicles and
equipment for customers.
Falcon's revenue is derived from customers who require transport of vehicles
and equipment. Transport revenue is recognized upon the delivery of the
vehicles and equipment to their final destination. Expenses related to the
generation of revenue are recognized as incurred.
(c) Inventories
Inventories, which consist principally of replacement tires and truck parts,
are stated at the lower of cost or market.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes,
Falcon provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Transportation and towing equipment................................ 5 years
Machinery and equipment............................................ 5 years
Leasehold improvements............................................. 5 years
Furniture and fixtures............................................. 5 years
Office equipment................................................... 5 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Falcon on bank loans with
similar terms and maturities, the fair value of Falcon's financial instruments
approximates their carrying values.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(g) Use of Estimates
Management of Falcon has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
F-36
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PREPAID EXPENSES
Prepaid and other current assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1996 1997
------- --------
<S> <C> <C>
Prepaid vehicle registration............................. $ -- $ 64,790
Prepaid insurance........................................ 19,414 27,340
Other.................................................... 27,123 39,198
------- --------
$46,537 $131,328
======= ========
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation and towing
equipment......................... $ 2,970,070 $ 4,124,483 $ 4,275,683
Machinery and equipment............ 70,296 104,411 104,411
Leasehold improvements............. 26,489 43,653 43,653
Furniture and fixtures............. 10,448 14,298 14,298
Office equipment................... 19,225 19,225 19,225
Construction-in-progress........... -- 33,000 33,000
----------- ----------- -----------
Total............................ 3,096,528 4,339,070 4,490,270
Less accumulated depreciation and
amortization...................... (1,439,893) (1,915,702) (2,037,101)
----------- ----------- -----------
$ 1,656,635 $ 2,423,368 $ 2,453,169
=========== =========== ===========
</TABLE>
Depreciation and amortization of property and equipment in 1995, 1996 and
1997 totaled $343,595, $431,828 and $621,673, respectively.
(4) OTHER ACCRUED LIABILITIES
Other accrued liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Accrued insurance premiums.............................. $ 20,248 $ 17,712
Accrued fuel expenses................................... 31,827 80,055
Accrued commissions..................................... 43,000 51,000
Accrued vacation........................................ 18,000 21,000
Accrued 401(k) contributions............................ -- 17,983
Other................................................... 24,525 27,229
-------- --------
$137,600 $214,979
======== ========
</TABLE>
F-37
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INDEBTEDNESS
Falcon has available a $50,000 line of credit with $36,150 and $47,121
outstanding at December 31, 1996 and 1997, respectively, secured by the assets
of Falcon and a guarantee by Falcon's stockholder. Interest is payable at
11.5%.
Falcon's long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to banks payable in
monthly installments ranging from
$1,024 to $2,909, including interest
ranging from 9.0% to 10.5%, and
maturing at dates ranging from April,
1998 to April, 2000. Secured by
vehicles and equipment. ............... $ 349,108 $ 514,277 $428,224
Less installments due within one year... (123,722) (264,081) (355,393)
--------- --------- --------
Long-term debt, excluding current
installments........................... $ 225,386 $ 250,196 $ 72,831
========= ========= ========
</TABLE>
The aggregate maturities of long-term debt subsequent to December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998.............................................................. $264,081
1999.............................................................. 166,798
2000.............................................................. 83,398
--------
$514,277
========
</TABLE>
(6) LEASES
Falcon is the lessee of vehicles under a number of capital leases which
expire in stages from April 1999 to November 2000.
Following is a summary of equipment held under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation and towing
equipment......................... $1,612,687 $ 2,124,409 $ 2,124,409
Less accumulated amortization...... (703,928) (1,036,670) (1,127,996)
---------- ----------- -----------
$ 908,759 $ 1,087,739 $ 996,413
========== =========== ===========
</TABLE>
Falcon leases the land and buildings used for its operations at the El Monte
and Phoenix locations under lease agreements with its sole stockholder. These
agreements provide for annual rental payments of $288,000 beginning December
1996 and $37,000 beginning March 1997 at the El Monte and Phoenix locations,
respectively. Rent paid to the stockholder in 1995, 1996 and 1997 was $0,
$24,000 and $319,000, respectively. Additionally, Falcon has a cancelable
lease for the land and building used for its operations at the Newark, CA
location from an unrelated third party for annual rental payments of
approximately $48,000. The leases are classified as operating leases. Falcon
is responsible for all operating costs related to the properties.
Total rent expense for 1995, 1996 and 1997 was $240,003, $265,103 and
$438,003, respectively.
F-38
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1997 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
<S> <C> <C>
1998............................................... $ 473,698 $ 325,000
1999............................................... 400,408 325,000
2000............................................... 254,520 325,000
2001............................................... 14,112 277,000
2002............................................... -- 3,100
---------- ----------
Total............................................ 1,142,738 $1,255,100
==========
Less amount representing interest.................. (57,860)
----------
Present value of net minimum capital lease
payments........................................ $1,084,878
==========
</TABLE>
(7) NON-CASH TRANSACTIONS
During 1995, 1996 and 1997, Falcon financed certain purchases of vehicles
and equipment totaling $571,137, $671,086 and $511,722, respectively.
(8) INCOME TAXES
Income tax expense for the years ended December 31, 1995, 1996 and 1997
consists of:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $77,500 $ 86,271
State......................................... -- 21,198 22,430
------- ------- --------
-- 98,698 108,701
Deferred........................................ 15,707 (3,975) (1,178)
------- ------- --------
$15,707 $94,723 $107,523
======= ======= ========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate.
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Computed expected tax (benefit) expense...... $(44,794) $ 87,465 $ 81,454
State income taxes (benefit), net of Federal
benefit..................................... (8,087) 13,991 14,803
Non-deductible meals and entertainment
expenses.................................... 1,428 354 2,116
Tax penalties and disallowances.............. -- 5,724 3,898
Net operating loss carryforward for which no
benefit will be derived..................... 73,039 -- --
Basis difference in fixed assets which will
not result in a tax benefit or loss......... (5,879) (12,811) 5,252
-------- -------- --------
$ 15,707 $ 94,723 $107,523
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities as of December 31, 1995, 1996 and 1997 relate to fixed assets
caused by differences in depreciation lives and methods and total $15,707,
$11,733 and $10,555, respectively.
F-39
<PAGE>
FALCON TOWING AND AUTO DELIVERY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(9) EMPLOYEE BENEFITS
Falcon has a retirement savings plan pursuant to section 401(k) of the
Internal Revenue Code that is available to all employees with at least one
year of service to Falcon and that are at least twenty-one years of age.
Falcon provides matching funds of 25% of eligible contributions to the Plan
which amounted to $0, $0 and $18,000 in 1995, 1996 and 1997, respectively.
(10) RELATED PARTY TRANSACTIONS
Falcon leases land and buildings, located at the El Monte and Phoenix
locations, from the sole stockholder (see note 6).
(11) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Falcon to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Services, Inc., is contingent and effective upon the initial public offering
of the common stock of United Road Services, Inc. The anticipated selling
price of Falcon exceeds its net assets as of December 31, 1997.
(b) Concurrently with the acquisition, United Road Services, Inc. will enter
into agreements with the stockholder to lease land and buildings used in
Falcon's operations for negotiated amounts and terms.
(c) On May 6, 1998, United Road Services, Inc. effectively acquired Falcon
as a result of the successful completion of the initial public offering of the
common stock of United Road Services, Inc.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Smith-Christensen Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Smith-
Christensen Enterprises, Inc. and subsidiary (City Towing, Inc. d/b/a Quality
Towing) ("Quality") as of January 31, 1997 and December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years ended January 31, 1996 and 1997 and for the
twelve-month period ended December 31, 1997. These consolidated financial
statements are the responsibility of Quality's management. Our responsibility
is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Smith-Christensen
Enterprises, Inc. and subsidiary (City Towing, Inc. d/b/a Quality Towing) as
of January 31, 1997 and December 31, 1997, and the results of their operations
and their cash flows for each of the years ended January 31, 1996 and 1997 and
for the twelve-month period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
January 16, 1998,
except as to note 11(c),
which is as of May 6, 1998
F-41
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 180,269 $ 266,687 $ 308,414
Trade accounts receivable, net of
allowance for doubtful accounts of
$26,850 and $75,850 at January 31, 1997
and December 31, 1997, respectively.... 88,518 277,966 283,677
Accounts receivable from related parties
(note 9)............................... 10,665 50,151 50,151
Due from employees...................... 19,124 22,053 15,955
Inventories............................. 20,661 9,950 29,372
Prepaid expenses (note 2)............... 30,048 19,680 46,988
Other current assets.................... 900 900 900
---------- ---------- ----------
Total current assets.................. 350,185 647,387 735,457
Property, plant and equipment, net (notes
3 and 5)................................. 2,653,243 2,877,229 3,165,423
Accounts receivable from related parties
(note 9)................................. 157,294 831,733 454,441
Other assets, net (note 4)................ 118,908 98,905 98,905
---------- ---------- ----------
Total assets.......................... $3,279,630 $4,455,254 $4,454,226
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(note 5)............................... $ 447,875 $ 541,836 $ 522,470
Accounts payable........................ 38,278 68,203 163,506
Accrued payroll and related costs....... 28,757 85,563 21,832
Income taxes payable (note 7)........... 60,863 345,339 336,039
Other accrued expenses.................. 5,305 3,110 25,418
---------- ---------- ----------
Total current liabilities............. 581,078 1,044,051 1,069,265
---------- ---------- ----------
Long-term liabilities:
Long-term debt, excluding current
installments (note 5).................. 2,415,340 2,188,038 2,188,038
Deferred income taxes (note 7).......... 193,379 312,721 312,721
---------- ---------- ----------
Total liabilities..................... 3,189,797 3,544,810 3,570,024
---------- ---------- ----------
Stockholders' equity:
Common stock, no par value.
Authorized 2,500 shares; issued and
outstanding 2,425 shares............... 20,000 20,000 20,000
Retained earnings....................... 69,833 890,444 864,202
---------- ---------- ----------
Total stockholders' equity............ 89,833 910,444 884,202
---------- ---------- ----------
Total liabilities and stockholders'
equity............................... $3,279,630 $4,455,254 $4,454,226
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-42
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE-MONTH THREE-MONTH PERIODS
PERIOD ENDED ENDED MARCH 31
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 ----------------------
JANUARY 31, 1996 JANUARY 31, 1997 (NOTE 1(B)) 1997 1998
---------------- ---------------- ----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............. $4,395,762 $5,395,475 $6,802,474 $1,533,327 $1,954,670
Cost of revenue......... 2,579,463 3,214,772 3,849,138 1,014,657 1,223,785
---------- ---------- ---------- ---------- ----------
Gross profit........ 1,816,299 2,180,703 2,953,336 518,670 730,885
Selling, general and
administrative
expenses............... 1,436,488 1,194,716 1,389,707 234,887 520,620
---------- ---------- ---------- ---------- ----------
Income from
operations......... 379,811 985,987 1,563,629 283,783 210,265
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest expense...... (258,554) (325,370) (277,436) (70,352) (64,460)
Interest income....... -- -- 4,524 -- --
Other................. (25,005) 131,721 (27,375) (127,032) (181,347)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes....... 96,252 792,338 1,263,342 86,399 (35,542)
Income tax expense
(benefit) (note 7)..... 103,752 277,623 440,978 30,240 (9,300)
---------- ---------- ---------- ---------- ----------
Net income (loss)... $ (7,500) $ 514,715 $ 822,364 $ 56,159 $ (26,242)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-43
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
COMMON EARNINGS EQUITY
STOCK (DEFICIT) (DEFICIT)
------- --------- -------------
<S> <C> <C> <C>
Balance at January 31, 1995................... $20,000 $(437,382) $(417,382)
Net loss--year ended January 31, 1996......... -- (7,500) (7,500)
------- --------- ---------
Balance at January 31, 1996................... 20,000 (444,882) (424,882)
Net income--year ended January 31, 1997....... -- 514,715 514,715
------- --------- ---------
Balance at January 31, 1997................... 20,000 69,833 89,833
Net income--twelve-months ended December 31,
1997......................................... -- 822,364 822,364
Net loss--month of January 1997 (note 1(b))... -- (1,753) (1,753)
------- --------- ---------
Balance at December 31, 1997.................. 20,000 890,444 910,444
Net loss--three-month periods ended March 31,
1998 (unaudited)............................. -- (26,242) (26,242)
------- --------- ---------
Balance at March 31, 1998 (unaudited)......... $20,000 $ 864,202 $ 884,202
======= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-44
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTH
PERIODS ENDED
TWELVE-MONTH MARCH 31
YEAR ENDED YEAR ENDED PERIOD ENDED ------------------
JANUARY 31, 1996 JANUARY 31, 1997 DECEMBER 31, 1997 1997 1998
---------------- ---------------- ----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $ (7,500) $ 514,715 $ 822,364 $ 56,159 $(26,242)
Adjustments to
reconcile net income
(loss) to net cash
provided by
operating
activities:
Net loss for the
month of January
1997 (note 1(b))... -- -- (1,753) -- --
Depreciation and
amortization....... 237,118 322,628 268,732 67,183 23,638
Deferred income
taxes.............. 151,090 106,198 119,342 -- --
Decrease (increase)
in trade accounts
receivable......... (74,638) 63,597 (189,448) 141,456 (5,711)
Increase in due from
related parties.... (6,512) (10,285) (39,486) -- --
Decrease (increase)
in due from
employees.......... -- -- (2,929) -- 6,098
Decrease (increase)
in inventories..... -- (20,661) 10,711 5,175 (19,422)
Decrease (increase)
in prepaid
expenses........... (29,858) 7,609 10,368 (262,315) (27,308)
Decrease (increase)
in receivables from
related parties.... (34,549) (297,009) (674,439) -- 377,292
Increase (decrease)
in accounts
payable............ 65,853 (49,744) 29,925 (15,789) 95,303
Increase (decrease)
in accrued payroll
and related costs.. 62,316 (58,732) 56,806 52,697 (63,731)
Increase (decrease)
in income taxes
payable............ (30,809) 75,650 284,476 (2,214) (9,300)
(Decrease) increase
in other accrued
expenses........... 6,130 (1,785) (2,195) -- 22,308
--------- --------- --------- -------- --------
Net cash provided
by operating
activities....... 338,641 652,181 692,474 42,352 372,925
--------- --------- --------- -------- --------
Cash flows from
investing activities:
Purchases of
property, plant and
equipment............ (700,708) (493,663) (472,715) (175,175) (311,832)
Purchase of Custom
Towing............... (200,000) -- -- -- --
--------- --------- --------- -------- --------
Net cash used in
investing
activities....... (900,708) (493,663) (472,715) (175,175) (311,832)
--------- --------- --------- -------- --------
Cash flows from
financing activities:
Proceeds from long-
term debt............ 424,979 -- -- 76,624 --
Principal payments on
long-term debt....... -- (104,014) (133,341) -- (19,366)
Proceeds from
borrowings under
lines of credit...... 150,000 120,000 -- -- --
--------- --------- --------- -------- --------
Net cash (used in)
provided by
financing
activities....... 574,979 15,986 (133,341) 76,624 (19,366)
--------- --------- --------- -------- --------
Net increase in cash... 12,912 174,504 86,418 (56,199) 41,727
Cash at beginning of
period................ (7,147) 5,765 180,269 258,181 266,687
--------- --------- --------- -------- --------
Cash at end of period.. $ 5,765 $ 180,269 $ 266,687 $201,982 $308,414
========= ========= ========= ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for:
Interest............ $ 258,554 $ 325,370 $ 253,242 $ 63,310 $ 62,063
========= ========= ========= ======== ========
Income taxes........ $ 58,439 $ 61,656 $ 37,160 $ 9,290 $ 11,889
========= ========= ========= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-45
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1996, JANUARY 31, 1997 AND DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Smith-Christensen Enterprises, Inc. and its wholly-owned subsidiary City
Towing, Inc. (d/b/a Quality Towing), collectively referred to herein as
"Quality," were founded in 1988 and 1968, respectively. Quality's primary
business is towing, impounding and storing vehicles for municipal,
governmental and commercial customers in Southern Nevada. Quality has two
facilities in Las Vegas. It operates approximately 40 vehicles.
(b) Periods Presented
Because Quality has a fiscal year end of January 31, the statements of
operations, stockholder's equity and cash flows for Quality's most recent
twelve-month period includes the results of operations for the month of
January 1997, which is also included in the prior fiscal year ended January
31, 1997. The following represents the condensed results of operations for the
month of January 1997 which is included in the twelve-month period ended
December 31, 1997 and in the fiscal year ended January 31, 1997:
<TABLE>
<S> <C>
Net revenue..................................................... $440,053
Cost of revenue................................................. 242,564
--------
Gross profit................................................ 197,489
Selling, general and administrative expenses.................... 174,187
--------
Income from operations...................................... 23,302
--------
Other expenses:
Interest expense.............................................. (24,193)
Other......................................................... (862)
--------
Loss before income taxes.................................... (1,753)
Income tax expense.......................................... --
--------
Net loss.................................................... $ (1,753)
========
</TABLE>
(c) Principles of Consolidation
The consolidated financial statements include the financial statements of
Smith-Christensen Enterprises, Inc. and its wholly-owned subsidiary City
Towing, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.
(d) Revenue Recognition
Quality operates as one segment related to the transportation of vehicles
and equipment for customers.
Quality's revenue is derived from customers who require a towing service,
fees related to the storage of vehicles that have been towed, transport of
vehicles and equipment, and auction sales of unclaimed vehicles. Towing
revenue is recognized at the completion of each towing engagement, storage
fees are accrued over the period the vehicles are held in the impound
facility, transport revenue is recognized upon the delivery of the
vehicles/equipment to their final destination, and revenue from auction sales
are recorded when title to the vehicles has been transferred. Expenses related
to the generation of revenue are recognized as incurred.
F-46
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Inventories
Inventories consist of vehicles that will be offered for auction.
Inventories are stated at the lower of cost or market.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is determined
for financial statement purposes using the straight-line method over the
estimated useful lives of the individual assets or, for leasehold
improvements, over the terms of the related leases if shorter. Accelerated
methods of depreciation have been used for income tax purposes. For financial
statement purposes, Quality provides for depreciation of property and
equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings...................................................... 28-30 years
Leasehold improvements......................................... 15-30 years
Transportation and towing equipment............................ 5-15 years
Office equipment............................................... 3-5 years
Machinery and other equipment.................................. 5 years
</TABLE>
(g) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Quality on bank loans with
similar terms and maturities, the fair value of Quality's financial
instruments approximates their carrying values.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(i) Use of Estimates
Management of Quality has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(j) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid insurance..................... $28,010 $19,680 $45,988
Prepaid interest...................... 2,038 -- --
------- ------- -------
$30,048 $19,680 $45,988
======= ======= =======
</TABLE>
F-47
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Land................................. $ 600,000 $ 600,000 $ 600,000
Buildings............................ 156,225 156,225 156,225
Leasehold improvements............... 278,925 278,925 278,925
Transportation and towing equipment.. 2,109,893 2,481,396 2,736,468
Office equipment..................... 123,691 212,066 222,089
Machinery and other equipment........ 112,889 125,726 172,463
---------- ---------- ----------
Total.............................. 3,381,623 3,854,338 4,166,170
Less accumulated depreciation and
amortization........................ (728,380) (977,109) (1,000,747)
---------- ---------- ----------
$2,653,243 $2,877,229 $3,165,423
========== ========== ==========
</TABLE>
Depreciation and amortization of property, plant and equipment for the years
ended January 31, 1996 and 1997 and the twelve-month period ended December 31,
1997, totaled $140,910, $224,196, and $271,341, respectively.
(4) OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Metro Contract........................ $ 705,850 $ 705,850 $ 705,850
Non-compete agreement................. 25,000 25,000 25,000
Goodwill.............................. 225,048 225,048 225,048
--------- --------- ---------
Total............................... 955,898 955,898 955,898
Less accumulated amortization......... (836,990) (856,993) (861,993)
--------- --------- ---------
$ 118,908 $ 98,905 $ 93,905
========= ========= =========
</TABLE>
Metro contract costs, non-compete agreement and goodwill are amortized over
nine, five and fifteen years, respectively. Amortization expense totaled,
$96,208, $98,432 and $20,003 for the years ended January 31, 1996 and 1997 and
the twelve-month period ended December 31, 1997.
F-48
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) INDEBTEDNESS
Quality's long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31, MARCH 31,
1997 1997 1998
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to bank, payable in
aggregate monthly installments of
$20,312, plus interest ranging
from 9% to 9.25% over periods
ranging from 36 to 48 months, ma-
turing between September 5, 1998
and June, 2001. Secured by vehi-
cles and equipment. .............. $ 428,678 $ 596,105 $ 667,913
Note payable to former owner, pay-
able in varied monthly install-
ments, including interest at 10%,
with a final lump sum payment of
$1,396,556, maturing March 1,
1999. Secured by land, building
and the stock of City Towing,
Inc. ............................. 1,682,529 1,562,530 1,522,484
Note payable to former owner, pay-
able in monthly installments of
$3,800, including interest at 9%,
maturing July 1, 2003. Secured by
land and building. ............... 226,489 202,485 195,357
Note payable to Navistar, payable
in monthly installments of $1,433,
including interest at 10.5%, ma-
turing May 4, 1999. Secured by
equipment. ....................... 35,444 22,540 18,666
Notes payable to Navistar, payable
in monthly installments of $6,110
and 2,900, respectively, including
interest at 9%, maturing May 12,
1999 and August 11, 1999, respec-
tively. Secured by equipment. .... 240,964 158,685 135,102
Note payable to Navistar, payable
in monthly installments of $563,
including interest at 11.5%, ma-
turing August 28, 1997. Secured by
equipment. ....................... 3,796 -- --
Note payable to bank, payable in
monthly installments of $6,716,
including interest at 8%, maturing
July 1, 2000. Secured by equip-
ment. ............................ 245,316 187,529 170,986
---------- ---------- ----------
Total long-term debt............. 2,863,216 2,729,874 2,710,508
Less installments due within one
year.............................. (447,875) (541,836) (522.470)
---------- ---------- ----------
Long-term debt, excluding current
installments.................... $2,415,341 $2,188,038 $2,188,038
========== ========== ==========
</TABLE>
Annual maturities of long-term debt for the next five years and thereafter
are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 541,836
1999............................................................ 1,771,119
2000............................................................ 264,155
2001............................................................ 81,521
2002............................................................ 40,849
Thereafter...................................................... 30,394
----------
$2,729,874
==========
</TABLE>
F-49
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LEASES
Quality leases land and building used as part of its operations under a
lease agreement with Nevada Recycling Corporation, an affiliated entity owned
by the owners of the stockholder of Quality. The lease is classified as an
operating lease. The agreement provides for monthly rental payments of $8,000
with an automatic renewal for additional consecutive periods of one year
beginning every October, unless either party gives no less than 30 days
written notice of the intent to terminate. Quality is responsible for all
operating costs related to the property.
Rent expense was $96,000 for the years ended January 31, 1996 and 1997 and
the twelve-month period ended December 31, 1997, respectively.
(7) INCOME TAXES
Income tax expense for the years ended January 31, 1997 and 1996 and the
twelve-month period ended December 31, 1997 consists of:
<TABLE>
<CAPTION>
TWELVE-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
JANUARY 31, JANUARY 31, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal............................... $(47,338) $171,425 $321,636
Deferred.............................. 151,090 106,198 119,342
-------- -------- --------
$103,752 $277,623 $440,978
======== ======== ========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate:
<TABLE>
<CAPTION>
TWELVE-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
JANUARY 31, JANUARY 31, DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Computed expected tax expense......... $ 32,726 $269,395 $429,536
Meals and entertainment............... 1,114 6,345 6,341
Non-deductible goodwill............... 5,101 5,101 5,101
Adjustment to prior years' taxes...... 64,811 -- --
Other................................. -- (3,218) --
-------- -------- --------
$103,752 $277,623 $440,978
======== ======== ========
</TABLE>
F-50
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of January 31, 1997 and the twelve-
month period ended December 31, 1997 are presented below:
<TABLE>
<CAPTION>
TWELVE-MONTH
PERIOD ENDED
JANUARY 31, DECEMBER 31,
1997 1997
----------- ------------
<S> <C> <C>
Deferred tax assets:
Covenant-not-to-compete........................ $ 2,031 $ 3,164
Contract/intangible............................ 13,733 --
-------- --------
Total gross deferred tax assets.............. 15,764 3,164
Less valuation allowance..................... -- --
-------- --------
15,764 3,164
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation lives and methods................ 209,143 315,885
-------- --------
Net deferred tax liability..................... $193,379 $312,721
======== ========
</TABLE>
At January 31, 1996, the net deferred tax liability was $299,577 and there
was no recorded valuation allowance.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not Quality will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(8) NON-CASH TRANSACTIONS
During 1995, Quality financed $331,223 of certain transportation and towing
equipment in connection with the purchase of Custom Towing through a lending
institution.
(9) RELATED PARTY TRANSACTIONS
Accounts receivable from related parties are amounts due from four companies
under the common control of Quality's stockholders. The amounts receivable
totaled $167,959 and $881,884 as of January 31, 1997 and December 31, 1997,
respectively.
Quality leases land and building from an affiliated entity owned by the
owners of the stockholder of Quality (see note 6).
(10) CONTINGENT LIABILITIES
Various legal claims arise against Quality during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
F-51
<PAGE>
SMITH-CHRISTENSEN ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Quality net of land, buildings and leasehold improvements
and the note payable to the former owner of City Towing, in the amount of
$202,485 at December 31, 1997, to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Services, Inc., is contingent and effective upon the initial public offering
of the common stock of United Road Services, Inc. Additionally, proceeds of
the initial public offering will be used to pay the note payable to former
owner of $1,562,530 at December 31, 1997. The anticipated selling price of
Quality exceeds its net assets as of December 31, 1997.
(b) Concurrently with the acquisition, United Road Services, Inc. will enter
into agreements with the stockholder to lease land and buildings used in
Quality's operations for negotiated amounts and terms.
(c) On May 6, 1998, United Road Services, Inc. effectively acquired Quality
as a result of the successful completion of the initial public offering of the
common stock of United Road Services, Inc.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Caron Auto Works, Inc. and
Caron Auto Brokers, Inc.:
We have audited the accompanying combined balance sheets of Caron Auto
Works, Inc. and Caron Auto Brokers, Inc. (collectively, "Caron") as of
September 30, 1996 and 1997, and the related combined statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1997. These combined financial
statements are the responsibility of Caron's management. Our responsibility is
to express an opinion on these combined financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Caron
Auto Works, Inc. and Caron Auto Brokers, Inc. as of September 30, 1996 and
1997 and the results of their combined operations and their combined cash
flows for each of the years in the three-year period ended September 30, 1997
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
January 16, 1998,
except as to note 8(c),
which is as of May 6, 1998
F-53
<PAGE>
CARON AUTO WORKS, INC. AND
CARON AUTO BROKERS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 29,370 $ 108,163 $ 29,676
Trade accounts receivable, net of
allowance for doubtful accounts of
$26,793 in 1996 and $45,079 in 1997..... 633,736 746,332 1,044,089
Accounts receivable from related parties
(note 7)................................ 98,056 49,754 496,589
Accounts receivable from employees....... -- 6,500 13,000
Notes receivable......................... -- 44,539 153,561
Inventories.............................. 24,185 30,040 91,520
Prepaid and other current assets......... 38,685 5,142 175,429
---------- ---------- ----------
Total current assets................... 824,032 990,470 2,003,864
Property and equipment, net (notes 2, 3 and
4)........................................ 1,241,097 2,278,962 3,309,753
Other assets............................... 2,500 22,736 66,780
---------- ---------- ----------
Total assets........................... $2,067,629 $3,292,168 5,380,397
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(note 3)................................ $ 83,297 $ 263,093 $ 549,176
Current installments of obligations under
capital lease (note 4).................. 181,272 177,932 233,205
Borrowings under lines of credit (note
3)...................................... 18,839 225,000 250,000
Payable to related parties (note 7)...... 185,920 9,500 --
Accounts payable......................... 130,282 332,544 815,157
Accrued payroll and related costs........ 16,058 40,870 199,961
Income taxes payable (note 5)............ 101,128 92,447 7,950
Other accrued liabilities................ 24,021 48,277 17,458
---------- ---------- ----------
Total current liabilities.............. 740,817 1,189,663 2,072,907
Long-term liabilities:
Long-term debt, excluding current
installments (note 3)................... 56,982 1,010,856 2,003,282
Obligations under capital lease,
excluding current installments (note 4). 428,862 437,789 662,669
Deferred income taxes (note 5)........... 160,342 54,019 54,019
---------- ---------- ----------
Total liabilities...................... 1,387,003 2,692,327 4,792,877
---------- ---------- ----------
Stockholders' equity:
Common stock, $10 par value.
Authorized 10,000 shares; issued and
outstanding 200 shares in 1996 and 1997. 2,000 2,000 2,000
Additional paid-in capital............... 10,225 10,225 10,225
Retained earnings........................ 698,401 617,616 605,295
Less treasury stock, 3,000 common shares
in 1996 and 1997, at cost............... (30,000) (30,000) (30,000)
---------- ---------- ----------
Total stockholders' equity............. 680,626 599,841 587,520
---------- ---------- ----------
Total liabilities and stockholders'
equity................................ $2,067,629 $3,292,168 $5,380,397
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE>
CARON AUTO WORKS, INC. AND
CARON AUTO BROKERS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEARS ENDED SEPTEMBER 30 ENDED MARCH 31
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............. $4,624,155 $5,575,257 $6,626,850 $3,565,268 $4,016,293
Cost of revenue......... 4,044,834 5,083,883 6,303,546 3,278,560 3,354,742
---------- ---------- ---------- ---------- ----------
Gross profit......... 579,321 491,374 323,304 286,708 661,551
Selling, general and
administrative
expenses............... 238,006 237,943 511,510 380,692 611,988
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.......... 341,315 253,431 (188,206) (93,984) 49,563
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest expense....... (77,693) (108,069) (141,000) (52,060) (131,207)
Interest income........ 810 5,706 8,360 -- --
Gain on sale of
assets................ 7,457 16,985 114,966 3,263 54,534
Other.................. 25,570 22,526 29,460 10,693 8,442
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........ 297,459 190,579 (176,420) (132,088) (18,668)
Income tax expense
(benefit) (note 5)..... 103,020 61,838 (95,635) (44,910) (6,347)
---------- ---------- ---------- ---------- ----------
Net income (loss).... $ 194,439 $ 128,741 $ (80,785) $ (87,178) $ (12,321)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-55
<PAGE>
CARON AUTO WORKS, INC. AND
CARON AUTO BROKERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30,
1994...................... $2,000 $10,225 $375,221 $(30,000) $357,446
Net income--1995........... -- -- 194,439 -- 194,439
------ ------- -------- -------- --------
Balance at September 30,
1995...................... 2,000 10,225 569,660 (30,000) 551,885
Net income--1996........... -- -- 128,741 -- 128,741
------ ------- -------- -------- --------
Balance at September 30,
1996...................... 2,000 10,225 698,401 (30,000) 680,626
Net loss--1997............. -- -- (80,785) -- (80,785)
------ ------- -------- -------- --------
Balance at September 30,
1997...................... 2,000 10,225 617,616 (30,000) 599,841
Net income--Six-months
ended March 31, 1998
(unaudited)............... -- -- (12,321) -- (12,321)
------ ------- -------- -------- --------
Balance of March 31, 1998
(unaudited)............... $2,000 $10,225 $605,295 $(30,000) $587,520
====== ======= ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-56
<PAGE>
CARON AUTO WORKS, INC. AND
CARON AUTO BROKERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEARS ENDED SEPTEMBER 30 ENDED MARCH 31
------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $ 194,437 $ 128,741 $ (80,785) $ (87,178) $ (12,321)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 158,790 196,937 213,290 84,186 98,113
Deferred income taxes. 41,924 18,467 (106,323) -- --
Gain on sale of
assets............... (7,457) (16,985) (114,966) (3,263) 54,534
Increase in trade
accounts receivable.. (63,618) (119,278) (112,596) (135,102) (297,757)
Decrease (increase) in
receivables from
related parties...... (12,056) (66,885) 48,302 4,967 (446,835)
Increase in accounts
receivable from
employees............ -- -- (6,500) -- (6,500)
(Increase) decrease in
inventories.......... 4,705 (23,766) (5,855) (9,235) (61,480)
Decrease (increase) in
prepaid expenses..... 4,758 (19,644) 33,543 (104,759) (172,187)
(Increase) decrease in
other assets......... 191 -- (20,236) -- (44,044)
Decrease in amounts
payable to related
parties.............. (10,702) (22,889) (176,420) 14,947 (9,500)
Increase (decrease) in
accounts payable..... (44,731) 16,036 202,262 161,676 482,613
Increase (decrease) in
accrued payroll and
related costs........ (119,686) (1,670) 24,812 24,859 159,091
Increase in other
accrued liabilities.. 447 86,401 15,575 (72,439) (115,316)
--------- --------- --------- --------- ----------
Net cash provided by
(used in) operating
activities......... 147,002 175,465 (85,897) (121,341) (371,589)
--------- --------- --------- --------- ----------
Cash flows from investing
activities:
Purchases of property
and equipment.......... (142,383) (54,909) (333,277) (137,328) (1,261,847)
Proceeds from sale of
assets................. 123,913 56,011 341,196 156,636 80,309
Increase in notes
receivable............. -- -- (44,539) (189,157) (109,022)
--------- --------- --------- --------- ----------
Net cash provided by
(used in) investing
activities......... (18,470) 1,102 (36,620) (169,849) (1,290,560)
--------- --------- --------- --------- ----------
Cash flows from financing
activities:
Proceeds from long-term
debt................... 100,000 70,345 456,500 456,500 1,835,267
Principal payments on
long-term debt and
capital leases......... (174,880) (300,175) (461,351) (174,890) (276,605)
Borrowings under line
of credit, net......... (35,000) 18,839 206,161 51,161 25,000
--------- --------- --------- --------- ----------
Net cash provided by
(used in) financing
activities......... (109,880) (210,991) 201,310 332,771 1,583,662
--------- --------- --------- --------- ----------
Net increase (decrease)
in cash................. 18,652 (34,424) 78,793 41,581 (78,487)
Cash at beginning of
year.................... 45,142 63,794 29,370 29,370 108,163
--------- --------- --------- --------- ----------
Cash at end of year...... $ 63,794 $ 29,370 $ 108,163 $ 70,951 $ 29,676
========= ========= ========= ========= ==========
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for:
Interest.............. $ 124,505 $ 110,038 $ 143,639 $ 52,060 $ 131,207
========= ========= ========= ========= ==========
Income taxes.......... $ -- $ 61,096 $ 43,371 $ 44,910 $ 78,150
========= ========= ========= ========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-57
<PAGE>
CARON AUTO WORKS, INC. AND
CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Caron Auto Works, Inc. and Caron Auto Brokers, Inc. (collectively, "Caron")
were founded in 1976 and 1993, respectively. Caron's primary business is
transporting vehicles for leasing companies, long-haul transporters and
individuals in the Northeastern United States. It also provides towing
services for commercial and private customers in the Hartford, Connecticut
region. Caron has two facilities in East Hartford and one facility in New
Jersey. It operates approximately 55 vehicles.
(b) Principles of Combination
The combined financial statements include the financial statements of Caron
Auto Works, Inc. and Caron Auto Brokers, Inc. All significant intercompany
balances and transactions have been eliminated in combination. Both entities
have the same management and principal stockholder ownership.
(c) Revenue Recognition
Caron operates as one segment related to the transportation of vehicles and
equipment for customers.
Caron's revenue is derived from customers who require a towing service,
transport of vehicles and equipment, fees related to repair of vehicles that
have been towed, and auction sales of unclaimed vehicles. Towing revenue is
recognized at the completion of each towing engagement, transport revenue is
recognized upon the delivery of the vehicles/equipment to their final
destination, repair fees are recorded when the service is performed, and
revenue from auction sales are recorded when title to the vehicles has been
transferred. Expenses related to the generation of revenue are recognized as
incurred.
(d) Inventories
Inventories include spare parts used in the repair of vehicles and are
stated at the lower of cost or market.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes,
Caron provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Automobiles and transportation equipment.......................... 5 years
Furniture and fixtures............................................ 5-7 years
Machinery and equipment........................................... 5-7 years
Leasehold improvements............................................ 7-39 years
</TABLE>
(f) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Caron on bank loans with
similar terms and maturities, the fair value of Caron's financial instruments
approximates their carrying values.
F-58
<PAGE>
CARON AUTO WORKS, INC.
AND CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(h) Use of Estimates
Management of Caron has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(i) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles................................... $ 16,608 $ 42,258 $ 25,650
Office equipment........................... 75,590 112,455 149,391
Transportation and towing equipment........ 1,663,407 2,604,541 3,600,952
Leasehold improvements..................... 262,276 313,011 366,898
---------- ---------- ----------
Total.................................... 2,017,881 3,072,265 4,142,891
Less accumulated depreciation and
amortization.............................. (776,784) (793,303) (833,138)
---------- ---------- ----------
$1,241,097 $2,278,962 $3,309,753
========== ========== ==========
</TABLE>
Depreciation and amortization of property and equipment in 1995, 1996 and
1997 totaled $158,790, $196,937 and $213,290, respectively.
(3) INDEBTEDNESS
Caron has available a $250,000 line of credit with Bank of South Windsor,
secured by all corporate assets and a personal guarantee by Caron's primary
stockholder. Interest is payable at the prime lending rate plus 1% (9.5% at
September 30, 1997). Total borrowings under this unsecured line of credit as
of September 30, 1996 and 1997 amounted to $18,839 and $225,000, respectively.
F-59
<PAGE>
CARON AUTO WORKS, INC.
AND CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Caron's long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------- MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Savings Bank of Manchester,
payable in monthly principal payments of $1,085,
plus interest at 8.25%, maturing September 29,
2000. Secured by a car and the personal
guarantee of the primary stockholder............ $ -- $ 34,500 $ 29,333
Note payable to Savings Bank of Manchester,
payable in monthly principal payments of $2,500,
plus interest at prime plus 1% (9.5% at
September 30, 1997), maturing on August 26,
2002. Secured by a car and the personal
guarantee of the primary stockholder............ -- 147,500 132,500
Note payable to Savings Bank of Manchester,
payable in monthly installments of $692,
including interest at 8.25%, maturing on August
29, 2000. Secured by a car...................... -- 21,459 18,714
Note payable to unrelated individual, payable in
monthly installments of $580, including interest
at 12.5%, maturing on October 31, 2000.......... 22,364 17,947 14,124
Note payable to Bank of South Windsor, payable in
monthly installments of $1,633, including
interest at 9.5%. Matured in October, 1996.
Secured by one tractor and three trailers....... 1,844 -- --
Note payable to Bank of South Windsor, payable in
monthly principal payments of $1,111, plus
interest at prime plus 1% (9.5% at September 30,
1997), maturing on April 18, 1999. Secured by
assets of Caron and the personal guarantee of
the primary stockholder......................... 34,444 21,111 14,444
Note payable to Bank of South Windsor, payable in
monthly installments of $8,904, including
interest at 9.25%, maturing on March 27, 2002.
Secured by twelve tractors and twelve trailers
and the personal guarantee of the primary
stockholder..................................... -- 390,878 355,615
Note payable to Peoples Bank, payable in monthly
principal payments of $1,786, plus interest at
prime plus 1.5% (10% at September 30, 1997),
maturing August 15, 2004. Secured by the assets
of Caron and the personal guarantee of the
primary stockholder and affiliated companies.... -- 148,214 137,498
Note payable to Bank of South Windsor, payable in
monthly installments of $3,203, including
interest at 9.5%. Secured by assets of Caron and
the personal guarantee by the primary
stockholder..................................... 40,498 -- --
Note payable to Ford Motor Credit Company,
payable in monthly installments of $770,
including interest at 10%, maturing November 27,
1998. Secured by a truck........................ 24,979 17,924 15,524
Note payable to Ford Motor Credit Company,
payable in monthly installments of $959,
including interest at 8.5%. Secured by
equipment....................................... 16,150 -- --
Notes payable to Navistar Financial Corp.,
payable in monthly installments ranging from
$1,632 to $6,788, including interest at rates of
9.9% and 10.3%, maturing between 2001 and 2002.
Secured by tractors and trailers................ -- 474,416 426,239
Notes payable to Chase Manhattan Bank, payable in
monthly installments of $2,082 and $741
including interest at 9.0% and 8.5%, maturing in
2002. Secured by a tractor trailer and real
property........................................ -- -- 129,138
Notes payable to Green Tree Financial Servicing
Corporation, payable in monthly installments of
$10,649 including interest at 10.9% maturing
July 20, 2002. Secured by three trucks.......... -- -- 432,970
</TABLE>
F-60
<PAGE>
CARON AUTO WORKS, INC.
AND CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------- MARCH 31,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to PACCAR Financial Corp,
payable in monthly installments of $7,199
and $3,049 including interest at 10.8%
maturing August 1, 2002. Secured by two
trucks..................................... $ -- $ -- $ 430,161
Note payable to Orix Credit Alliance, Inc.,
payable in monthly installments of $3,719,
including interest at 9.6% maturing
February 3, 2002. Secured by one trailer
and one tractor truck...................... -- -- 145,321
Note payable to Norwest Equipment Finance,
Inc., payable in monthly installments of
$3,398, including interest at 10.3%
maturing April 2, 2002. Secured by one
tractor, one trailer, and a car carrier.... -- -- 133,337
Note payable to Newcourt Financial Corp.,
payable in monthly installments of $3,320
including interest at 10.8% maturing July
23, 2002. Secured by one tractor and one
car hauler................................. -- -- 137,540
-------- ---------- ----------
Total long-term debt...................... 140,279 1,273,949 2,552,458
Less installments due within one year....... (83,297) (263,093) (549,176)
-------- ---------- ----------
Long-term debt, excluding current
installments............................. $ 56,982 $1,010,856 $2,003,282
======== ========== ==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 263,093
1999.............................................................. 279,925
2000.............................................................. 285,877
2001.............................................................. 259,616
2002.............................................................. 144,384
Thereafter........................................................ 41,054
----------
$1,273,949
==========
</TABLE>
(4) LEASES
Caron is the lessee for various transportation and towing equipment under
capital leases expiring in 2002.
Following is a summary of equipment held under the capital leases:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation and towing equipment........... $ 885,356 $ 741,628 $856,719
Less accumulated amortization................. (186,143) (198,826) (218,000)
--------- --------- --------
$ 699,213 $ 542,802 $638,719
========= ========= ========
</TABLE>
Caron leases the building used for its operations on a month-to-month basis
from its primary stockholder. The lease is classified as an operating lease.
Caron is responsible for all operating costs related to the property. Rent
paid to the stockholder in 1995, 1996 and 1997 was $75,382, $77,181 and
$117,096, respectively.
Total rent expense for 1995, 1996 and 1997 was $84,382, $86,181 and
$126,096, respectively.
F-61
<PAGE>
CARON AUTO WORKS, INC.
AND CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum capital lease payments as of September 30, 1997 are:
<TABLE>
<S> <C>
Year Ending September 30,
1998............................................................ $ 236,171
1999............................................................ 208,828
2000............................................................ 178,665
2001............................................................ 93,094
2002............................................................ 5,644
---------
Total......................................................... 722,402
Less amount representing interest............................... (106,681)
---------
Present value of net minimum capital lease payments........... $ 615,721
=========
</TABLE>
(5) INCOME TAXES
Income tax expense (benefit) for the years ended September 30, 1995, 1996 and
1997 consists of:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- ---------
<S> <C> <C> <C>
Current:
Federal........................................ $ 38,174 $26,900 $ 5,789
State.......................................... 22,922 16,471 4,899
-------- ------- ---------
61,096 43,371 10,688
Deferred......................................... 41,924 18,467 (106,323)
-------- ------- ---------
$103,020 $61,838 $ (95,635)
======== ======= =========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate.
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Computed expected tax expense (benefit)....... $101,136 $ 64,797 $(59,983)
State income taxes, net of Federal benefit.... 15,129 10,871 3,233
Officer's life insurance...................... 427 -- --
Non-deductible meals and entertainment
expenses..................................... 512 998 1,647
Effect of graduated tax rates................. (16,262) (14,980) (34,847)
Other......................................... 2,078 152 (5,685)
-------- -------- --------
$103,020 $ 61,838 $(95,635)
======== ======== ========
</TABLE>
F-62
<PAGE>
CARON AUTO WORKS, INC.
AND CARON AUTO BROKERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of September 30, 1996 and 1997 are
presented below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts............................. $ 10,091 $ 19,830
Net operating loss carryforwards.................... -- 186,261
--------- ---------
Total gross deferred tax asset.................... 10,091 206,091
Less valuation allowance.......................... -- --
--------- ---------
Net deferred tax asset............................ 10,091 206,091
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation lives and methods..................... (170,133) (260,110)
--------- ---------
Net deferred tax liability........................ $(160,342) $ (54,019)
========= =========
</TABLE>
Caron had a net deferred tax liability of $141,875 at September 30, 1995.
The net operating loss carryforward of approximately $465,000 expires in 2017.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not Caron will realize
the benefits of these deductible differences. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
(6) NON-CASH TRANSACTIONS
During 1997, Caron leased $1,144,108 of various transportation and towing
equipment through several lending institutions (see note 3).
(7) RELATED PARTY TRANSACTIONS
Caron is indebted to the primary stockholder under an unsecured note,
bearing interest at 7% per annum. The note, unpaid interest on the note, and
accrued bonus to the sole stockholder are included in payable to related
parties in the accompanying combined balance sheets.
Included in accounts receivable from related parties are amounts due from
two companies under the common control of Caron's primary stockholder. The
amounts receivable totaled $98,056, $49,757 and $496,589 as of September 30,
1996 and 1997 and March 31, 1998, respectively.
Caron leases two buildings located in East Hartford, Connecticut, from the
primary stockholder (see note 4).
(8) SUBSEQUENT EVENT
(a) During February 1998, the stockholders entered into a definitive
agreement to sell Caron to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Services, Inc., is contingent and effective upon the initial public offering
of the common stock of United Road Services, Inc. The anticipated selling
price of Caron exceeds its net assets as of September 30 1997.
(b) Concurrently with the acquisition, United Road Services, Inc. will enter
into agreements with the stockholders to lease land and buildings used in
Caron's operations for negotiated amounts and terms.
(c) On May 6, 1998, United Road Services, Inc. effectively acquired Caron as
a result of the successful completion of the initial public offering of the
common stock of United Road Services, Inc.
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
Absolute Towing and Transporting, Inc.:
We have audited the accompanying balance sheets of Absolute Towing and
Transporting, Inc. ("Absolute") as of December 31, 1996 and 1997, and the
related statements of operations, stockholder's equity, and cash flows for the
years then ended. These financial statements are the responsibility of
Absolute's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 6, 99% of Absolute's revenue is derived from one
customer, and all of Absolute's trade accounts receivable at December 31, 1997
are due from this single customer.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Absolute Towing and
Transporting, Inc. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
January 28, 1998,
except as to note 7(b),
which is as of May 6, 1998
F-64
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------- MARCH 31,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $ -- $ 10,935 $ 744,792
Trade accounts receivable (note 3)........... 268,818 593,679 107,156
Income taxes receivable (note 5)............. 9,731 55,324 --
Prepaid expenses............................. 23,613 30,587 27,156
-------- ---------- ----------
Total current assets....................... 302,162 690,525 879,104
Property and equipment, net (notes 2 and 3).... 265,934 306,153 423,604
Deferred income taxes (note 5)................. 6,436 31,331 31,331
-------- ---------- ----------
Total assets............................... $574,532 $1,028,009 $1,334,039
======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt (note
3).......................................... $ 15,737 $ 16,218 $ 16,915
Borrowings under lines of credit (note 3).... -- 212,403 556,034
Book overdraft............................... 98,012 312,217 --
Accounts payable............................. 79,468 124,573 233,190
-------- ---------- ----------
Total current liabilities.................. 193,217 665,411 806,139
Long-term liabilities:
Long-term debt, excluding current
installments (note 3)....................... -- 83,782 78,006
-------- ---------- ----------
Total liabilities.......................... 193,217 749,193 884,145
-------- ---------- ----------
Stockholder's equity:
Common stock, $42.86 par value. Authorized,
issued and outstanding 1,000 shares in 1996
and 1997.................................... 42,860 42,860 42,860
Retained earnings............................ 338,455 235,956 407,034
-------- ---------- ----------
Total stockholder's equity................. 381,315 278,816 449,894
-------- ---------- ----------
Total liabilities and stockholder's equity. $574,532 $1,028,009 $1,334,039
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE-MONTHS
31 ENDED MARCH 31
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue.................... $3,464,623 $4,779,901 $1,079,300 $1,409,417
Cost of revenue................ 2,756,327 3,766,564 734,684 1,054,974
---------- ---------- ---------- ----------
Gross profit............... 708,296 1,013,337 344,616 354,443
Selling, general and
administrative expenses....... 635,595 1,095,416 98,728 104,035
---------- ---------- ---------- ----------
Income (loss) from
operations................ 72,701 (82,079) 245,888 250,408
---------- ---------- ---------- ----------
Other income (expense):
Interest expense............. (1,440) (15,018) (1,763) (14,667)
Gain (loss) on sale of
assets...................... (2,842) 9,254 -- --
---------- ---------- ---------- ----------
Income (loss) before income
taxes..................... 68,419 (87,843) 244,125 235,741
Income tax expense (benefit)
(note 5)...................... (12,667) (24,095) 66,963 64,663
---------- ---------- ---------- ----------
Net income (loss).......... $ 81,086 $ (63,748) $ 177,162 $ 171,078
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-66
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------- -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995................... $42,860 $262,370 $305,230
Distributions to stockholder................... -- (5,001) (5,001)
Net income--1996............................... -- 81,086 81,086
------- -------- --------
Balance at December 31, 1996................... 42,860 338,455 381,315
Distributions to stockholder................... -- (38,751) (38,751)
Net loss--1997................................. -- (63,748) (63,748)
------- -------- --------
Balance at December 31, 1997................... 42,860 235,956 278,816
Net income--three-months ended March 31, 1998
(unaudited)................................... -- 171,078 171,078
------- -------- --------
Balance at March 31, 1998 (unaudited).......... $42,860 $407,034 $449,894
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS
YEAR ENDED DECEMBER 31 ENDED MARCH 31
------------------------ --------------------
1996 1997 1997 1998
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ 81,086 $ (63,748) $ 177,162 $ 171,078
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............... 110,327 127,960 30,728 51,812
Deferred income taxes....... (24,253) (24,895) -- --
Loss (gain) from sale of
property and equipment..... 2,842 (9,254) -- --
Decrease (increase) in trade
accounts receivable........ (75,514) (324,861) (112,420) 486,523
Decrease (increase) in
income taxes receivable.... 8,086 (45,593) 9,731 55,324
Decrease (increase) in
prepaid expenses........... 2,718 (6,974) 4,069 3,431
Increase (decrease) in
accounts payable........... 29,252 45,105 (1,230) 108,617
----------- ----------- --------- ---------
Net cash provided by (used
in) operating activities. 134,544 (302,260) 108,040 876,785
----------- ----------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment.................... (143,215) (192,675) (57,606) (169,263)
Proceeds from sale of
property and equipment....... 11,749 33,750 -- --
----------- ----------- --------- ---------
Net cash used in investing
activities............... (131,466) (158,925) (57,606) (169,263)
----------- ----------- --------- ---------
Cash flows from financing
activities:
Net increase in borrowings
under line of credit......... -- 212,403 -- 343,631
Increase (decrease) in book
overdraft.................... (20,890) 214,205 41,412 (312,217)
Proceeds from long-term debt.. 15,737 100,000 -- --
Principal payments on long
term debt.................... -- (15,737) (15,737) (5,079)
Stockholder distributions..... (5,001) (38,751) -- --
----------- ----------- --------- ---------
Net cash provided by (used
in) financing activities. (10,154) 472,120 25,675 26,335
----------- ----------- --------- ---------
Net (decrease) increase in
cash.......................... (7,076) 10,935 76,109 733,857
Cash at beginning of period.... 7,076 -- -- 10,935
----------- ----------- --------- ---------
Cash at end of period.......... $ -- $ 10,935 $ 76,109 $ 744,792
=========== =========== ========= =========
Supplemental disclosure of cash
flow information:
Cash paid during the year
for:
Interest.................... $ 1,439 $ 15,018 $ 1,763 $ 14,667
=========== =========== ========= =========
Income taxes................ $ 3,500 $ 46,393 $ 57,232 $ 9,339
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Absolute Towing and transporting, Inc. ("Absolute") was founded in 1987.
Absolute's primary business is towing salvage vehicles for auction companies
in Southern California. Absolute has one facility in Los Angeles. It operates
approximately 25 vehicles.
(b) Revenue Recognition
Absolute operates as one segment related to the transportation of vehicles
and equipment for customers.
Absolute's revenue is derived from customers who require a towing service.
Revenue is recognized at the completion of each towing engagement. Expenses
related to the generation of revenue are recognized as incurred.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases, if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes,
Absolute provides for depreciation of property and equipment over the
following estimated useful lives:
<TABLE>
<S> <C>
Transportation and towing equipment................................ 3-5 years
Leasehold improvements............................................. 5 years
Furniture and fixtures............................................. 5 years
</TABLE>
(d) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Absolute on bank loans with
similar terms and maturities, the fair value of Absolute's financial
instruments approximates their carrying values.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(f) Use of Estimates
Management of Absolute has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(g) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
F-69
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- MARCH 31,
1996 1997 1998
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation and towing equipment...... $ 920,210 $ 974,036 $1,143,299
Leasehold improvements................... 3,740 27,110 27,110
Furniture and fixtures................... 1,060 1,060 1,060
--------- ---------- ----------
Total.................................. 925,010 1,002,206 1,171,469
Less accumulated depreciation and
amortization............................ (659,076) (696,053) (747,865)
--------- ---------- ----------
$ 265,934 $ 306,153 $ 423,604
========= ========== ==========
</TABLE>
Depreciation and amortization of property and equipment in 1996 and 1997
totaled $110,327 and $127,960, respectively.
(3) INDEBTEDNESS
Absolute has a line of credit with a bank in the amount of $300,000, which
bears interest at the bank's prime rate plus 1% (9.5% at December 31, 1997).
This line of credit expires on May 1, 1998. Borrowings under this line of
credit are $212,403 at December 31, 1997 and are secured by accounts
receivable, inventory, and equipment. Additionally, in 1997, Absolute entered
into a revolving credit agreement with a bank that provides for maximum
borrowings of $600,000. Outstanding borrowings bear interest at the bank's
prime rate plus 1% and are payable in 60 monthly installments beginning
December 10, 1998. The credit facility matures November, 1998. There were no
borrowings outstanding at December 31, 1997.
Absolute's long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------ MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to bank, payable in monthly
installments of $2,125, including interest
at 10%, maturing December 1, 2002. Secured
by personal property........................ $ 15,737 $100,000 $ 94,921
Less installments due within one year...... (15,737) (16,218) (16,915)
-------- -------- --------
Long-term debt, excluding current
installments............................ $ -- $ 83,782 $ 78,006
======== ======== ========
</TABLE>
Annual maturities of long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 16,218
1999................................................................ 17,917
2000................................................................ 19,791
2001................................................................ 21,865
2002................................................................ 24,209
--------
$100,000
========
</TABLE>
(4) LEASES
Absolute leases the building used for its operations under a month-to-month
lease agreement. The lease is classified as an operating lease. The agreement
provides for monthly rental payments of $1,446. Absolute is responsible for
all operating costs related to the property.
Total rent expense for 1996 and 1997 was $24,442 and $18,800, respectively.
F-70
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996 and 1997
consists of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current:
Federal................................................ $ 10,786 $ --
State.................................................. 800 800
-------- --------
11,586 800
Deferred................................................. (24,253) (24,895)
-------- --------
$(12,667) $(24,095)
======== ========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Computed expected tax expense........................... $ 23,262 $(29,867)
Effect of graduated tax rates........................... (10,018) 6,656
State income taxes, net of Federal benefit.............. 3,695 (1,626)
Los Angeles Revitalization Zone ("LARZ") credit......... (33,371) --
Non-deductible meals and entertainment expenses......... 3,765 742
-------- --------
$(12,667) $(24,095)
======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of December 31, 1996 and 1997 are
presented below:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Los Angeles Revitalization Zone credit.................. $12,927 $12,927
Net operating loss carryforward......................... -- 20,524
------- -------
Total gross deferred tax assets....................... 12,927 33,451
Less valuation allowance.............................. -- --
------- -------
12,927 33,451
Deferred tax liabilities:
Property and equipment, due to differences in
depreciation lives and methods......................... (6,491) (2,120)
------- -------
Net deferred tax asset................................ $ 6,436 $31,331
======= =======
</TABLE>
At December 31, 1995, the net deferred tax liability was $17,817. The net
operating loss carryforward of approximately $60,400 expires in 2017 and LARZ
credit of approximately $12,900 expires in 2011.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the
F-71
<PAGE>
ABSOLUTE TOWING AND TRANSPORTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
deferred tax assets are deductible, management believes it is more likely than
not Absolute will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future income are reduced.
(6) CONCENTRATION OF BUSINESS RISKS
For both 1996 and 1997, 99% of Absolute's revenues were derived from one
customer, Insurance Auto Auctions (IAA). The loss of this customer could
significantly effect Absolute's performance.
(7) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Absolute to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Service, Inc., is contingent and effective upon the initial public offering of
the common stock of United Road Service, Inc. The anticipated selling price of
Absolute exceeds its net assets as of December 31, 1997. Certain of the assets
of Absolute, in the amount of $65,000, will be retained by the stockholder.
(b) On May 6, 1998, United Road Services, Inc. effectively acquired Absolute
as a result of the successful completion of the initial public offering of the
common stock of United Road Services, Inc.
F-72
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
ASC Transportation Services:
We have audited the accompanying consolidated balance sheet of ASC
Transportation Services and subsidiary (Auto Service Center d/b/a ASC Truck
Service) ("Auto Service") as of December 31, 1997, and the related
consolidated statements of operations, stockholder's deficit, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of Auto Service's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ASC
Transportation Services and subsidiary (Auto Service Center d/b/a ASC Truck
Service) as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albany, New York
February 10, 1998,
except as to notes 7 and 8(c)
which are as of May 8, 1998 and
May 6, 1998, respectively
F-73
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 138,213 $ 132,644
Trade accounts receivable........................... 225,364 249,103
Due from employees.................................. 715 1,884
Accounts receivable--other.......................... 4,977 9,089
Inventories......................................... 18,167 9,213
Prepaid expenses.................................... 69,535 66,753
---------- ----------
Total current assets.............................. 456,971 468,686
Property and equipment, net (notes 2 and 4)........... 806,503 764,338
Other assets.......................................... 10,986 25,577
---------- ----------
Total assets...................................... $1,274,460 $1,258,601
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (note 3)..... $ 20,275 $ 17,450
Current installments of obligations under capital
leases (note 4).................................... 247,845 249,390
Accounts payable.................................... 121,245 80,736
Accrued payroll and related costs................... 45,759 77,339
Income taxes payable (note 5)....................... 62,051 46,565
Other accrued liabilities........................... 16,961 31,152
---------- ----------
Total current liabilities......................... 514,136 502,632
Long-term liabilities:
Long-term debt, excluding current installments (note
3)................................................. 209,326 206,149
Obligations under capital leases, excluding current
installments (note 4).............................. 491,680 438,445
Deferred income taxes (note 5)...................... 82,965 82,965
---------- ----------
Total liabilities................................. 1,298,107 1,230,191
---------- ----------
Stockholders' deficit:
Common stock, no par value. Authorized 10,000
shares; issued and outstanding 25 shares........... 24,000 24,000
Additional paid-in capital.......................... 33,325 33,325
Accumulated deficit................................. (80,972) (28,915)
---------- ----------
Total stockholders' deficit....................... (23,647) 28,410
---------- ----------
Total liabilities and stockholders' deficit....... $1,274,460 $1,258,601
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-74
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTHS
ENDED MARCH 31
------------------
YEAR ENDED
DECEMBER 31, 1997 1997 1998
----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue.............................. $3,310,464 $743,768 $919,626
Cost of revenue.......................... 2,364,355 459,654 555,251
---------- -------- --------
Gross profit......................... 946,109 284,114 364,375
Selling, general, and administrative
expenses................................ 764,778 239,078 258,285
---------- -------- --------
Income from operations............... 181,331 45,036 106,090
---------- -------- --------
Other income (expense):
Interest expense....................... (71,947) (17,553) (17,936)
Gain (loss) on sale of assets.......... 18,670 10,500 (9,652)
Other.................................. 34,834 7,826 --
---------- -------- --------
Income before income taxes........... 162,888 45,809 78,502
Income tax expense (note 5).............. 49,096 13,808 26,445
---------- -------- --------
Net income........................... $ 113,792 $ 32,001 $ 52,057
========== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-75
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY (DEFICIT)
------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996... $24,000 $33,325 $(194,764) $(137,439)
Net income--1997............... -- -- 113,792 113,792
------- ------- --------- ---------
Balance at December 31, 1997... 24,000 33,325 (80,972) (23,647)
Net income--three-months ended
March 31, 1998
(unaudited)................... -- -- 52,057 52,057
------- ------- --------- ---------
Balance at March 31, 1998 (un-
audited)...................... $24,000 $33,325 $ (28,915) $ 28,410
======= ======= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-76
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS
ENDED MARCH 31
YEAR ENDED ------------------
DECEMBER 31, 1997 1997 1998
----------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 113,792 $ 32,001 $ 52,057
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 177,150 41,790 41,219
Deferred income taxes................ (6,786) -- --
Loss (gain) on sale of property and
equipment........................... (18,670) (10,500) 9,652
Decrease (increase) in trade accounts
receivable.......................... (88,313) 2,757 (23,739)
Increase in due from employees....... (1,376) (661) (1,169)
Increase in accounts receivable--
other............................... (1,366) (2,182) (4,112)
Decrease (increase) in inventories... (5,006) (1,987) 8,954
Decrease (increase) in prepaid
expenses and other assets........... 28,383 26,044 (11,809)
Decrease in accounts payable......... (11,932) (35,648) (40,509)
Increase in accrued payroll and
related costs....................... 17,020 27,495 31,580
Increase (decrease) in income taxes
payable............................. 38,517 8,479 (15,486)
Increase in other accrued
liabilities......................... 7,191 298 14,191
--------- -------- --------
Net cash provided by operating
activities........................ 248,604 87,886 60,829
--------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment.... (268,647) (11,561) (8,706)
Proceeds from sale of property and
equipment............................. 52,938 18,537 --
--------- -------- --------
Net cash used in investing activi-
ties.............................. (215,709) 6,976 (8,706)
--------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt........... 240,673 -- --
Principal payments on long-term debt
and capital leases.................... (211,134) (41,206) (57,692)
--------- -------- --------
Net cash provided by financing ac-
tivities.......................... 29,539 (41,206) (57,692)
--------- -------- --------
Net increase (decrease) in cash.......... 62,434 53,656 (5,569)
Cash at beginning of period.............. 75,779 75,779 138,213
--------- -------- --------
Cash at end of period.................... $ 138,213 $129,435 $132,644
========= ======== ========
Supplemental disclosure of cash flow in-
formation:
Cash paid during the year for:
Interest............................. $ 72,183 $ 17,553 $ 17,936
========= ======== ========
Income taxes......................... $ 17,660 $ 5,624 $ 41,931
========= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-77
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
ASC Transportation Services and its wholly-owned subsidiary, Auto Service
Center (d/b/a ASC Truck Service), collectively referred to herein as "Auto
Service", were founded in 1993 and 1965, respectively. Auto Service is a
commercial and police towing company with two facilities based in Sacramento,
California. One facility concentrates in the towing of commercial and personal
vehicles primarily contracting with law enforcement agencies and motor clubs.
The other location concentrates on the towing of larger commercial vehicles
and maintains a repair shop also for commercial vehicles. It operates
approximately 28 vehicles.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of
ASC Transportation Services and its wholly-owned subsidiary, Auto Service
Center. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Revenue Recognition
Auto Service operates as one segment related to the transportation of
vehicles and equipment for customers.
Auto Service's revenue is derived from customers who require a towing
service, transport of vehicles and equipment, and fees related to the repair
of vehicles that have been towed. Towing revenue is recognized at the
completion of each towing engagement, transport revenue is recognized upon the
delivery of the vehicles and equipment to their final destination, and repair
fees are recorded when the service is performed. Expenses related to the
generation of revenue are recognized as incurred.
(d) Inventories
Inventories consist principally of spare parts used for repair and
maintenance. Inventories are stated at the lower of cost or market.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, Auto
Service provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Transportation and towing equipment............................... 5 years
Machinery and other equipment..................................... 7 years
Leasehold improvements............................................ 7-20 years
Furniture and fixtures............................................ 7 years
</TABLE>
(f) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Auto Service on bank loans
with similar terms and maturities, the fair value of Auto Service's financial
instruments approximates their carrying values.
F-78
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(h) Use of Estimates
Management of Auto Service has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(i) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Transportation and towing equipment................ $1,425,655 $1,414,374
Machinery and other equipment...................... 169,403 157,859
Leasehold improvements............................. 29,614 31,811
Furniture and fixtures............................. 39,175 40,442
---------- ----------
Total.............................................. 1,663,847 1,644,486
Less accumulated depreciation and amortization..... (857,344) (880,148)
---------- ----------
$ 806,503 $ 764,338
========== ==========
</TABLE>
Depreciation and amortization of property and equipment in 1997 totaled
$177,150.
(3) INDEBTEDNESS
Auto Service's long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Note payable to bank, payable in monthly
installments of $1,042, including interest at
10.5%, maturing August 1998....................... $ 8,333 $ 5,207
Note payable to unrelated individuals payable in
monthly installments of $2,794, including interest
at 10%, maturing November 2008. Guaranteed by the
owners of Auto Service and secured by a Pledge
Agreement for all authorized shares of stock of
Auto Service...................................... 221,268 218,392
-------- --------
Total long-term debt............................. 229,601 223,599
Less installments due within one year.............. (20,275) (17,450)
-------- --------
Long-term debt, excluding current installments... $209,326 $206,149
======== ========
</TABLE>
F-79
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities of long-term debt for the next five years and thereafter
are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 20,275
1999................................................................ 13,193
2000................................................................ 14,574
2001................................................................ 16,100
2002................................................................ 17,786
Thereafter.......................................................... 147,673
--------
$229,601
========
</TABLE>
(4) LEASES
Auto Service is obligated under various capital leases for vehicles,
equipment and furniture and fixtures that expire at various dates ranging
between January 1998 to August 2003.
Auto Service is obligated to the stockholder under a capital lease for a
vehicle through December 1999.
Following is a summary of property and equipment held under the capital
leases:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Transportation and towing equipment................... $1,136,544 $1,136,544
Other equipment....................................... 55,350 55,350
Furniture and fixtures................................ 18,240 18,240
---------- ----------
1,210,134 1,210,134
Less accumulated amortization......................... (519,886) (553,639)
---------- ----------
$ 690,248 $ 656,495
========== ==========
</TABLE>
Auto Service leases the office building and a vehicle used for its
operations from the stockholder. These leases are classified as operating
leases and have been included in the data presented below. The building lease
is for an initial three-year term expiring in May 1998 with an option to renew
for five years. The lease was renewed on January 1997 and expires April 2003.
The vehicle lease has indefinite terms with a 30 day notice. Auto Service is
responsible for all operating costs related to these properties.
Auto Service also leases another building used for its operations from an
unrelated party. This lease is classified as an operating lease and is
included in the data presented below. The lease expires October 2002.
Total rent expense for 1997 was $151,393, including $64,654 paid to the
stockholder.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1997 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1998..................................................... $310,859 106,800
1999..................................................... 253,159 106,800
2000..................................................... 132,122 106,800
2001..................................................... 85,626 106,800
2002..................................................... 68,505 98,500
Thereafter............................................... 28,795 19,000
-------- -------
Total.................................................. 879,066 544,700
=======
Less amount representing interest........................ (139,541)
--------
Present value of net minimum capital lease payments...... $739,525
========
</TABLE>
F-80
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
Income tax expense for the year ended December 31, 1997 consists of:
<TABLE>
<S> <C>
Current:
Federal......................................................... $42,934
State........................................................... 12,948
-------
55,882
Deferred.......................................................... (6,786)
-------
$49,096
=======
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate.
<TABLE>
<S> <C>
Computed expected tax expense.................................... $ 55,382
State income taxes, net of Federal benefit....................... 8,546
Meals and entertainment.......................................... 1,372
Adjustment to prior years' taxes................................. (17,770)
Other............................................................ 1,566
--------
$ 49,096
========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities as of December 31, 1997 are presented below:
<TABLE>
<S> <C>
Deferred tax liability:
Property and equipment, due to differences in depreciation lives
and methods.................................................... $82,965
-------
Net deferred tax liability.................................... $82,965
=======
</TABLE>
At December 31, 1996, the net deferred tax liability was $89,751 and there
was no recorded valuation allowance.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not Auto Service will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(6) NON-CASH TRANSACTIONS
During 1997, Auto Service leased $66,561 of certain vehicles through lending
institutions.
F-81
<PAGE>
ASC TRANSPORTATION SERVICES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) CONCENTRATION OF BUSINESS RISKS
For 1997, 33% of Auto Service's revenues were derived from one customer,
Automobile Association of America (AAA). On May 8, 1998, the Automobile
Association of America (AAA) terminated its relationship with Auto Service.
The loss of this customer could significantly effect Auto Service's
performance.
(8) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Auto Service to United Road Services, Inc. The transaction,
effected through a combination of cash and common stock of United Road
Service, Inc., is contingent and effective upon the initial public offering of
the common stock of United Road Service, Inc. The anticipated selling price of
Auto Service exceeds its net assets as of December 31, 1997.
(b) Concurrently with the acquisition, United Road Service, Inc. will enter
into agreements with the stockholder to lease land and buildings used in Auto
Service's operations for negotiated amounts and terms.
(c) On May 6, 1998, United Road Services, Inc. effectively acquired Auto
Service as a result of the successful completion of the initial public
offering of the common stock of United Road Services, Inc.
F-82
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MPG Transco, Ltd.:
We have audited the accompanying balance sheets of MPG Transco, Ltd. as of
July 31, 1997 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MPG Transco, Ltd. as of
July 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Detroit, Michigan
December 11, 1998
F-83
<PAGE>
MPG TRANSCO, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
---------------------- OCTOBER 31,
1997 1998 1998
ASSETS ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................. $ 88,927 1,074,291 347,593
Trade accounts receivable, net of
allowance for doubtful accounts of
$100,000 in 1997 and 1998................ 1,368,797 1,986,064 1,957,619
Accounts receivable from employees........ 12,016 52,853 42,073
Income tax receivable (note 7)............ 152,991 -- --
Prepaid and other current assets (note 2). 344,503 158,569 111,853
Deferred income taxes (note 7)............ 101,824 208,225 171,418
----------- ---------- ----------
Total current assets.................... 2,069,058 3,480,002 2,630,556
Property and equipment, net (notes 3 and 5). 11,504,108 9,655,810 10,630,088
Cash surrender value of officer's life
insurance.................................. 246,065 302,734 320,045
Other assets................................ 28,200 27,700 27,700
----------- ---------- ----------
Total assets............................ $13,847,431 13,466,246 13,608,389
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 5)................... $ 1,125,000 999,580 986,224
Current installments of notes payable
(note 5)................................. 3,170,821 1,799,544 2,004,499
Accounts payable.......................... 759,029 879,062 818,074
Due to related party (note 9)............. 95,982 894,794 23,936
Income taxes payable (note 7)............. -- 625,665 739,706
Other accrued liabilities (note 4)........ 689,317 920,460 891,820
----------- ---------- ----------
Total current liabilities............... 5,840,149 6,119,105 5,464,259
Long-term liabilities:
Notes payable, excluding current
installments (note 5).................... 2,526,498 846,588 1,421,428
Deferred income taxes (note 7)............ 1,360,324 1,460,514 1,462,047
----------- ---------- ----------
Total liabilities....................... 9,726,971 8,426,207 8,347,734
----------- ---------- ----------
Stockholders' equity:
Common stock, no par value. 10,000 shares
authorized; 1,000 shares issued and
outstanding.............................. 1,000 1,000 1,000
Paid-in capital in excess of stated value. 1,417,234 1,417,234 1,417,234
Retained earnings......................... 2,702,226 3,621,805 3,842,421
----------- ---------- ----------
Total stockholders' equity.............. 4,120,460 5,040,039 5,260,655
----------- ---------- ----------
Total liabilities and stockholders'
equity................................. $13,847,431 13,466,246 13,608,389
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE>
MPG TRANSCO, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
----------------------- --------------------
1997 1998 1997 1998
----------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue..................... $20,469,778 23,471,030 5,813,482 5,816,476
Cost of revenue................. 14,503,066 16,093,952 3,991,915 4,136,818
----------- ---------- --------- ---------
Gross profit................ 5,966,712 7,377,078 1,821,567 1,679,658
Selling, general and
administrative expenses......... 5,224,312 5,225,129 1,245,141 1,222,955
----------- ---------- --------- ---------
Income from operations...... 742,400 2,151,949 576,426 456,703
Other income (expense):
Interest expense.............. (472,981) (487,295) (157,336) (76,608)
Interest income............... 19,736 17,453 69 2,457
Other......................... (13,257) (10,731) (1,867) 679
Loss on sale of assets........ (250,767) (132,343) (127,490) (10,234)
----------- ---------- --------- ---------
Income before income taxes.. 25,131 1,539,033 289,802 372,997
Income tax expense (note 7)..... 39,683 619,454 122,578 152,381
----------- ---------- --------- ---------
Net income (loss)........... $ (14,552) 919,579 167,224 220,616
=========== ========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-85
<PAGE>
MPG TRANSCO, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PAID-IN
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
STOCK STATED VALUE EARNINGS EQUITY
------ ------------ --------- -------------
<S> <C> <C> <C> <C>
Balance at July 31, 1996........... $1,000 1,417,234 2,716,778 4,135,012
Net loss--Year ended July 31, 1997. -- -- (14,552) (14,552)
------ --------- --------- ---------
Balance at July 31, 1997........... 1,000 1,417,234 2,702,226 4,120,460
Net income--Year ended July 31,
1998............................... -- -- 919,579 919,579
------ --------- --------- ---------
Balance at July 31, 1998........... 1,000 1,417,234 3,621,805 5,040,039
Net income--
Three months ended October 31,
1998 (unaudited)................ -- -- 220,616 220,616
------ --------- --------- ---------
Balance at October 31, 1998
(unaudited)........................ $1,000 1,417,234 3,842,421 5,260,655
====== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE>
MPG TRANSCO, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
----------------------- ----------------------
1997 1998 1997 1998
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ (14,552) 919,579 167,224 220,616
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............... 1,392,177 1,526,643 405,590 404,264
Deferred income taxes....... 192,674 (6,211) -- 38,340
Loss on sale of property and
equipment.................. 250,767 132,343 127,490 10,234
(Increase) decrease in trade
accounts
receivable................. (111,392) (617,267) (461,594) 28,445
(Increase) decrease in
accounts receivable from
employees.................. (12,016) (40,837) (15,616) 10,780
(Increase) decrease in
income tax receivable...... (152,991) 152,991 152,991 --
(Increase) decrease in
prepaid and other
assets..................... (139,705) 129,765 (356,312) 29,405
Increase (decrease) in
accounts payable........... 178,135 120,033 719,500 (60,988)
Increase in income taxes
payable.................... -- 625,665 122,578 114,041
Increase (decrease) in other
accrued
liabilities................ 450,143 231,143 221,578 (28,640)
----------- ---------- ---------- ----------
Net cash provided by (used
in) operating activities. 2,033,240 3,173,847 1,083,429 766,497
----------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of property and
equipment.................... (4,517,395) (227,568) (40,214) (1,450,467)
Proceeds from sale of
equipment.................... 400,144 416,880 322,193 61,691
----------- ---------- ---------- ----------
Net cash provided by (used
in) investing activities. (4,117,251) 189,312 281,979 (1,388,776)
----------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayment) on
line of credit............... 1,125,000 (125,420) 277,835 (13,356)
Proceeds from long-term debt.. 1,051,227 -- -- 1,367,170
Principal payments on long-
term debt.................... (973,590) (3,051,187) (1,087,873) (587,375)
Increase (decrease) in due to
related party................ 719,699 798,812 319,095 (870,858)
----------- ---------- ---------- ----------
Net cash provided by (used
in) financing activities. 1,922,336 (2,377,795) (490,943) (104,419)
----------- ---------- ---------- ----------
Net change in cash and cash
equivalents................... (161,675) 985,364 874,465 (726,698)
Cash and cash equivalents at
beginning of period........... 250,602 88,927 88,927 1,074,291
----------- ---------- ---------- ----------
Cash and cash equivalents at
end of period................. $ 88,927 1,074,291 963,392 347,593
=========== ========== ========== ==========
Supplemental disclosure of cash
flow information:
Cash paid (received) during the
period for:
Interest.................... $ 472,981 487,296 157,336 76,608
=========== ========== ========== ==========
Income taxes................ $ -- (152,991) -- --
=========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-87
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997 AND 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
MPG Transco, Ltd.'s (MPG) primary business is transporting vehicles for
automotive manufacturers and transporting consumer merchandise for major
retail manufacturers. MPG's automotive operations utilize three terminals in
Toledo, Boston and Newark, while the consumer merchandise operation uses a
terminal in Allen Park, Michigan. MPG operates approximately 140 vehicles.
(b) Revenue Recognition
MPG operates as one segment related to the transportation of vehicles and
consumer merchandise for customers.
MPG's revenue is derived from customers who require transportation of
vehicles and consumer merchandise. Transport revenue is recognized upon the
delivery of the vehicles and consumer merchandise to their final destination.
Expenses related to the generation of revenue are recognized as incurred.
(c) Cash and Cash Equivalents
For purposes of the statement of cash flows, MPG considers all highly liquid
debt instruments with original maturities of three months or less to be cash
equivalents.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, MPG
provides for depreciation of property and equipment over the following
estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment...................................... 10 years
Furniture and fixtures........................................ 5 years
Office equipment.............................................. 5 years
Automobiles................................................... 5 years
Leasehold improvements........................................ 3-5 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to MPG on bank loans with
similar terms and maturities, the fair value of MPG's financial instruments
approximates their carrying values.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-88
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of MPG has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consist of the following:
<TABLE>
<CAPTION>
JULY 31,
---------------- OCTOBER 31,
1997 1998 1998
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid insurance.................................. $235,245 17,609 13,484
Prepaid vehicle registration....................... 77,552 82,185 47,442
Other.............................................. 31,706 58,775 50,927
-------- ------- -------
$344,503 158,569 111,853
======== ======= =======
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JULY 31,
---------------------- OCTOBER 31,
1997 1998 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Transportation equipment.................... $13,430,048 12,555,659 13,850,320
Office equipment and furniture.............. 186,782 186,782 190,578
Computer equipment.......................... 781,133 897,094 936,670
Automobiles................................. 320,454 235,317 214,543
Leasehold improvements...................... 82,005 104,805 104,805
----------- ---------- ----------
Total....................................... 14,800,422 13,979,657 15,296,916
Less accumulated depreciation and
amortization................................ 3,296,314 4,323,847 4,666,828
----------- ---------- ----------
$11,504,108 9,655,810 10,630,088
=========== ========== ==========
(4) OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<CAPTION>
JULY 31,
---------------------- OCTOBER 31,
1997 1998 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll............................. $ 554,247 237,000 386,000
Accrued bonus............................... -- 212,000 212,000
Accrued vacation............................ 50,000 55,000 55,000
Accrued lease termination................... -- 132,257 88,172
Accrued customer damage claims.............. -- 90,146 49,000
Other....................................... 85,070 194,057 101,648
----------- ---------- ----------
$ 689,317 920,460 891,820
=========== ========== ==========
</TABLE>
F-89
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INDEBTEDNESS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
------------------ OCTOBER 31,
1997 1998 1998
---------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Associates Commercial
Corporation, payable in monthly installments
of $59,816, including interest at 7.75%,
maturing January 2000. Secured by
transportation equipment...................... $1,577,222 960,087 798,206
Note payable to Michigan National Bank, payable
in monthly installments of $28,023, including
interest at 7.65%, maturing January 2000.
Secured by transportation equipment........... 762,993 475,346 399,665
Note payable to Financial Federal Credit, Inc.,
payable in monthly installments of $18,546,
including interest at 9.25%, maturing July
2000. Secured by transportation equipment..... 565,945 404,325 357,885
Note payable to Concord Commercial Corporation,
payable in monthly installments of $21,016,
including interest at 8.20%, maturing October
1998. Secured by transportation equipment..... 298,649 62,196 --
Note payable to Associates Commercial
Corporation, payable in monthly installments
of $26,601, including interest at 8.00%,
maturing October 1998. Secured by
transportation equipment...................... 402,434 78,751 --
Note payable to Navistar Financial Corporation,
payable in monthly installments of $51,043,
including interest at 8.00%, scheduled to
mature August 1998. Secured by transportation
equipment..................................... 563,629 81,499 35,309
Note payable to Concord Commercial Corporation,
payable in monthly installments of $24,728,
including interest at 8.00%, maturing October
1997. Secured by transportation equipment..... 73,079 -- --
Note payable to NBD Equipment Finance, Inc.,
payable in monthly installments of $9,557,
including interest at 8.57%, scheduled to
mature April 1998. Secured by transportation
equipment..................................... 85,633 -- --
Note payable to Michigan National Bank, payable
in monthly installments of $14,945, including
interest at 8.85%, maturing March 1998.
Secured by transportation equipment........... 115,686 -- --
Note payable to Michigan National Bank, payable
in monthly installments of $11,614, including
interest at 8.85%, maturing August 1997.
Secured by transportation equipment........... 185,924 -- --
Note payable to General Electric Capital
Corporation, payable in monthly installments
of $30,471, including interest at 7.45%,
maturing January 2000. Secured by
transportation equipment...................... 849,010 535,070 453,140
</TABLE>
F-90
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JULY 31,
-------------------- OCTOBER 31,
1997 1998 1998
---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to General Electric Capital
Corporation, payable in monthly installments
of $20,082 until October 2001 and $1,521
thereafter, including interest at 6.6%,
maturing July 2003. Secured by
transportation equipment.................... $ -- -- 682,265
Note payable to General Electric Capital
Corporation, payable in monthly installments
of $20,454 until September 2001 and $1,541
thereafter, including interest at 7.5%,
maturing September 2003. Secured by
transportation equipment.................... -- -- 668,732
Various other notes payable secured by
transportation equipment.................... 104,686 --
Various other notes payable secured by
automobile equipment........................ 112,429 48,858 30,725
---------- --------- ---------
Total long-term debt.................... 5,697,319 2,646,132 3,425,927
Less current installments.................... 3,170,821 1,799,544 2,004,499
---------- --------- ---------
Long-term debt, excluding current
installments........................... $2,526,498 846,588 1,421,428
========== ========= =========
</TABLE>
Annual maturities of long-term as of July 31, 1998 are as follows:
<TABLE>
<S> <C>
1999......................................................... $1,799,544
2000......................................................... 846,588
----------
$2,646,132
==========
</TABLE>
(6) LEASES
MPG leases its operating facility and other equipment from third parties
under noncancelable operating leases. Rent expense in 1997 and 1998 was
$789,315 and $719,851, respectively.
Future minimum operating lease payments as of July 31, 1998 are:
<TABLE>
<S> <C>
1999........................................................... $ 598,199
2000........................................................... 625,334
2001........................................................... 584,010
2002........................................................... 297,131
2003........................................................... 63,369
----------
Total...................................................... $2,168,043
==========
</TABLE>
F-91
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) for the years ended July 31, 1997 and 1998
consists of the following:
<TABLE>
<CAPTION>
1997 1998
--------- -------
<S> <C> <C>
Current:
Federal............................................. $(152,991) 511,665
State............................................... -- 114,000
--------- -------
(152,991) 625,665
Deferred--federal..................................... 192,674 (6,211)
--------- -------
$ 39,683 619,454
========= =======
</TABLE>
The following table reconciles the expected tax expense at the federal
statutory tax rate to the effective tax rate.
<TABLE>
<CAPTION>
YEARS ENDED JULY
31,
----------------
1997 1998
-------- -------
<S> <C> <C>
Computed expected tax.................................... $ 8,545 523,271
Non-deductible expenses.................................. 31,138 20,943
State income taxes, net of federal tax benefit........... -- 75,240
-------- -------
$ 39,683 619,454
======== =======
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of July 31, 1997 and 1998 are presented
below:
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 34,000 34,000
Accrued expenses not currently deductible......... 67,824 174,225
---------- ---------
Gross deferred tax assets....................... 101,824 208,225
---------- ---------
Deferred tax liabilities--property and equipment,
due to differences in depreciation lives and
methods............................................ 1,360,324 1,460,514
---------- ---------
Net deferred tax liability...................... $1,258,500 1,252,289
========== =========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that MPG will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
F-92
<PAGE>
MPG TRANSCO, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) EMPLOYEE BENEFITS
All employees of MPG are employed by Translesco, a related entity owned by
the same shareholders of MPG, and leased by MPG.
Translesco has a retirement savings plan pursuant to section 401(k) of the
Internal Revenue Code that is available to all employees with at least 90 days
of service to Translesco and who are at least 18 years of age. Eligible
participants may contribute up to 20% of their compensation. MPG does not make
contributions to the plan. The accompanying financial statements include all
payroll and related costs associated with the employees serving MPG.
(9) RELATED PARTY TRANSACTIONS
MPG and Translesco maintain a combined cash management system. As a result
of this arrangement, approximately $96,000 and $895,000 were due to Translesco
at July 31, 1997 and 1998, respectively. For the years ended July 31, 1997 and
1998, average balances due Translesco were less than $100,000 except for a
borrowing in June, 1998, of $1,250,000 and repayments of approximately
$355,000 in July, 1998.
(10) CONTINGENT LIABILITIES
Various legal claims arise against MPG during the normal course of business.
In the opinion of management, liabilities, if any, arising from proceedings
would not have a material effect on the financial statements.
(11) SUBSEQUENT EVENTS
The stockholders of the Company entered into a definitive agreement on
November 13, 1998 to sell MPG Transco, Ltd. to United Road Services.
(12) CONCENTRATION OF BUSINESS RISKS
Sales to the Company's three largest customers, General Motors, Volkswagen
and Mercedes-Benz, amounted to 22%, 10% and 10%, respectively, of total
revenues for the year ended July 31, 1997 and 43%, 14% and 8%, respectively,
for the year ended July 31, 1998. The loss of one or all of these customers
could significantly affect MPG's performance.
F-93
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Pilot Transport, Inc.
We have audited the accompanying balance sheets of Pilot Transport, Inc. as
of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pilot Transport, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Detroit, Michigan
November 12, 1998
F-94
<PAGE>
PILOT TRANSPORT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1996 1997 1998
---------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 13,853 12,413 181,442
Accounts receivable........................ 1,703,812 1,268,230 1,944,997
Prepaid expenses........................... 57,545 76,355 55,428
Contracts for trailer purchases (note 6)... 99,458 194,510 560,471
---------- --------- ---------
Total current assets.................... 1,874,668 1,551,508 2,742,338
Vehicles and equipment, net (note 2)........ 5,071,066 4,283,866 3,680,568
---------- --------- ---------
Total assets............................ $6,945,734 5,835,374 6,422,906
========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable (note 3)...................... $2,200,000 1,050,000 2,005,000
Accounts payable........................... 164,100 73,276 240,236
Accrued bonus and profit sharing........... -- -- 792,326
Other accrued expenses..................... 160,000 236,852 272,528
---------- --------- ---------
Total current liabilities............... 2,524,100 1,360,128 3,310,090
---------- --------- ---------
Stockholders' equity:
Common stock, $1 par value; 1,000,000
shares authorized, 10,000 shares issued
and outstanding........................... 10,000 10,000 10,000
Retained earnings.......................... 4,411,634 4,465,246 3,102,816
---------- --------- ---------
Total stockholders' equity.............. 4,421,634 4,475,246 3,112,816
---------- --------- ---------
Total liabilities and stockholders'
equity................................. $6,945,734 5,835,374 6,422,906
========== ========= =========
</TABLE>
See accompanying notes to the financial statements.
F-95
<PAGE>
PILOT TRANSPORT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Transportation revenue... $ 14,381,761 17,118,927 13,135,339 14,405,086
Cost of revenue.......... 9,386,529 10,066,642 7,463,219 8,906,264
------------ ------------ ----------- -----------
Gross profit......... 4,995,232 7,052,285 5,672,120 5,498,822
Selling, general and
administrative expense... 2,920,385 4,009,480 3,149,367 3,090,791
------------ ------------ ----------- -----------
Income from
operations.......... 2,074,847 3,042,805 2,522,753 2,408,031
Other income (expense):
Interest................ (249,378) (167,880) (144,432) (113,612)
Loss on sale of assets.. (48,926) (167,047) (151,709) (31,640)
------------ ------------ ----------- -----------
Income before income
tax................. 1,776,543 2,707,878 2,226,612 2,262,779
Income taxes (note 1).... -- -- -- --
------------ ------------ ----------- -----------
Net income........... $ 1,776,543 2,707,878 2,226,612 2,262,779
============ ============ =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-96
<PAGE>
PILOT TRANSPORT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995................. $10,000 3,903,266 3,913,266
Net income--1996............................. -- 1,776,543 1,776,543
Dividends.................................... -- (1,268,175) (1,268,175)
------- ---------- ----------
Balance at December 31, 1996................. 10,000 4,411,634 4,421,634
Net income--1997............................. -- 2,707,878 2,707,878
Dividends.................................... -- (2,654,266) (2,654,266)
------- ---------- ----------
Balance at December 31, 1997................. 10,000 4,465,246 4,475,246
Net income nine months ended September 30,
1998 (unaudited)............................ -- 2,262,779 2,262,779
Dividends (unaudited)........................ -- (3,625,209) (3,625,209)
------- ---------- ----------
Balance at September 30, 1998 (unaudited).... $10,000 3,102,816 3,112,816
======= ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-97
<PAGE>
PILOT TRANSPORT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
---------------------- ----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $1,776,543 2,707,878 2,226,612 2,262,779
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 797,272 815,703 606,964 599,660
Loss on sale of equipment... 48,926 167,047 151,709 31,640
Decrease (increase) in
accounts receivable........ 503,556 435,582 (367,252) (676,767)
Decrease (increase) in
prepaid expenses........... 85,253 (18,810) (26,135) 20,927
Decrease (increase) in
equipment deposits and
other...................... (94,458) (95,052) 12,848 (365,961)
Increase (decrease) in
accounts payable and
accrued expenses........... 96,244 (13,972) 948,292 994,962
---------- ---------- ---------- ----------
Net cash provided by
operations............... 3,213,336 3,998,376 3,553,038 2,867,240
---------- ---------- ---------- ----------
Cash flows from investing
activities:
Purchases of vehicles and
equipment.................... (1,625,686) (905,247) (799,532) (536,703)
Proceeds from sale of
equipment.................... 338,850 709,695 610,695 508,701
---------- ---------- ---------- ----------
Net cash used in investing
activities............... (1,286,836) (195,552) (188,837) (28,002)
---------- ---------- ---------- ----------
Cash flows from financing
activities:
Net borrowings (repayments)
from facility loan........... (675,000) (1,150,000) (700,000) 955,000
Dividends paid................ (1,268,175) (2,654,264) (2,654,264) (3,625,209)
---------- ---------- ---------- ----------
Net cash used in financing
activities............... (1,943,175) (3,804,264) (3,354,264) (2,670,209)
---------- ---------- ---------- ----------
Net increase (decrease) in
cash..................... (16,675) (1,440) 9,937 169,029
Cash at beginning of period.... 30,528 13,853 13,853 12,413
---------- ---------- ---------- ----------
Cash at end of period.......... $ 13,853 12,413 23,790 181,442
---------- ---------- ---------- ----------
Supplemental disclosures:
Interest paid................. $ 249,638 168,019 144,571 100,791
========== ========== ========== ==========
Income taxes paid............. $ -- -- -- --
========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-98
<PAGE>
PILOT TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Pilot Transport Inc. (the Company) operates a fleet of automobile carriers
and provides transportation of automobiles nationwide, primarily to the
automotive manufacturers. The Company's corporate headquarters are located in
Brighton, Michigan and it has an office in Tempe, Arizona.
(b) Revenue Recognition
The Company operates one segment related to the transportation of vehicles.
The Company's revenue is derived from customers who require transportation
of vehicles. Transport revenue is recognized upon the delivery of the vehicles
to their final destination. Expenses related to the generation of revenue are
recognized as incurred.
(c) Vehicles and Equipment
Vehicles and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, the
Company provides for depreciation of vehicles and equipment over the following
estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment......................................... 10 years
Furniture and fixtures........................................... 5 years
Office and warehouse equipment................................... 5 years
Automobiles...................................................... 5 years
</TABLE>
(d) Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the
stockholders are liable for individual Federal and state income taxes on their
respective shares of the Company's taxable income. The State of Michigan has a
tax based primarily on gross sales and the corporation is subject to this tax.
Other states have various corporate taxes not based upon income and the
corporation is subject to these taxes. All state taxes are included in
selling, general and administrative expense.
The Company utilizes accelerated depreciation for transportation equipment
in reporting taxable income to its shareholders. This results in a lower tax
basis for assets than is reported in the accompanying financial statements of
$2,445,469, $2,027,962 and $1,729,441 at December 31, 1996 and 1997 and at
September 30, 1998, respectively.
F-99
<PAGE>
PILOT TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(f) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current variable borrowing rates available to the Company on its bank
borrowings, the fair value of the Company's financial instruments approximates
their carrying values.
(g) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) VEHICLES AND EQUIPMENT
Vehicles and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1996 1997 1998
----------- --------- ------------- ---
<S> <C> <C> <C> <C> <C>
Transportation equipment.. $ 7,306,993 6,316,499 5,600,964
Automobiles............... 68,168 68,168 45,586
Office equipment.......... 223,509 270,801 323,033
Warehouse equipment and
improvements............. 74,166 74,166 93,516
----------- --------- ---------
7,672,836 6,729,634 6,063,099
Accumulated depreciation.. 2,601,770 2,445,768 2,382,531
----------- --------- ---------
Net vehicles and
equipment.............. $ 5,071,066 4,283,866 3,680,568
=========== ========= =========
</TABLE>
(3) FACILITY LOAN PAYABLE
A note payable to Comerica Bank is a Secured Accounts Financing Facility
("Facility") Master Revolving Note with a variable rate (at one-half a
percentage point less than prime rate) and is due on demand. The Facility is
renewed annually. The Company can borrow up to $5,000,000 for working capital
and the purchase of equipment. Advances and required repayments are determined
by a formula which is based upon a percentage of eligible accounts receivable,
the price of new equipment and a predetermined sliding scale of existing
equipment. Collateral for this note is a first lien on all accounts
receivable, vehicles and equipment. In addition, there is a third collateral
position on Michigan real estate owned by the Pilot Partners, LLC (see note
5).
(4) PENSION PLAN
The Company has a 401(k) profit-sharing plan for substantially all employees
who are over 21 years of age and have six months of service. Contributions are
not required by the Company; however, when made, they are determined as a
percentage of each eligible employee's salary. The Company contributions for
the years ended December 31, 1996 and 1997 and the nine months ended September
30, 1997 and 1998 (unaudited) were $223,106, $250,991, $158,396 and $286,485,
respectively.
F-100
<PAGE>
PILOT TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) RELATED PARTY TRANSACTIONS
The Company has entered into several agreements with various partnerships
owned by the shareholders of Pilot Transport, Inc. Following is a summary of
the significant activities between the Company and the partnerships:
(a) Equipment Leases
The Company leased trailers from three family partnerships. The leases
expired in March 1997 and were not renewed. The Company had the responsibility
to repair, maintain and insure the equipment during the lease period. The
Company paid these partnerships $96,000, $24,000, $24,000 and $0 in lease
payments for the years ending December 31, 1996 and 1997 and the nine months
ended September 30, 1997 and 1998 (unaudited), respectively.
(b) Building and Land Lease
The Company leases an office building in Brighton, Michigan and land in
Tempe, Arizona from partnerships owned by the principal shareholders. All
leases require the Company to maintain the facility and insure its contents.
The lease of the land in Tempe, Arizona was terminated in March 1997. The
Brighton property lease expires in March 1999 and requires monthly payments of
$11,400. The Company paid the partnerships $180,000, $147,000, $135,000 and
$102,600 for the years ending December 31, 1996 and 1997 and the nine months
ended September 30, 1997 and 1998 (unaudited), respectively, for rental of
these facilities.
(6) LONG-TERM LEASES
The Company has entered into various operating leases for a building and
certain tractors and trailers used in providing transportation services to its
customers. The leases of tractors and trailers are generally over a 49-month
period. Following is a schedule of future minimum rental payments required as
of December 31, 1997 (including related party leases discussed in note 5(b)),
which includes new leases beginning at various dates in 1998 with monthly
payments of $50,650.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -----------
<S> <C>
1998........................................................ $ 1,104,315
1999........................................................ 1,079,354
2000........................................................ 1,023,666
2001........................................................ 919,071
2002........................................................ 285,190
</TABLE>
Rental expense for the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998 (unaudited) was $350,281, $483,959,
$332,071 and $775,621, respectively.
The Company purchased six new "closed" trailers at September 30, 1998, for
which the purchase price has been deposited with the vendor as final
modifications are being made. It is anticipated these units will be delivered
and placed into service in the fourth quarter of 1998. Upon delivery of these
trailers, they will be subject to a sale lease-back under which the trailers
will be sold at cost and leased back.
(7) SIGNIFICANT CONCENTRATION OF CREDIT RISK
Approximately 65% of the Company's revenues for each of the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1997 and
1998 were generated from General Motors and its subdivisions. The Company has
entered into a three-year contract with General Motors which expires
F-101
<PAGE>
PILOT TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
January 1, 2001 to transport vehicles at a predetermined fixed fee on select
routes throughout the United States. Additional business is done on other
routes at prevailing transportation rates. At September 30, 1998 and December
31, 1997 and 1996, the accounts receivable from General Motors and its
subdivisions represented approximately 60% of the total.
(8) SUBSEQUENT EVENT
The stockholders of the Company entered into a definitive agreement on
November 5, 1998 to sell Pilot Transport, Inc. to United Road Services.
F-102
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
E&R Towing & Garage, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of E&R Towing &
Garage, Inc. and Subsidiaries (E&R) as of February 28, 1998, and the related
consolidated statements of operations and retained earnings, and cash flows
for the year then ended. These financial statements are the responsibility of
E&R management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of E&R Towing
& Garage, Inc. and Subsidiaries as of February 28, 1998, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Chicago, Illinois
August 7, 1998
F-103
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY
28, JUNE 30,
1998 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 256,971 $1,083,564
Accounts receivable................................... 334,975 440,565
Due from E.A.R. (note 10)............................. 908,300 446,480
Notes receivable...................................... 57,653 46,402
Due from officers (note 10)........................... 112,450 --
Deferred tax (note 8)................................. 89,833 --
Prepaid expenses...................................... 82,422 64,434
Management fee receivable............................. -- 107,923
Other receivables..................................... 10,274 13,210
---------- ----------
Total current assets.................................... 1,852,878 2,202,578
Property and equipment, net (note 5).................... 2,008,337 1,795,334
Notes receivable........................................ 38,949 31,348
---------- ----------
Total assets............................................ $3,900,164 $4,029,260
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 6)....... $ 468,467 $ 468,467
Accounts payable...................................... 52,914 110,886
Deferred gain on the sale of fixed assets............. 59,105 59,105
Accrued taxes......................................... 297,937 130,349
Accrued payroll....................................... 62,095 62,600
Other accrued expenses................................ 45,501 15,339
---------- ----------
Total current liabilities............................... 986,019 846,746
Long-term liabilities:
Long-term debt, excluding current installments (note
6)................................................... 481,179 322,590
Deferred gain on the sale of fixed assets............. 36,880 17,179
Deferred tax (note 8)................................. 205,303 231,541
---------- ----------
Total liabilities....................................... 1,709,381 1,418,056
---------- ----------
Stockholders' equity:
Common stock, no par value, stated value of $1,000.
Authorized, issued, and outstanding 1,000 shares in
1998................................................. 1,000 1,000
Additional paid-in capital............................ 159,273 159,273
Retained earnings..................................... 2,030,510 2,450,931
---------- ----------
Total stockholders' equity.............................. 2,190,783 2,611,204
---------- ----------
Total liabilities and stockholders' equity.............. $3,900,164 $4,029,260
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-104
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR FOUR-MONTHS FOUR-MONTHS
ENDED ENDED ENDED
FEBRUARY 28, JUNE 30, JUNE 30,
1998 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $8,527,599 $2,766,519 $2,928,821
Cost of revenue........................... 5,193,019 1,465,810 1,645,115
---------- ---------- ----------
Gross profit.............................. 3,334,580 1,300,709 1,283,706
Selling, general, and administrative
expenses................................. 3,496,981 746,337 898,900
Management fee from affiliate (note 10)... (646,378) (215,460) (237,200)
---------- ---------- ----------
Income from operations.................... 483,977 769,832 622,006
---------- ---------- ----------
Other income (expense):
Other................................... 63 3,851 1,213
Interest income......................... 48,373 520 42,761
Interest expense........................ (113,944) (26,432) (25,260)
Gain on sale of assets.................. 62,405 1,500 19,701
---------- ---------- ----------
Income before income taxes................ 480,874 749,271 660,421
Income tax expense (note 8)............... (187,539) (275,000) (240,000)
---------- ---------- ----------
Net income................................ 293,335 474,271 420,421
Retained earnings at beginning of period.. 1,737,175 1,737,175 2,030,510
---------- ---------- ----------
Retained earnings at end of period........ $2,030,510 $2,211,446 $2,450,931
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-105
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR-MONTHS
YEAR ENDED ENDED JUNE 30
FEBRUARY 28, -------------------
1998 1997 1998
------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $293,335 474,271 420,421
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................... 644,618 209,580 224,709
Gains from sale of property and equipment.. (62,405) (1,500) (19,701)
Deferred income taxes...................... 115,470 115,470 116,071
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable............................... (389,762) (310,786) 356,230
(Increase) decrease in notes receivable... (96,601) -- 18,852
Decrease in due from officers............. 4,000 20,000 112,450
(Increase) decrease in prepaid expenses... (14,022) 15,558 17,988
Increase in management fee receivable..... -- (108,675) (107,923)
Decrease (increase) in other receivables.. 10,644 (3,542) (2,936)
Increase in accounts payable.............. 20,703 56,510 57,972
Increase in accrued payroll............... 4,129 634 505
Increase (decrease) in other accrued
expenses................................. 7,833 27,152 (30,162)
Increase (decrease) in income taxes
payable.................................. 182,240 50,037 (167,588)
-------- -------- ---------
Net cash provided by operating activities.... 720,182 544,709 996,888
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment......... (661,312) (5,780) (11,706)
Proceeds from sale of property and
equipment.................................. 163,711 1,500 --
Proceeds from sale of subsidiary............ 293,006 -- --
-------- -------- ---------
Net cash used in investing activities........ (204,595) (4,280) (11,706)
-------- -------- ---------
Cash flows from financing activities:
Net decrease in borrowings under line of
credit..................................... (250,000) (250,000) --
Principal payments on long-term debt........ (622,713) (206,412) (158,589)
Additional borrowings on long-term debt..... 544,607 -- --
-------- -------- ---------
Net cash used in financing activities........ (328,106) (456,412) (158,589)
-------- -------- ---------
Net increase in cash and cash equivalents.... 187,481 84,017 826,593
Cash and cash equivalents at beginning of
period...................................... 69,490 69,490 256,971
-------- -------- ---------
Cash and cash equivalents at end of period... $256,971 153,507 1,083,564
======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $113,944 26,432 25,261
Income taxes............................... 41,650 14,920 62,165
</TABLE>
See accompanying notes to consolidated financial statements.
F-106
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
E&R Towing & Garage, Inc. and its two wholly owned subsidiaries, E&R Auto,
Inc. and E&R Transport, Inc., (collectively referred to herein as E&R or the
Company) were founded in 1978, 1988, and 1989, respectively. E&R also had a
55% owned subsidiary which was sold during February, 1998. E&R's primary
business is towing vehicles for commercial entities. E&R Towing & Garage, Inc.
(Towing) and E&R Auto, Inc. (Auto) operate primarily in Chicago and Chicago
suburbs. E&R Transport, Inc. (Transport) operates primarily in New Jersey. E&R
owns and operates approximately 70 vehicles.
(b) Principles of Consolidation
All intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the financial statements include
all costs of doing business.
(c) Revenue Recognition
E&R's revenue is derived from customers who require a towing service.
Revenue is recognized at the completion of each towing engagement. Expenses
related to the generation of revenue are recognized as incurred.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases, if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, E&R
provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Transportation and towing equipment............................ 5 years
Leasehold improvements......................................... 5 years
Furniture and fixtures......................................... 7 years
Computers and communications equipment......................... 5-7 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to E&R on bank loans with
similar terms and maturities, the fair value of E&R's financial instruments
approximates their carrying values.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-107
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of E&R has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Unaudited Interim Financial Statements
In the opinion of the Company's management, the interim financial statements
as of June 30, 1998 and for the four month periods ended June 30, 1997 and
1998 include all adjustments, consisting of normal recurring accruals, that
are necessary for the fair presentation of the Company's financial position at
June 30, 1998 and its results of operations and cash flows for the interim
periods presented. The results for the four months ended June 30, 1998 are not
necessarily indicative of the results expected for the entire year.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $256,971 at February 28, 1998 consist of bank
accounts and short-term investments with an initial term of less than three
months. For purposes of the statement of cash flows, E&R considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(3) INVESTMENT IN S.U.P.
The Company had a 55% owned subsidiary, Summit-U-Pick-A-Part (S.U.P.), a
junkyard. During the year ended February 28, 1998 the Company sold its
ownership in this subsidiary for the amount of its investment. No gain or loss
was incurred upon the sale. At February 28, 1998, the carrying value of this
investment was $-0-.
(4) ALLOWANCE FOR DOUBTFUL ACCOUNTS
During the year ended February 28, 1998, E&R had no write-offs of
uncollectible accounts receivable. E&R has not recorded a provision for the
allowance of doubtful accounts during the year because management believes all
amounts are fully collectible.
(5) PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1998 consist of the following:
<TABLE>
<S> <C>
Transportation and towing equipment.............................. $3,955,717
Leasehold improvements........................................... 188,902
Furniture and fixtures........................................... 114,913
Computers and communications equipment........................... 225,830
----------
Total............................................................ 4,485,362
Less accumulated depreciation.................................... 2,477,025
----------
$2,008,337
==========
</TABLE>
Depreciation of property and equipment in the year ended February 28, 1998
totaled $644,618.
F-108
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INDEBTEDNESS
E&R's long-term debt consists of the following at February 28, 1998:
<TABLE>
<S> <C>
Notes payable to Grand National Bank, payable in aggregate monthly
installments of $33,280, including interest ranging from 9.25% to
9.75%, maturing between December 5, 1998 and December 9, 2000.
Secured by the equipment of the Company.......................... $623,328
Notes payable to South Holland Bank, payable in aggregate monthly
installments of $7,617, including interest at 8.98%, maturing
between December 15, 2000 and December 20, 2001. Secured by the
equipment of the Company......................................... 231,936
Note payable to The Bank of New York, payable in monthly
installments of $4,947, including interest at 9.5%, maturing
December 10, 1999. Secured by equipment of the Company........... 94,382
--------
Total long-term debt.............................................. 949,646
Less installments due within one year............................ 468,467
--------
Long-term debt, excluding current installments.................... $481,179
========
</TABLE>
Annual maturities of long-term debt for the next three years are as follows:
<TABLE>
<S> <C>
February 28:
1999.............................................................. $468,467
2000.............................................................. 329,468
2001.............................................................. 151,711
--------
$949,646
========
</TABLE>
(7) LEASES
E&R leases three buildings and one plot of land used for its separate
operations under annual lease agreements. These leases are classified as
operating leases. The agreements provide for monthly rental payments totaling
$13,673, of which $9,100 of these monthly rental payments are to related
parties. E&R is responsible for all operating costs related to the properties.
Total rent expense for the year ended February 28, 1998 was $164,072.
(8) INCOME TAXES
Income tax expense for the year ended February 28, 1998 consists of:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 55,569
State............................................................. 16,500
--------
72,069
Deferred............................................................ 115,470
--------
$187,539
========
</TABLE>
F-109
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences between the U.S. Federal statutory income tax rate and the
Company's effective rate are:
<TABLE>
<S> <C>
U.S. Federal statutory income tax rate................................ 35.00%
State income taxes, net of Federal benefit............................ 4.50
Nondeductible expenses................................................ (0.50)
-----
39.00%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities not yet deductible for tax purposes........ $ 105,023
---------
Total deferred tax assets........................................ 105,023
Deferred tax liabilities:
Property, plant, and equipment, due primarily to accelerated
depreciation.................................................. (205,303)
Notes receivable............................................... (15,190)
---------
Total deferred tax liabilities................................... (220,493)
---------
Net deferred tax liability....................................... $(115,470)
=========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not E&R will realize
the benefits of these deductible differences. Therefore, no valuation
allowance has been recorded against the deferred tax assets at February 28,
1998. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future income are reduced.
(9) CONCENTRATION OF BUSINESS RISKS
Approximately $4.5 million or 53% of the Company's revenues were derived
from a customer in the auto pound management industry who is also an
affiliated company. Transactions with this company are discussed in note 10.
Approximately $1.6 million or 19% of the Company's revenues were derived from
a customer in the salvage industry.
(10) RELATED-PARTY TRANSACTIONS
The Company and Environmental Auto Removal, Inc. (EAR) are related parties
due to the majority shareholder of the Company holding an interest in EAR.
Both Auto and Towing provide towing services for EAR and all revenues for Auto
are derived from services provided to EAR. The cost of these services amounted
to $2,879,475 for the year ended February 28, 1998. Accounts receivable from
EAR totaled $908,300 at February 28, 1998.
The Company also receives management fees from EAR for the performance of
various administrative and managerial services. For the year ended February
28, 1998, the fees received by the Company for these services totaled $646,378
and are included in other income in the statement of operations and retained
earnings.
F-110
<PAGE>
E&R TOWING & GARAGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended February 28, 1998, the Company paid approximately
$109,200 in rent expense under a lease agreement for buildings owned by the
majority shareholder of the Company. These agreements extend to October 1998
and are classified as operating leases.
At February 28, 1998, the Company had net accounts receivable from two of
the officers of the Company. These amounts are classified as current assets on
the balance sheet and totaled $112,450 at February 28, 1998. The accounts bear
interest at 10%. Due to the timing of activity in this account, only
immaterial amounts of interest income were generated throughout the year ended
February 28, 1998.
(11) SUBSEQUENT EVENT
During 1998, the stockholders entered into a definitive agreement to sell
E&R to United Road Services, Inc. The anticipated selling price of E&R exceeds
its net assets as of February 28, 1998.
(12) CONTINGENT LIABILITIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
legal proceedings would not have a material effect on the financial position
and results of operations of the Company.
F-111
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Environmental Auto Removal, Inc.:
We have audited the accompanying balance sheet of Environmental Auto
Removal, Inc. (EAR) as of December 31, 1997, and the related statements of
operations and retained earnings, and cash flows for the year then ended.
These financial statements are the responsibility of EAR's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As discussed in note 7, the Company is party to an agreement with the City
of Chicago whereby the Company provides auto pound management and towing
services for the City of Chicago. In addition, the Company derives revenue
from the sale of vehicles purchased from the City of Chicago in accordance
with the same agreement. All of the Company's revenues are derived in
accordance with this agreement and 96% of EAR's trade receivable are due from
this one customer at December 31, 1997.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Environmental Auto
Removal, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
August 7, 1998
F-112
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $1,198,311 1,143,020
Accounts receivable.................................. 1,286,916 1,250,329
Inventory............................................ 54,560 78,573
Other receivables.................................... -- 2,253
---------- ---------
Total current assets.................................. 2,539,787 2,474,175
Property and equipment, net (note 3).................. 973,498 921,366
Investment in S.U.P................................... 28,174 --
Due from officers/shareholders (note 6)............... 80,000 805,235
---------- ---------
Total assets.......................................... $3,621,459 4,200,776
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 4)...... $ 278,969 211,452
Accounts payable..................................... 1,711,036 1,765,094
Accounts payable to E&R (note 8)..................... 956,160 460,130
Accrued taxes and other accruals..................... 77,680 48,314
Accrued management fee to affiliate (note 8)......... -- 161,869
---------- ---------
Total current liabilities............................. 3,023,845 2,646,859
Long-term liabilities:
Due to officers/shareholders (note 6)................ -- 207,550
Long-term debt, excluding current installments (note
4).................................................. 110,129 39,328
---------- ---------
Total liabilities..................................... 3,133,974 2,893,737
---------- ---------
Stockholders' equity:
Common stock, no par value, stated value of $1,000.
Authorized, issued, and outstanding 1,000 shares in
1998 and 1997....................................... 1,000 1,000
Retained earnings.................................... 486,485 1,306,039
---------- ---------
Total stockholders' equity............................ 487,485 1,307,039
---------- ---------
Total liabilities and stockholders' equity............ $3,621,459 4,200,776
========== =========
</TABLE>
See accompanying notes to financial statements.
F-113
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
YEAR
ENDED SIX-MONTHS
DECEMBER ENDED JUNE 30,
31, --------------------
1997 1997 1998
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................. $14,104,317 6,147,351 8,539,488
Cost of revenue (note 8).................... 10,889,245 5,793,574 6,022,163
----------- --------- ---------
Gross profit................................ 3,215,072 353,777 2,517,325
Selling, general, and administrative
expenses................................... 1,924,209 704,806 1,382,085
Management fee to affiliate (note 8)........ 747,262 373,630 358,000
----------- --------- ---------
Income (loss) from operations............... 543,601 (724,659) 777,240
----------- --------- ---------
Other income (expense):
Other...................................... (6,231) 1,510 1,557
Interest income............................ 41,415 6,220 51,470
Interest expense........................... (27,344) (11,559) (7,013)
Gain on sale of assets..................... 12,287 -- 13,000
----------- --------- ---------
Income (loss) before income taxes........... 563,728 (728,488) 836,254
Income tax expense.......................... (9,597) -- (16,700)
----------- --------- ---------
Net income (loss)........................... 554,131 (728,488) 819,554
Retained earnings at beginning of period.... 114,944 114,944 486,485
Dividends paid.............................. (182,590) (182,590) --
----------- --------- ---------
Retained earnings (deficit) at end of
period..................................... $ 486,485 (796,134) 1,306,039
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-114
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS
DECEMBER ENDED JUNE 30
31, -------------------
1997 1997 1998
----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 554,131 (728,488) 819,554
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation............................... 129,210 58,847 91,082
Realized gains from sale of property and
equipment................................. (12,287) -- (13,000)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable............................... (1,274,141) (45,000) 36,587
(Increase) decrease in inventory.......... (33,842) 7,490 (24,013)
Increase in other receivables............. -- -- (2,253)
Increase (decrease) in accounts payable... 1,237,214 307,871 (441,972)
Increase (decrease) in accrued expenses... 28,794 (16,046) (54,807)
Increase (decrease) in income taxes
payable.................................. 14,023 (2,490) 25,441
Increase in accrued management fee........ -- 227,632 161,869
----------- -------- ---------
Net cash provided by (used in) operating
activities.................................. 643,102 (190,184) 598,488
----------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment......... (449,284) (46,856) (38,950)
Proceeds from sale of property and
equipment.................................. 80,000 -- 13,000
Cash loaned to affiliate.................... 65,000 (65,000) --
Proceeds from sale of affiliate............. 47,654 -- 28,174
----------- -------- ---------
Net cash (used in) provided by investing
activities.................................. (256,630) (111,856) 2,224
----------- -------- ---------
Cash flows from financing activities:
Principal payments on long-term debt........ (189,319) (95,120) (138,318)
Additional borrowings on long-term debt..... 180,375 -- --
Decrease (increase) in due from
officers/shareholders...................... 120,000 -- (725,235)
Increase in due to officers/shareholders.... -- 450,000 207,550
----------- -------- ---------
Net cash provided by (used in) financing
activities.................................. 111,056 354,880 (656,003)
----------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 497,528 52,840 (55,291)
Cash and cash equivalents at beginning of
period...................................... 700,783 700,780 1,198,311
----------- -------- ---------
Cash and cash equivalents at end of period... $ 1,198,311 753,620 1,143,020
=========== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $ 27,344 11,559 7,013
Income taxes............................... $ 9,597 -- --
</TABLE>
See accompanying notes to financial statements.
F-115
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Environmental Auto Removal, Inc. (the Company or EAR) was founded in 1989.
EAR's primary business is the management of the towing services and auto
pounds for the city of Chicago (City) under a long term contract. In addition,
EAR purchases vehicles from the City for resale at auto auctions or for scrap
value. EAR operates primarily in Chicago.
(b) Revenue Recognition
EAR operates as one segment and revenue is derived from the collection of
towing revenues from the City and the sale of vehicles at auto auctions or for
scrap value. All revenue is recognized upon completion of the towing
engagement or sale of the vehicle at auction or for scrap. Expenses related to
the generation of revenue are recognized as incurred. In the opinion of
management, the financial statements include all costs of doing business.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the estimated
useful lives of the individual assets or, for leasehold improvements, over the
terms of the related leases, if shorter. Accelerated methods of depreciation
have been used for income tax purposes. For financial statement purposes, EAR
provides for depreciation of property and equipment over the following
estimated useful lives:
<TABLE>
<S> <C>
Automobiles and equipment.......................................... 5-7 years
Furniture and fixtures............................................. 7 years
Computers and communications equipment............................. 5-7 years
</TABLE>
(d) Inventory
Inventory consists of vehicles purchased for resale at auto auctions or for
scrap value. Inventories are stated at the lower of cost or market.
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to EAR on bank loans with
similar terms and maturities, the fair value of EAR's financial instruments
approximates their carrying values.
(f) Income Taxes
The Company is an S Corporation under the provisions of the Internal Revenue
Code and, accordingly, the shareholders of the Company are responsible for
Federal tax liabilities. The Company remains liable for a portion of state
income taxes. Under the provisions of the Illinois replacement tax law, S
Corporations are assessed a 1.5% surtax at the corporate level and earnings or
losses flow through to the shareholder to be taxed at the individual level.
Accordingly, only this Illinois replacement tax liability has been recorded in
the financial statements.
Differences in the tax basis and financial statement carrying amounts result
primarily from accounts receivable; property, plant, and equipment; and
accrued liabilities not yet deductible for tax purposes.
F-116
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of EAR has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ
from those estimates.
(h) Unaudited Interim Financial Statements
In the opinion of the Company's management the interim financial statements
as of June 30, 1998 and for the six month periods ended June 30, 1997 and 1998
include all adjustments, consisting of normal recurring accruals, that are
necessary for the fair presentation of the Company's financial position at
June 30, 1998 and its results of operations and cash flows for the interim
periods presented. The results for the six months ended June 30, 1998 are not
necessarily indicative of the results expected for the entire year.
(2) CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $1,198,311 at December 31, 1998 consist of bank
accounts and short-term investments with an initial term of less than three
months. For purposes of the statement of cash flows, EAR considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
During the year ended December 31, 1997, EAR had no write-offs of
uncollectible trade accounts receivable. EAR has not recorded a provision for
the allowance of doubtful accounts because management believes all amounts are
fully collectible.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Automotive and equipment......................................... $1,093,579
Furniture and fixtures......................................... 43,080
Computer and communications equipment.......................... 238,450
----------
Total.......................................................... 1,375,109
Less accumulated depreciation.................................. 401,611
----------
$ 973,498
==========
</TABLE>
Depreciation of property and equipment in 1997 totaled $129,210.
(5) INVESTMENT IN S.U.P.
The Company owns a 27% interest in Summit-U-Pick-A-Part (S.U.P.), a junk
yard. This investment was sold in part during December 1997 with the remainder
being sold in February 1998. The sale resulted in a loss of approximately
$8,800 which was recorded in other expense during the year ended December 31,
1997. At December 31, 1997, the carrying value of this investment was $28,174,
all of which was recovered by the Company through cash proceeds received
during February of 1998.
F-117
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) INDEBTEDNESS
EAR's long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to Associates Commercial Corporation, payable in monthly
installments of $7,874, including interest at 4.56%, maturing
December 31, 1999. Secured by the equipment of the Company........... $180,375
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,634, including interest at 4.79%, maturing
December 31, 1998. Secured by the equipment of the Company........... 54,223
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,530, including interest at 4.73%, maturing
December 31, 1998. Secured by the equipment of the Company........... 53,010
Note payable to Associates Commercial Corporation, payable in monthly
installments of $4,228, including interest at 4.68%, maturing
December 31, 1998. Secured by the equipment of the Company........... 49,470
Note payable to Associates Commercial Corporation, payable in monthly
installments of $2,172, including interest at 8.68%, maturing October
31, 1999. Secured by the equipment of the Company.................... 42,287
Note payable to South Holland Bank, payable in monthly installments of
$782, including interest at 7.9%, maturing January 11, 1999. Secured
by an automobile of the Company...................................... 9,733
--------
Total long-term debt.................................................. 389,098
Less installments due within one year................................. 278,969
--------
Long-term debt, excluding current installments........................ $110,129
========
</TABLE>
Notes payable to Associates Commercial Corporation were arranged with the
acquisition of equipment. The impact of adjusting the stated interest rate on
these notes to the Company's incremental borrowing rate is not material to the
results of operations or to the balance sheet.
Annual maturities of long-term debt for the next two years are as follows:
<TABLE>
<S> <C>
December 31:
1998................................................................. $278,969
1999................................................................. 110,129
--------
$389,098
========
</TABLE>
Line of Credit
The Company has available a secured, revolving line of credit totaling
$500,000. Advances are at the discretion of the bank and interest is charged
at the rate of Prime + 1%. The line of credit is secured by collateral which
includes all inventory, equipment, and fixtures of the Company. Any
outstanding principal plus all accrued, unpaid interest will be due on January
11, 1999. No amounts were outstanding at December 31, 1997.
(7) CONCENTRATION OF BUSINESS RISKS
Effective July 31, 1997, the Company entered into an agreement with the City
of Chicago for auto pound management and towing services. This agreement
extends for a period of 36 months. During this period, the agreement specifies
the amount of revenue to be collected by the Company for each vehicle towed as
well as the cost amount for each vehicle purchased by the Company from the
City.
F-118
<PAGE>
ENVIRONMENTAL AUTO REMOVAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company derived 76% of its revenue during 1997 from services performed
under this long-term contract. The remaining 24% of revenue was derived from
the sale of vehicles purchased from the City of Chicago in accordance with the
same agreement. Loss of this contract would have a material negative effect on
the Company.
At December 31, 1997, EAR had accounts receivable from and accounts payable
to the City in the amount of $1,233,996 and $1,340,710, respectively.
(8) RELATED-PARTY TRANSACTIONS
EAR and E&R Towing, Inc. (E&R) are related parties due to the majority
shareholder of E&R holding shares in EAR. E&R provides towing services for
EAR. The cost of these services amounted to $2,821,345 for the year ended
December 31, 1997. Accounts payable to E&R totaled $956,160 at December 31,
1997.
The Company also pays management fees for the performance of various
administrative and managerial services. For the year ended December 31, 1997,
the fees paid by the Company for these services totaled $747,262 and are
included in other income in the statement of operations and retained earnings.
At December 31, 1997, the Company had net accounts receivable from two of
the officers of the Company. These amounts are classified as current assets on
the balance sheet and totaled $80,000 at December 31, 1997. These accounts
bear interest at 12%. Due to the timing of activity in this account, only
immaterial amounts of interest income were generated throughout 1997.
In the opinion of management, the financial statements at December 31, 1997
include all costs of doing business.
(9) SUBSEQUENT EVENT
During August 1998, the stockholders entered into a definitive agreement to
sell EAR to United Road Services, Inc. Consideration for the sale was paid
through a combination of cash and common stock of United Road Services, Inc.
The anticipated selling price of EAR exceeds its net assets as of December 31,
1997.
(10) CONTINGENT LIABILITIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
legal proceedings would not have a material effect on the financial position
and results of operations of the Company.
F-119
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
We have audited the accompanying balance sheet of Neil's Used Truck & Car
Sales, Incorporated, as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Neil's Used Truck & Car
Sales, Incorporated as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
July 2, 1998, except for note 8,
which is as of July 14, 1998
F-120
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 32,236 $ 356,404
Trade accounts receivable, net of allowance for
doubtful accounts of $13,000........................ 774,618 933,281
Accounts receivable from employees and related party. 13,140 14,899
Drivers advances..................................... 21,420 29,417
Inventory............................................ 175,661 190,954
---------- ----------
Total current assets.............................. 1,017,075 1,524,955
---------- ----------
Property and equipment, net (note 2).................. 1,521,305 1,654,310
---------- ----------
$2,538,380 $3,179,265
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to stockholder.......................... $ 20,417 $ --
Current installments of long-term debt (note 4)...... 152,826 133,482
Current installments of obligations under capital
leases (note 5)..................................... 163,684 163,684
Accounts payable..................................... 126,753 85,381
Accrued payroll and related costs.................... 293,386 419,456
Other current liabilities (note 3)................... 62,665 60,394
---------- ----------
Total current liabilities......................... 819,731 862,397
Long-term debt, excluding current installments (note
4)................................................... 578,461 660,824
Obligations under capital leases, excluding current
installments (note 5)................................ 256,482 176,341
---------- ----------
Total liabilities................................. 1,654,674 1,699,562
---------- ----------
Stockholders' equity:
Common stock, no par value. Authorized 50,000 shares;
issued and outstanding 10,000 shares in 1997........ 1,000 1,000
Retained earnings.................................... 882,706 1,478,703
---------- ----------
Total stockholders' equity........................ 883,706 1,479,703
---------- ----------
Commitments and contingencies (notes 5, 7 and 8)
$2,538,380 $3,179,265
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-121
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30 ,
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................. $9,552,971 $4,631,559 $5,891,071
Cost of revenue............................. 8,246,207 3,931,638 4,813,249
---------- ---------- ----------
Gross profit.............................. 1,306,764 699,921 1,077,822
Selling, general, and administrative
expenses................................... 789,663 387,372 375,249
---------- ---------- ----------
Income from operations...................... 517,101 312,549 702,573
Interest expense............................ 70,590 41,449 46,576
---------- ---------- ----------
Net income................................ $ 446,511 $ 271,100 $ 655,997
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-122
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
STOCK-
COMMON RETAINED HOLDER'S
STOCK EARNINGS EQUITY
------ ---------- ----------
<S> <C> <C> <C>
Balances at December 31, 1996................... $1,000 $ 531,475 $ 532,475
Net income...................................... -- 446,511 446,511
Owners' distributions........................... -- (95,280) (95,280)
------ ---------- ----------
Balances at December 31, 1997................... 1,000 882,706 883,706
Net income--six-months ended June 30, 1998
(unaudited).................................... -- 655,997 655,997
Distribution to stockholders--six-months ended
June 30, 1998 (unaudited)...................... -- (60,000) (60,000)
------ ---------- ----------
Balance at June 30, 1998 (unaudited)............ $1,000 $1,478,703 $1,479,703
====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-123
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 446,511 $ 271,100 $ 655,997
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation.............................. 126,639 59,024 99,470
Change in operating assets and
liabilities:
Trade accounts receivable................ (197,304) (100,904) (158,663)
Accounts receivable from employees....... (150) (200) 1,287
Accounts receivable from related parties. 9,155 19,078 (3,046)
Drivers advances......................... 3,304 (5,150) (7,997)
Inventory................................ (7,320) (19,286) (15,292)
Accounts payable......................... 55,237 24,483 (41,372)
Accrued payroll and related costs........ 94,938 31,387 126,070
Other current liabilities................ (6,488) (11,999) (2,272)
--------- --------- ---------
Net cash provided by operating
activities............................. 524,522 267,533 654,182
--------- --------- ---------
Cash flows used in investing activity--
purchases of property and equipment........ (761,445) (157,794) (232,475)
Cash flows from financing activities:
Proceeds from issuance of long-term debt... 702,999 150,000 135,552
Owners' distributions...................... (95,280) (43,280) (60,000)
Principal payments on long-term debt....... (188,443) (152,381) (92,950)
Principal payments on obligations under
capital leases............................ (150,618) (64,079) (80,141)
--------- --------- ---------
Net cash provided by (used in) financing
activities............................. 268,658 (109,740) (97,539)
--------- --------- ---------
Net increase (decrease) in cash......... 31,735 (1) 324,168
Cash and cash equivalents at beginning of
period..................................... 501 $ 501 32,236
--------- --------- ---------
Cash and cash equivalents at end of period.. $ 32,236 $ 500 $ 356,404
========= ========= =========
Supplemental Disclosure of Cash Flow
Information
Cash paid during the period for interest.... $ 75,051 $ 38,424 $48,621
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-124
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Neil's Used Truck & Car Sales, Incorporated, dba Neil's Auto Transport, (the
Company) was founded in 1993. The Company's primary business is transporting
vehicles for auto auctions and auto dealers, throughout the continental United
States. The Company has one facility located in Utah. It owns a fleet of
approximately 24 trucks and trailers, and contracts with various third party
owner/operators.
(b) Income Taxes
Income taxes are not reflected in the financial statements since the Company
has elected to be treated as a small business corporation under Subchapter S
of the Internal Revenue Code. Accordingly, the tax effects of the Company's
operations accrue directly to the shareholders.
(c) Cash and Cash Equivalents
Cash and cash equivalents of $32,236 at December 31, 1997, consist of cash
on deposit in bank accounts. For purposes of the statement of cash flows, the
Company considers all highly liquid investment instruments with original
maturities of three months or less to be cash equivalents.
(d) Property and Equipment
Property and equipment are stated at cost. Plant and equipment under capital
leases are stated at the present value of minimum lease payments. Depreciation
is determined for financial statement purposes using the straight-line method
over the estimated useful lives of the individual assets. For financial
statement purposes, the Company provides for depreciation of property and
equipment over the following estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment......................................... 5--10 years
Furniture and fixtures........................................... 5--7 years
Equipment........................................................ 7 years
</TABLE>
(e) Inventories
Inventories are stated at lower of cost or market. Cost is determined using
the first-in, first-out method for all inventories.
(f) Income Taxes
The Company has elected to be taxed under the Subchapter S provisions of the
Internal Revenue Code. Accordingly, tax liabilities of the Company are the
direct responsibility of the stockholders, and no provision for income taxes
is reflected in the accompanying statement of operations. Due to differences,
primarily in the timing of the recognition of depreciation expense for book
purposes versus tax purposes, the book bases in the reported net assets in the
accompanying balance sheet exceeds the tax bases by approximately $538,000.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally a ccepted accounting principles. Actual results
could differ from those estimates.
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
F-125
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment......................................... $1,520,955
Furniture and fixtures........................................... 47,847
Equipment........................................................ 86,609
Land............................................................. 140,000
----------
Total........................................................ 1,795,411
Less accumulated depreciation and amortization................... 274,106
----------
$1,521,305
==========
(3) OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1997 consist of:
Deposit liability................................................ $ 35,440
Accrued sales tax................................................ 12,725
Other............................................................ 14,500
----------
$ 62,665
==========
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Note payable to a bank, payable in monthly installments of $3,758,
including interest at 8.27%; maturing June 2001; secured by
transport equipment.............................................. $ 137,221
Note payable to a bank, payable in monthly installments of $7,420,
including interest at 8.60%; maturing March 2002; secured by
transport equipment.............................................. 292,000
Note payable to a bank, payable in monthly principal installments
of $6,630, plus interest at 8.58%; maturing March 2002; secured
by transport equipment........................................... 260,999
Note payable to a bank, payable in monthly installments of $4,292,
including interest at 8.75%; maturing October 1998; secured by
transport equipment.............................................. 41,067
---------
Total long-term debt.......................................... 731,287
Less installments due within one year............................. 152,826
---------
Long-term debt, excluding current installments................ $ 578,461
=========
</TABLE>
Aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 173,243
1999............................................................... 171,111
2000............................................................... 186,169
2001............................................................... 179,627
2002............................................................... 41,554
---------
$ 751,704
=========
</TABLE>
F-126
<PAGE>
NEIL'S USED TRUCK & CAR SALES, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
As of December 31, 1997, the Company had a line-of-credit with a bank
totaling $100,000. There were no borrowings outstanding at December 31, 1997,
and the agreement expired April 30, 1998.
(5) LEASES
The Company leases equipment under a capital lease which expires in May
2000. The following is a summary of transportation equipment held under
capital leases at December 31, 1997:
<S> <C>
Transportation equipment........................................... $639,587
Less accumulated amortization...................................... 67,981
--------
$571,606
========
</TABLE>
The Company leases its operating facility from a related stockholder under a
month to month lease. Rent expense was $207,158 in 1997.
Future minimum lease payment under noncancelable operating leases and future
minimum capital lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending December 31:
1998....................................................... $192,591 28,234
1999....................................................... 192,591 5,160
2000....................................................... 80,246 5,160
2001....................................................... -- 5,160
2002....................................................... -- 1,290
-------- ------
Total.................................................... 465,428 45,004
======
Less amount representing interest............................ 45,262
--------
Present value of net minimum capital lease payments...... 420,166
Less current installments.................................... 163,684
--------
$256,482
========
</TABLE>
(6) EMPLOYEE BENEFITS
The Company has a retirement savings plan pursuant to section 401(k) of the
Internal Revenue Code that is available to all employees with at least one
year of service to the Company. Eligible participants may contribute up to
four percent of their compensation. The Company provides non-discretionary
matching contributions to the Plan which amounted to $7,800 in 1997.
(7) CONTINGENCIES
Various legal claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the Company's financial
position, results of operations, or cash flows.
(8) SUBSEQUENT EVENT
On July 14, 1998, the stockholders consummated a transaction whereby all of
the net assets of the Company were sold to United Road Services, Inc.
F-127
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
5-L Corporation and ADP Transport, Inc.:
We have audited the accompanying combined balance sheet of 5-L Corporation
and ADP Transport, Inc. as of December 31, 1997, and the related combined
statements of operations, stockholders' equity and cash flows for the year
then ended. These combined financial statements are the responsibility of the
management of 5-L Corporation and ADP Transport, Inc. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of 5-L
Corporation and ADP Transport, Inc. as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
June 12, 1998
F-128
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 47,083 $ 31,614
Trade accounts receivable............................ 806,009 982,508
Accounts receivable from employees................... 5,000 --
Prepaid expenses..................................... 23,040 53,940
Other current assets................................. 4,074 1,350
Current portion of rights to equipment under
financing contracts................................. 382,246 290,638
---------- ----------
Total current assets.............................. 1,267,452 1,360,050
Rights to equipment under financing contracts,
excluding current portion............................ 1,780,129 2,714,344
Goodwill, net of accumulated amortization of $7,224
and $7,974, respectively............................. 17,776 17,026
Other assets.......................................... 7,700 7,700
---------- ----------
Total assets...................................... $3,073,057 $4,099,120
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations for equipment un-
der financing contracts............................. $ 382,246 $ 290,638
Contractor payments payable.......................... 198,182 289,441
Accounts payable..................................... 89,849 140,474
Accrued payroll and related costs.................... 99,721 20,662
Notes payable to stockholders........................ -- 257,140
---------- ----------
Total current liabilities......................... 769,998 998,355
Obligations for equipment under financing contracts,
excluding current
installments......................................... 1,780,129 2,714,344
---------- ----------
Total liabilities................................. 2,550,127 3,712,699
---------- ----------
Stockholders' equity:
Common stock, $1 par value. Authorized, issued and
outstanding
2,000 shares........................................ 2,000 2,000
Retained earnings.................................... 520,930 384,421
---------- ----------
Total stockholders' equity........................ 522,930 386,421
---------- ----------
Total liabilities and stockholders' equity........ $3,073,057 $4,099,120
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-129
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $9,852,142 $4,918,861 $5,069,454
Cost of revenue........................... 8,389,700 4,180,156 4,288,975
---------- ---------- ----------
Gross profit.......................... 1,462,442 738,705 780,479
Selling, general and administrative
expenses................................. 927,560 377,110 335,113
---------- ---------- ----------
Income from operations................ 534,882 361,595 445,366
Other income (expense):
Interest expense......................... (10,057) (1,374) (189)
Other.................................... 11,105 5,497 22,594
---------- ---------- ----------
Net income............................ $ 535,930 $ 365,718 $ 467,771
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-130
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- --------- --------------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1997.................. $1,000 $ 555,585 $ 556,585
Net income -- 1997........................... -- 535,930 535,930
Distribution to stockholders................. -- (570,585) (570,585)
Stock issued ADP............................. 1,000 -- 1,000
------ --------- ---------
BALANCES AT DECEMBER 31, 1997................ 2,000 520,930 522,930
Net income--six-months ended June 30, 1998
(unaudited)................................. -- 467,771 467,771
Distribution to stockholders--cash paid--six-
months ended June 30, 1998 (unaudited)...... -- (347,140) (347,140)
Distribution to stockholders--notes payable--
six-months ended June 30, 1998 (unaudited).. -- (257,140) (257,140)
------ --------- ---------
BALANCE AT JUNE 30, 1998 (UNAUDITED)......... $2,000 $ 384,421 $ 386,421
====== ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-131
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 535,930 $ 365,718 $ 467,771
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization............................. 1,667 765 750
Decrease (increase) in trade accounts
receivable.............................. (36,133) 114,873 (176,499)
Decrease in accounts receivable from
employees............................... 22,500 27,500 5,000
Decrease (increase) in prepaid expenses
and other current assets................ 32,516 (12,307) (28,175)
(Decrease) increase in accounts payable.. (2,372) (11,669) 50,625
Decrease in accrued payroll and related
costs................................... (169) (89,947) (78,059)
Increase in contractor payments payable.. 39,419 51,678 91,258
--------- --------- ---------
Net cash provided by operating
activities............................. 593,358 446,611 331,671
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock..... 1,000 -- --
Distributions to stockholders.............. (570,585) (281,398) (347,140)
--------- --------- ---------
Net cash used in financing activities... (569,585) (281,398) (347,140)
--------- --------- ---------
Net increase (decrease) in cash......... 23,773 165,213 (15,469)
Cash and cash equivalents at beginning of
period..................................... 23,310 23,310 47,083
--------- --------- ---------
Cash and cash equivalents at end of period.. $ 47,083 $ 188,523 $ 31,614
========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest.... $ 10,057 $ 1,374 $ 198
========= ========= =========
Reduction for the period in rights to and
obligations for equipment under financing
contracts, net............................ $ 59,892 $ -- $ 842,607
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-132
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
5-L Corporation (5-L) was founded in 1993 and its primary business is
coordinating the transport of vehicles for auto auctions, leasing companies,
auto dealers, manufacturers and individuals. It operates throughout the
continental United States via a network of independently contracted carriers.
ADP Transport, Inc. (ADP) was founded in 1997 and acts as an agent for
independent carriers by securing and servicing transport equipment lease
agreements. Both companies" operations are headquartered in Westminster,
Colorado.
(b) Principles of Combination
The combined financial statements include the financial statements of 5-L
and ADP, the "Company" when referred to collectively. The accompanying
financial statements are presented on a combined basis because 5-L and ADP are
under common management. All significant intercompany balances and
transactions have been eliminated.
(c) Revenue Recognition
5-L operates as one segment related to the transportation of vehicles for
customers such as auto auctions, leasing companies, auto dealers,
manufacturers and individuals. Transport revenue and related direct expenses
are recognized when the service originates, which does not differ
significantly from the amounts that would be recognized as the service is
performed.
ADP's revenue is derived from service fees associated with the
administration of equipment lease agreements for certain independent carriers
of 5-L. For a monthly fee, ADP performs administrative functions relating to
the leased equipment, such as monthly payment processing and procurement of
insurance coverage on behalf of the carrier/lessee. Service revenues are
recognized when services are performed. Cost of sales and operating expenses
associated with the service revenues are nominal.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of bank accounts and certificates of
deposit with an initial term of less than three months. For purposes of the
statement of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(e) Goodwill
Goodwill represents the excess of purchase price over fair value of net
assets acquired and is amortized on a straight-line basis over 15 years, which
is the Company"s estimate of the expected periods to be benefited.
(f) Accounting for Long-Lived Assets
The Company reviews long-lived tangible and intangible assets including
rights to equipment under financing contracts for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets is measured by a comparison of
the carrying amount of an asset to the future net cash flows expected to be
generated by the asset. The impairment, if any, is measured by the amount by
which the carrying amount of the assets exceed the fair value of the assets.
F-133
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Other Assets
Other assets consist principally of deposits made by the Company to secure
office facilities and surety bonding.
(h) Income Taxes
Both 5-L and ADP are operated as S-corporations for federal and state income
tax purposes and all corporate earnings flow through and are taxed solely at
the stockholder level. Accordingly, no income tax expense has been recorded
for the year ended December 31, 1997. The tax basis of the Company's assets
and liabilities does not differ materially from their recorded values at
December 31, 1997.
(i) Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, which are
comprised mainly of receivables and payables, approximate their fair values.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(k) Interim Combined Financial Statements
The interim financial information included in these combined financial
statements is unaudited but reflects all adjustments (consisting of only
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented.
(2) EQUIPMENT UNDER FINANCING CONTRACTS
ADP has guaranteed lease obligations for certain independent carriers who
lease the equipment from financing companies. The guarantee includes payment
of the monthly installments should the primary lessee default, as well as a
specified minimum residual value at the end of the lease term. In return for
the lease guarantee, the independent carrier agrees to subcontract the
equipment to 5-L for the duration of the lease term. For accounting purposes,
the Company has recorded the rights to the equipment and the corresponding
obligation under the equipment financing contracts. The recorded value of both
the asset and liability related to the financing contracts is determined based
on the present value of the future minimum installment payments and the
guaranteed residual value using the rate implicit in the lease agreements.
The following is a summary of obligations under equipment financing
contracts at December 31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998.......................................................... $ 539,602
1999.......................................................... 539,602
2000.......................................................... 539,602
2001.......................................................... 965,760
2002.......................................................... --
----------
Total minimum obligations (includes residual guarantees of
$519,989)...................................................... 2,584,566
Less: imputed interest (at rates from 7.25% to 10.50%).......... (422,191)
----------
Present value of future minimum obligations, $382,246 of which
is included in current assets and liabilities at December 31,
1997........................................................... $2,162,375
==========
</TABLE>
During 1997, installment payments of $93,626 related to the obligations for
equipment under financing contracts are included in cost of revenue. Of this
amount, $33,734 represents interest charges. These amounts
F-134
<PAGE>
5-L CORPORATION AND ADP TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
were withheld from the amounts paid to the respective independent contractors
and remitted directly to the financing companies.
Subsequent to December 31, 1997, the Company entered into agreements whereby
they guaranteed monthly payments and minimum residual values on seven
additional leases, the terms of which are consistent with those described
above. The value of the assets and corresponding liabilities recorded in
connection with these additional agreements is approximately $1,094,000.
(3) LEASES
5-L is committed under a non-cancellable operating lease for office space.
The future minimum lease payments at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................................. $31,808
1999................................................................. 21,623
2000................................................................. --
2001................................................................. --
2002................................................................. --
-------
Total minimum lease payments........................................... $53,431
=======
</TABLE>
(4) EMPLOYEE BENEFITS
5-L has a simplified employee pension plan (Plan) pursuant to Section 408(k)
of the Internal Revenue Code. The Plan provides for discretionary employer
contributions for employees who have completed two years of service with 5-L.
Employees are immediately vested in all balances. For 1997, 5-L made
contributions of $52,695 to the Plan.
(5) RELATED PARTY TRANSACTIONS
During 1997, 5-L paid $9,995 in interest related to notes payable to
stockholders. The notes were repaid in 1997.
(6) CONTINGENT LIABILITIES
Various claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(7) SUBSEQUENT EVENT
On June 12, 1998 all of the outstanding stock of 5-L and ADP was sold to
United Road Services, Inc. The sales transaction, affected through a
combination of cash and common stock of United Road Services, Inc., will be
accounted for as a purchase. The selling price of 5-L and ADP exceeds their
combined net assets as of December 31, 1997.
F-135
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Car Transporters Corporation:
We have audited the accompanying balance sheet of Car Transporters
Corporation (a wholly-owned subsidiary of Automotive Services, Inc.) as of
December 31, 1997, and the related statements of operations, stockholder's
deficit, and cash flows for the year then ended. These financial statements
are the responsibility of Car Transporters Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Car Transporters
Corporation (a wholly-owned subsidiary of Automotive Services, Inc.) as of
December 31, 1997, and the results of its operations, and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Portland, Oregon
August 19, 1998
F-136
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 73,964 $ --
Trade accounts receivable, net of allowance for
doubtful accounts of $5,893 for December 31, 1997
and June 30, 1998................................... 683,474 892,437
Prepaid insuance...................................... 44,189 --
Other prepaid expenses................................ 82,169 66,224
---------- ----------
Total current assets.............................. 883,796 958,661
Property and equipment, net........................... 1,805,508 2,492,549
Other assets, net..................................... 10,707 525,207
---------- ----------
Total assets...................................... $2,700,011 $3,976,417
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Bank overdraft....................................... $ -- $ 195,992
Current installments of long-term debt............... 411,300 4,917,491
Current installments of obligations under capital
leases.............................................. 152,136 321,991
Borrowings under lines of credit..................... 753,743 594,286
Accounts payable..................................... 1,416,318 1,776,398
Accrued liabilities.................................. 316,567 370,278
Accrued claims....................................... 169,301 107,890
---------- ----------
Total current liabilities......................... 3,219,365 8,284,326
Long-term liabilities:
Long-term debt, excluding current installments....... 3,275,118 --
Obligations under capital leases, excluding current
installments........................................ 175,267 --
---------- ----------
Total liabilities................................. 6,669,750 8,284,326
---------- ----------
Stockholder's deficit:
Common stock, $10 par value. Authorized 1,000 shares;
issued and outstanding 1,000 shares................. 10,000 10,000
Retained deficit..................................... (3,979,739) (4,317,909)
---------- ----------
Total stockholder's deficit....................... (3,969,739) (4,307,909)
---------- ----------
Total liabilities and stockholder's deficit....... $2,700,011 $3,976,417
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-137
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $6,676,340 $3,436,357 $4,499,480
Cost of revenue........................... 5,708,638 3,018,772 3,861,840
---------- ---------- ----------
Gross profit.......................... 967,702 417,585 637,640
Selling, general and administrative
expenses................................. 829,859 272,833 623,053
---------- ---------- ----------
Income from operations................ 137,843 144,752 14,587
Other income (expense):
Interest expense, net.................... (737,894) (425,884) (299,331)
Gain on sale of equipment................ 21,571 -- --
Penalty and late charges on debt, net.... (199,510) -- (53,426)
---------- ---------- ----------
Loss before provision for income
taxes................................ (777,990) (281,132) (338,170)
Provision for income taxes................ -- -- --
---------- ---------- ----------
Net loss.............................. $ (777,990) $ (281,132) $ (338,170)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-138
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK DEIFICT DEFICIT
------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................ $10,000 $(3,201,749) $(3,191,749)
Net loss.................................... -- (777,990) (777,990)
------- ----------- -----------
Balance at December 31, 1997................ 10,000 (3,979,739) (3,969,739)
Net loss--six-months ended June 30, 1998
(unaudited)................................ -- (338,170) (338,170)
------- ----------- -----------
Balance at June 30, 1998 (unaudited)........ $10,000 $(4,317,909) $(4,307,909)
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-139
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (777,990) $(281,132) $ (338,170)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 355,246 160,579 215,273
Amortization of non-compete............. 13,200 1,320 --
Gain on sale of equipment............... (21,571) -- --
Changes in current assets and
liabilities:
Increase in accounts receivable, net... (649,969) (695,354) (208,963)
Decrease (increase) in prepaid
insurance and other prepaid expenses.. (12,631) (150,484) 60,134
Increase (decrease) in accounts
payable............................... (150,946) 247,789 360,080
Increase (decrease) in accrued
liabilities........................... (75,100) (270,260) 53,711
Decrease in accrued claims............. (27,951) (8,146) (61,411)
----------- --------- -----------
Net cash (used in) provided by
operating activities................. (1,347,712) (995,688) 80,654
----------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment....... (7,733) -- --
Proceeds from sale of equipment.......... 39,634 -- --
Decrease in other assets................. (1,107) -- (3,500)
Cash paid for acquisitions............... -- -- (1,413,314)
----------- --------- -----------
Net cash provided by (used in)
investing activities................. 30,794 -- (1,416,814)
----------- --------- -----------
Cash flows from financing activities:
Proceeds from long-term debt............. 1,460,293 742,105 1,650,000
Payments on long-term debt, notes payable
and capital lease obligations........... (662,462) (276,026) (424,339)
Net borrowings under lines of credit..... 753,743 644,662 (159,457)
Decrease in bank overdrafts.............. (199,521) (153,882) 195,992
Decrease in notes receivable............. 37,836 37,836 --
----------- --------- -----------
Net cash provided by financing
activities........................... 1,389,889 994,695 1,262,196
----------- --------- -----------
Net increase (decrease) in cash....... 72,971 (993) (73,964)
Cash at beginning of period............... 993 993 73,964
----------- --------- -----------
Cash at end of period..................... $ 73,964 $ -- $ --
=========== ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest................... $ 741,058 $ 431,402 $ 299,331
=========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-140
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Car Transporters Corporation (CTC) is a Washington Corporation founded in
1980 and is a wholly-owned subsidiary of Automotive Services, Inc. a
Washington Corporation. CTC's primary business is transporting vehicles for
dealers, leasing companies, auction companies and long-haul transporters in
the Western United States. CTC operates approximately 60 vehicles. These
financial statements include all costs of doing business of CTC.
Unaudited Information
The financial information included herein for the six-month periods ended
June 30, 1997 and 1998 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
Revenue Recognition
CTC operates as one segment related to the transportation of vehicles and
equipment for customers.
CTC's revenue is derived from customers who require transport of vehicles
and equipment. Transport revenue is recognized upon the delivery of the
vehicles and equipment to their final destination. Expenses related to the
generation of revenue are recognized as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
determined for financial statement purposes using the straight-line method
over the estimated useful lives of the individual assets or, for leasehold
improvements, over the terms of the related leases if shorter. For financial
statement purposes, CTC provides for depreciation of property and equipment
over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment....................................... 10-20 years
Leasehold improvements........................................ 10 years
Furniture and fixtures........................................ 10-20 years
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt instruments. At December 31, 1997, the fair value of
the Company's receivables approximated carrying value. At December 31, 1997,
the fair value of the Company's debt instruments was approximately $3,000,000.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-141
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accrued Claims
CTC is responsible for damage incurred while transporting vehicles to their
final destination. Damage incurred is identified upon delivery at final
destination and CTC reimburses for the cost of repairs.
Use of Estimates
Management of CTC has made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Machinery and equipment......................................... $ 3,251,888
Leasehold improvements.......................................... 12,568
Furniture and fixtures.......................................... 26,498
-----------
3,290,954
Less accumulated depreciation and amortization.................. (1,485,446)
-----------
$ 1,805,508
===========
</TABLE>
Depreciation and amortization of property and equipment in 1997 totaled
$355,246. CTC held equipment under capital leases of $728,571 at December 31,
1997.
(3) LINE OF CREDIT
CTC has a line of credit to borrow up to $1,000,000 which is secured by
eligible accounts receivable. Interest is charged at prime plus 6% (14.5% at
December 31, 1997).
(4) DEBT
<TABLE>
<S> <C>
Long-term debt consists of the following at December 31, 1997:
Note payable to lending institution, payable in monthly
installments plus interest of 16% through 2001. This note is
secured by various equipment.................................. $ 330,000
Various notes payable due in varying amounts with maturities
ranging from December of 2000 to December of 2005 with
interest ranging from 8% to 16%. These notes are secured by
various equipment............................................. 1,171,146
Note payable to lending institution, payable in monthly
installments plus interest of 18% through 2002................ 600,000
Various unsecured notes payable, due in varying amounts with
maturities ranging from December of 1998 to December of 2002
with interest ranging from 9.25% to 36%....................... 1,585,272
----------
Total long-term debt........................................ 3,686,418
Less current portion............................................ (411,300)
----------
$3,275,118
==========
</TABLE>
(See Footnote 9 for subsequent event)
F-142
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) CAPITAL LEASE OBLIGATIONS
CTC leases certain vehicles under capital leases.
At December 31, 1997 obligations under capital leases consist of the
following:
<TABLE>
<S> <C>
Three capital leases net of interest, payable in monthly
installments bearing interest at 11.5% through 2001. These leases
are secured by the respective trucks and trailers acquired under
the capital lease. ............................................... $ 353,544
Capital lease net of interest, payable in monthly installments
bearing interest at 18% through 2001. This lease is secured by the
truck and trailer acquired under the capital lease. .............. 82,070
---------
435,614
Less amount that represents imputed interest....................... (108,211)
---------
327,403
---------
Less current portion............................................... (152,136)
---------
$ 175,267
=========
</TABLE>
(See Footnote 9 for subsequent event)
(6) OPERATING LEASES
CTC leases certain land and buildings used for its operations under
operating lease agreements expiring in 2006. Total rent expense for 1997 was
$60,989.
Future annual minimum operating lease payments at December 31, 1997 are:
<TABLE>
<S> <C>
1998................................................................ $ 61,506
1999................................................................ 63,350
2000................................................................ 65,244
2001................................................................ 67,198
2002................................................................ 69,212
Thereafter.......................................................... 281,931
--------
$608,441
========
</TABLE>
(7) INCOME TAXES
The Company incurred a loss for both financial reporting and tax return
purposes and as such, there was no current or deferred tax provision for the
year ended December 31, 1997.
At December 31, 1997, CTC's long-term deferred tax asset/liability consists
of:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating loss carryforward................................ $1,614,089
Deferred tax liability:
Fixed assets, due to depreciation.............................. 259,360
----------
Net.......................................................... 1,354,729
Valuation allowance.............................................. (1,354,729)
----------
Total........................................................ $ --
==========
</TABLE>
F-143
<PAGE>
CAR TRANSPORTERS CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF AUTOMOTIVE SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CTC's net operating loss carryforwards (NOL's) of approximately $4,747,000
expire at various times in the future. At December 31, 1997, a valuation
allowance has been provided against the deferred tax assets, as it is
uncertain that the deferred tax assets will be realized since the Company has
incurred substantial operating losses.
The following table reconciles the expected tax benefit (expense) at the
Federal statutory tax rate to the actual tax provision:
<TABLE>
<S> <C>
Federal statutory rate............................................ $ 264,517
NOL's for which no benefit is recognized.......................... (264,517)
---------
Provision for income taxes...................................... $ --
=========
</TABLE>
(8) SIGNIFICANT CUSTOMER
CTC has one significant customer that accounts for approximately 30% of
total sales. As of December 31, 1997 this customer had an outstanding accounts
receivable balance of $302,004.
(9) SUBSEQUENT EVENTS
During February of 1998, the Company acquired equipment from Spokane Auto
Transport for approximately $865,000 of cash. The aggregate purchase price,
over the fair value of equipment acquired of approximately $361,000, was
recognized as goodwill and is being amortized over 15 years on a straight-line
basis. In March of 1998, the Company acquired equipment from All West Auto
Transport for $550,000 of cash. The aggregate purchase price, over the fair
value of equipment acquired of approximately $150,000, was recognized as
goodwill and is being amortized over 15 years on a straight-line basis. These
assets were included in the sale to United Road Services, Inc.
During July 1998, CTC completed an asset purchase transaction with United
Road Services, Inc. (URS) whereby CTC sold all of its assets, properties and
business to URS. URS also assumed all current liabilities and indebtedness of
CTC. The assets sold to URS included receivables, fixed assets and tangible
personal property, customer accounts, cash and cash equivalents, prepaids,
leasehold interests, proprietary rights, licenses and permits and other
assets.
Subsequent to the closing of the asset purchase transaction, URS has paid
off all outstanding indebtedness.
F-144
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Schroeder Auto Carriers, Inc.:
We have audited the accompanying balance sheet of Schroeder Auto Carriers,
Inc. as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of Schroeder Auto Carriers, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the financial position of Schroeder Auto Carriers, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Denver, Colorado
August 13, 1998
F-145
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
BALANCE SHEET
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash................................................. $ 54,216 $ 107,504
Trade accounts receivable, net of allowance for
doubtful accounts of $78,215 and $62,871,
respectively........................................ 736,954 744,798
Accounts receivable from employees................... 4,207 8,381
Prepaid expenses..................................... 3,300 39,309
---------- ----------
Total current assets.............................. 798,677 899,992
Property and equipment, net.......................... 738,109 1,166,502
---------- ----------
Total assets...................................... $1,536,786 $2,066,494
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............... $ 25,087 $ 93,852
Accounts payable..................................... 116,068 158,287
Accrued payroll and related costs.................... 26,852 56,201
Current portion of notes payable to related parties.. 180,000 180,000
---------- ----------
Total current liabilities......................... 348,007 488,340
Long-term debt, excluding current installments........ 101,895 340,882
Notes payable to related parties...................... 25,000 --
---------- ----------
Total liabilities................................. 474,902 829,222
---------- ----------
Stockholders' equity:
Common stock, $1 par value. 700,000 shares
authorized; 35,000 shares issued and outstanding.... 35,000 35,000
Retained earnings.................................... 1,026,884 1,202,272
---------- ----------
Total stockholders' equity........................ 1,061,884 1,237,272
---------- ----------
Total liabilities and stockholders' equity........ $1,536,786 $2,066,494
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-146
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue............................... $5,799,071 $2,727,236 $3,168,786
Cost of revenue........................... 4,567,940 2,086,816 2,536,525
---------- ---------- ----------
Gross profit.......................... 1,231,131 640,420 632,261
Selling, general and administrative
expenses................................. 888,887 395,454 395,870
---------- ---------- ----------
Income from operations................ 342,244 244,966 236,391
---------- ---------- ----------
Other income (expense):
Interest expense......................... (31,235) (14,921) (17,979)
Gain on sale of assets................... 9,431 -- --
Other.................................... 3,507 2,602 1,021
---------- ---------- ----------
Net income............................ $ 323,947 $ 232,647 $ 219,433
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-147
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- --------------
<S> <C> <C> <C>
BALANCES AT JANUARY 1, 1997................. $35,000 $ 767,293 $ 802,293
Net income--1997............................ -- 323,947 323,947
Distribution to stockholders................ -- (64,356) (64,356)
------- ---------- ----------
BALANCES AT DECEMBER 31, 1997............... 35,000 1,026,884 1,061,884
Net income--six-months ended June 30, 1998
(unaudited)................................ -- 219,433 219,433
Distribution to stockholders--six-months
ended June 30, 1998 (unaudited)............ -- (44,045) (44,045)
------- ---------- ----------
BALANCE AT JUNE 30, 1998 (UNAUDITED)........ $35,000 $1,202,272 $1,237,272
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-148
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31 --------------------
1997 1997 1998
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 323,947 $ 232,647 $ 219,433
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 69,682 33,393 43,104
Gain on sale of assets.................... (9,431) -- --
Increase in trade accounts receivable..... (178,667) (99,663) (12,018)
Decrease in accounts receivable from
employees................................ 5,954 -- --
Decrease (increase) in prepaid expenses... 6,899 (21,186) (36,009)
(Decrease) increase in accounts payable... (54,881) (60,531) 42,219
Increase in accrued payroll and related
costs.................................... 9,507 492 29,349
--------- --------- ---------
Net cash provided by operating
activities............................. 173,010 85,152 286,078
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets............... 15,000 -- --
Purchases of property and equipment........ (221,829) (168,500) (471,497)
--------- --------- ---------
Net cash used in investing activities... (206,829) (168,500) (471,497)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt............... 142,000 142,000 450,512
Principal payments on long-term debt....... (139,646) (41,077) (142,760)
Distributions to stockholders.............. (64,356) (50,000) (44,045)
Proceeds from notes payable to related
parties................................... 205,000 170,000 --
Principal payments on notes payable to
related parties........................... (160,000) (160,000) (25,000)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................. (17,002) 60,923 238,707
--------- --------- ---------
Net (decrease) increase in cash......... (50,821) (22,425) 53,288
Cash at beginning of period................. 105,037 105,037 54,216
--------- --------- ---------
Cash at end of period....................... $ 54,216 $ 82,612 $ 107,504
========= ========= =========
Supplemental disclosure of cash flow
information--cash paid during the period
for interest............................... $ 31,235 $ 14,921 $ 17,979
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-149
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Schroeder Auto Carriers, Inc. (the Company) was founded in 1990 and provides
vehicle transport services for auto auctions, leasing companies, auto dealers
and individuals. The Company owns and operates approximately 35 vehicles
throughout 27 states in the western region of the United States. The Company
also uses, on a limited basis, independent contractors who have their own
equipment. The independent contractors operate under a carrier agreement when
performing transport services for the Company. The Company is headquartered in
Henderson, Colorado and also maintains a satellite facility in Salt Lake City,
Utah.
(b) Revenue Recognition
Revenue is recognized upon the delivery of the vehicles to their final
destination. Expenses related to the generation of revenue are recognized as
incurred.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method over the following
estimated useful lives of the individual assets.
<TABLE>
<S> <C>
Transportation equipment......................................... 15 years
Vehicles......................................................... 5 years
Office equipment................................................. 7 years
</TABLE>
(d) Income Taxes
The Company operates as an S-corporation for federal and state income tax
purposes and all corporate earnings flow through and are taxed solely at the
stockholder level. Accordingly, no income tax expense has been recorded for
the year ended December 31, 1997.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ significantly from those estimates.
(f) Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, which are
comprised mainly of receivables and payables, approximate their fair values.
(g) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
F-150
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment.......................................... $ 845,138
Vehicles.......................................................... 62,144
Office equipment.................................................. 54,297
---------
Total......................................................... 961,579
Less: accumulated depreciation.................................... (223,470)
---------
$ 738,109
=========
</TABLE>
Depreciation of property and equipment in 1997 totaled $69,682.
(3) INDEBTEDNESS
The Company has a note payable to First Security Bank payable in monthly
installments of $2,958, including interest at 9%, maturing April 2002. The
remaining balance on the note at December 31, 1997 is $126,982; $25,087 of
which is classified in current liabilities.
The Company has a note payable to stockholders of $180,000, payable in a
lump sum on August 15, 1998. The note bears interest at 8.75% per annum which
is paid monthly. In addition, the Company has a note payable to other related
parties of $25,000, payable in a lump sum on June 1, 1999. The note bears
interest at 10% per annum, paid monthly. For 1997, interest expense on the
above notes was $18,250.
Debt maturities at December 31 are as follows:
<TABLE>
<S> <C>
1998................................................................ $205,087
1999................................................................ 52,441
2000................................................................ 30,017
2001................................................................ 32,830
2002................................................................ 11,607
--------
Total............................................................. $331,982
========
</TABLE>
(4) LEASES
The Company leases their main facility from a related party. The lease is a
non-cancelable operating lease with future minimum lease payments at December
31, 1997 as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998............................................................. $ 96,000
1999............................................................. 96,000
2000............................................................. 96,000
2001............................................................. 96,000
2002............................................................. 96,000
Thereafter....................................................... 1,264,000
----------
Total minimum lease payments................................... $1,744,000
==========
</TABLE>
Total rent expense for 1997, all of which was paid to a related party, was
$96,900.
F-151
<PAGE>
SCHROEDER AUTO CARRIERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INCOME TAXES
As the Company uses accelerated methods of depreciation for income tax
purposes, the recorded values of property and equipment are approximately
$423,000 higher than those used for tax purposes at December 31, 1997.
Depreciation expense reported for tax purposes for 1997 was approximately
$152,000 higher than the amount recorded for book purposes. The tax basis of
all other assets and liabilities does not differ materially from their
recorded values at December 31, 1997.
(6) CONTINGENT LIABILITIES
Various claims arise against the Company during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(7) SUBSEQUENT EVENT
On July 1, 1998 all of the outstanding stock of the Company was sold to
United Road Service, Inc. The sales transaction will be accounted for as a
purchase.
F-152
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholder
Keystone Towing, Inc.:
We have audited the accompanying balance sheets of Keystone Towing, Inc.
("Keystone") as of December 31, 1996 and 1997, and the related statements of
operations, stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of Keystone's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Keystone Towing, Inc. as
of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albany, New York
January 16, 1998,
except as to note 13(b),
which is as of May 6, 1998
F-153
<PAGE>
KEYSTONE TOWING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30,
1996 1997 1998
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $193,165 $ 71,634 $ 100,312
Trade accounts receivable.................... 97,368 167,192 151,677
Accounts receivable from employees........... 3,443 2,989 3,640
Inventory.................................... 15,000 60,990 60,510
Note receivable--other....................... -- 5,000 87,110
Prepaid and other current assets (note 2).... 47,684 98,111 82,958
-------- ---------- ----------
Total current assets....................... 356,660 405,916 486,207
Property and equipment, net (notes 3, 6 and
7)............................................ 598,850 1,038,776 1,044,167
Other non-current assets (note 4).............. -- 82,256 84,858
-------- ---------- ----------
Total assets............................... $955,510 $1,526,948 $1,615,232
======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of notes payable (note
6).......................................... $ 94,782 $ 278,765 $ 337,181
Borrowings under lines of credit (note 6).... 7,558 73,297 96,847
Current installment of note payable to
stockholder (notes 6 and 10)................ 31,724 35,046 33,337
Accounts payable............................. 88,176 200,779 215,401
Accrued payroll and related costs............ 53,309 52,157 61,787
Payable to affiliate (note 10)............... -- 40,909 --
Other liabilities (note 5)................... 301,965 326,778 367,220
-------- ---------- ----------
Total current liabilities.................. 577,514 1,007,731 1,111,773
Long-term liabilities:
Notes payable, excluding current installments
(note 6).................................... 156,940 349,982 349,492
Note payable to stockholder, excluding
current installments (notes 6 and 10)....... 50,314 15,268 --
-------- ---------- ----------
Total liabilities.......................... 784,768 1,372,981 1,461,265
-------- ---------- ----------
Stockholder's equity:
Common stock, $2.00 par value. Authorized
100,000 shares; issued and outstanding
10,000 shares in 1996 and 1997.............. 20,000 20,000 20,000
Retained earnings............................ 150,742 133,967 133,967
-------- ---------- ----------
Total stockholder's equity................. 170,742 153,967 153,967
-------- ---------- ----------
Total liabilities and stockholder's
equity.................................... $955,510 $1,526,948 $1,615,232
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-154
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
------------------------ ----------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue.................. $ 3,369,354 $ 3,943,073 $1,926,852 $1,998,098
Cost of revenue.............. 2,132,646 2,606,452 1,204,688 1,329,626
----------- ----------- ---------- ----------
Gross profit............. 1,236,708 1,336,621 722,164 668,472
Selling, general and
administrative expenses..... 934,105 1,140,252 592,958 651,884
----------- ----------- ---------- ----------
Income from operations... 302,603 196,369 129,206 16,588
----------- ----------- ---------- ----------
Other income (expense):
Interest expense........... (28,067) (71,451) (29,178) (26,110)
Interest income............ 2,534 1,556 -- --
Gain on sale of assets..... -- 36,275 36,275 --
Other (note 10)............ -- 76,312 38,156 94,244
----------- ----------- ---------- ----------
Net income............... $ 277,070 $ 239,061 $ 174,459 $ 84,722
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-155
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------- --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995.................. $20,000 $ 88,465 $ 108,465
Net income--1996.............................. -- 277,070 277,070
Owner Distribution............................ -- (214,793) (214,793)
------- --------- ---------
Balance at December 31, 1996.................. 20,000 150,742 170,742
Net income--1997.............................. -- 239,061 239,061
Owner distribution............................ -- (255,836) (255,836)
------- --------- ---------
Balance at December 31, 1997.................. 20,000 133,967 153,967
Net income--six-months ended June 30, 1998
(unaudited).................................. -- 84,722 84,722
Owner distribution--six-months ended June 30,
1998 (unaudited)............................. -- (84,722) (84,722)
------- --------- ---------
Balance at June 30, 1998 (unaudited).......... $20,000 $ 133,967 $ 153,967
======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-156
<PAGE>
KEYSTONE TOWING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS
DECEMBER 31 ENDED JUNE 30
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 277,070 $ 239,061 $ 174,459 $ 84,722
Adjustments to reconcile net
income to net cash provided by
operating activities, net of
effects of acquisitions:
Depreciation and amortization.. 155,367 280,075 86,914 148,311
Gain on sale of assets......... -- (36,275) (275) --
Decrease (increase) in trade
accounts receivable........... (11,892) (69,824) (26,251) 15,515
Decrease (increase) in accounts
receivable from employees..... (2,015) 454 35 (651)
Increase in inventory.......... (5,000) (45,990) -- --
Decrease (increase) in prepaid
and other current assets...... 10,619 (50,427) (138,568) 13,031
Increase (decrease) in accounts
payable....................... 48,580 112,603 (62,126) 14,622
Increase (decrease) in accrued
payroll and related costs..... 16,970 (1,152) 65,642 9,630
Increase (decrease) in payable
to affiliate.................. -- 40,909 -- (40,909)
Increase (decrease) in other
liabilities................... 44,984 24,813 (45,334) 40,442
--------- --------- --------- ---------
Net cash provided by
operating activities........ 534,683 494,247 54,496 284,713
--------- --------- --------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment....................... (97,818) (396,324) (402,678) (153,702)
Proceeds from sale of assets..... -- 40,000 4,000 --
Decrease (increase) in note
receivable--other............... 24,351 (5,000) (185,196) (82,110)
--------- --------- --------- ---------
Net cash used in investing
activities.................. (73,467) (361,324) (583,874) (235,812)
--------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from long-term debt..... -- 13,289 494,677 171,117
Principal payments on long-term
debt............................ (146,768) (77,646) (87,141) (130,168)
Borrowings on line of credit,
net............................. 7,557 65,739 90,002 23,550
Owner distributions.............. (214,793) (255,836) (150,094) (84,722)
--------- --------- --------- ---------
Net cash (used in) provided
by financing activities..... (354,004) (254,454) 347,444 (20,223)
--------- --------- --------- ---------
Net increase (decrease) in cash.... 107,212 (121,531) (181,934) 28,678
Cash at beginning of period........ 85,953 193,165 193,165 71,634
--------- --------- --------- ---------
Cash at end of period.............. $ 193,165 $ 71,634 $ 11,231 $ 100,312
========= ========= ========= =========
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest....................... $ 28,067 $ 71,451 $ 29,178 $ 26,387
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-157
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Keystone Towing, Inc. ("Keystone") was founded in 1991. Keystone's primary
business is towing, impounding and storing vehicles for municipal,
governmental and commercial customers in Southern California. Keystone has one
facility in Los Angeles. It operates approximately 20 vehicles. Keystone
became an S-corporation under California law on June 3, 1993.
(b) Revenue Recognition
Keystone operates as one segment related to transportation of vehicles and
equipment for customers.
Keystone's revenue is derived from customers who require a towing service,
fees related to the storage of vehicles that have been towed, and auction
sales of unclaimed vehicles. Towing revenue is recognized at the completion of
each towing engagement, storage fees are accrued over the period the vehicles
are held in the impound facility, and revenue from auction sales are recorded
when title to the vehicles has been transferred. Expenses related to the
generation of revenue are recognized as incurred.
(c) Inventories
Inventories consist primarily of spare parts used for repair and maintenance
of transportation equipment. Inventories are stated at the lower of cost or
market.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is determined for
financial statement and tax purposes using the double-declining balance method
over the estimated useful lives of the individual assets or, for leasehold
improvements, over the terms of the related leases if shorter. For financial
statement purposes, Keystone provides for depreciation of property and
equipment over the following estimated useful lives:
<TABLE>
<S> <C>
Automobiles and transportation equipment.......................... 5 years
Furniture and fixtures............................................ 5-7 years
Machinery and equipment........................................... 5-7 years
Leasehold improvements............................................ 7-39 years
</TABLE>
(e) Fair Value of Financial Instruments
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Keystone on bank loans with
similar terms and maturities, the fair value of Keystone's financial
instruments approximates their carrying values.
(f) Income Taxes
Effective June 3, 1993, Keystone elected to file its Federal income tax
returns under the S-corporation provisions of the Internal Revenue Code and
was granted S-corporation status for California state tax purposes. In
accordance with the Federal provisions, corporate earnings flow through and
are taxed solely at the stockholder level.
Under the provisions of the California franchise tax law, S-corporation
earnings are assessed a 1.5% surtax at the corporate level and flow through to
the stockholder to be taxed at the individual level. Accordingly, no income
tax expense has been recorded for the years ended December 31, 1996 and 1997.
F-158
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
Management of Keystone has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal accruals)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim periods presented.
(2) PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consists of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1997
------- -------
<S> <C> <C>
Prepaid insurance........................................... $ 6,750 $13,549
Prepaid vehicle registration................................ -- 22,010
Miscellaneous deposits...................................... 32,304 39,657
Prepaid property taxes...................................... 3,432 2,631
Other....................................................... 5,198 20,264
------- -------
$47,684 $98,111
======= =======
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Automobiles and transportation equipment............. $ 578,891 $1,025,234
Furniture and fixtures............................... 129,592 144,361
Machinery and equipment.............................. 240,653 270,163
Leasehold improvements............................... 273,137 460,641
---------- ----------
Total.............................................. 1,222,273 1,900,399
Less accumulated depreciation and amortization....... (623,423) (861,623)
---------- ----------
$ 598,850 $1,038,776
========== ==========
</TABLE>
Depreciation and amortization of property and equipment in 1996 and 1997
totaled $155,367 and $274,259, respectively.
(4) OTHER NON-CURRENT ASSETS
Other non-current assets consists of the following (see note 8):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Goodwill........................................................ $85,572
Covenant-not-to-compete......................................... 2,500
-------
Total......................................................... 88,072
Less accumulated amortization................................... (5,816)
-------
$82,256
=======
</TABLE>
F-159
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, and covenant-not-to-compete are amortized on a
straight-line basis over fifteen and five years, respectively. Amortization
expense for other non-current assets totaled $5,816 in 1997.
(5) OTHER LIABILITIES
Other liabilities consists of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Retirement savings plan payable........................... $ 70,964 $125,261
Parking and other taxes payable(a)........................ 123,647 107,734
Lien sale payable(b)...................................... 75,299 87,938
Insurance premiums payable................................ 3,745 4,220
Other..................................................... 28,310 1,625
-------- --------
$301,965 $326,778
======== ========
</TABLE>
- --------
(a) Parking and other taxes payable consist primarily of obligations to remit
standard parking fees to the City of Los Angeles.
(b) Lien sale payables arise from Keystone's obligation to remit to the state
a portion of proceeds generated by the sale of cars impounded by Keystone
but left unclaimed.
(6) INDEBTEDNESS
Keystone has available a $75,000 line of credit with a bank, expiring
January 16, 1998. Interest is payable at 10.5%. Total borrowings under this
unsecured line of credit as of December 31, 1996 and 1997 amounted to $7,558
and $73,297, respectively.
Keystone's long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Note payable to stockholder, payable in monthly
installments of $3,208, including interest at 10.06%,
maturing May 1999.................................... $ 82,038 $ 50,314
Notes payable to banks for various property and
equipment, payable in monthly installments ranging
from $427 to $5,527, including interest ranging from
8 1/2% to 11%, and maturing at dates ranging from
January, 1998 to April, 2002. Secured by the related
assets............................................... 209,136 599,407
Borrowings under a capital lease agreement, payable in
monthly installments of $1,492, including interest at
11%, maturing October 1999. Secured by the related
asset ............................................... 42,586 29,340
--------- ---------
Total long-term debt.............................. 333,760 679,061
Less installments due within one year............... (126,506) (313,811)
--------- ---------
Long-term debt, excluding current installments.... $ 207,254 $ 365,250
========= =========
</TABLE>
F-160
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Annual maturities for the next five years are as follows:
<TABLE>
<S> <C>
1998................................................................ $313,811
1999................................................................ 176,125
2000................................................................ 109,042
2001................................................................ 72,782
2002................................................................ 7,301
--------
$679,061
========
</TABLE>
(7) LEASES
Keystone leases the building used for its operations under a non-cancelable
lease agreement. The lease is classified as an operating lease. The agreement
provides for monthly rental payment of $39,630 through January 2002. Keystone
is responsible for all operating costs related to the property. Total rent
expense, including common area maintenance charges, for 1996 and 1997 was
$488,000 and $504,000, respectively.
Keystone is obligated under a capital lease for transportation equipment
that expires in October 1999. The capital lease obligation is included in the
long-term debt table and schedule of maturities in note 6.
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1997 are:
<TABLE>
<S> <C>
1998.............................................................. $ 475,560
1999.............................................................. 475,560
2000.............................................................. 475,560
2001.............................................................. 475,560
2002.............................................................. 39,630
----------
$1,941,870
==========
</TABLE>
(8) NON-CASH TRANSACTIONS
During March 1997, Keystone acquired, under the purchase method of
accounting, certain assets of a competitor for consideration of $203,702 in
the form of assumed liabilities of the selling party. The assets acquired were
recorded at their estimated fair value of $115,000. In addition, Keystone
secured a five year non-competition agreement from the selling party valued at
$2,500. The difference between the consideration given and the fair value of
assets acquired was recorded as goodwill in the amount of $85,572 (see note
4).
During 1997, Keystone leased $205,956 of various automobile and
transportation equipment through several lending institutions (see note 6).
(9) EMPLOYEE BENEFITS
Keystone has a retirement savings and disability plan pursuant to section
414(i) of the Internal Revenue Code that is available to all employees who
have at least 1,000 hours of service to Keystone during the plan year and are
employed on the last day of the year. This discretionary contribution plan
allows the employer discretion as to the amount to be contributed each year.
Keystone's contribution payable, included in other accrued liabilities on the
accompanying balance sheet, amounted to $70,964 and $125,261 as of December
31, 1996 and 1997, respectively (see note 5).
F-161
<PAGE>
KEYSTONE TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(10) RELATED PARTY TRANSACTIONS
Keystone is indebted to the sole stockholder under an unsecured note,
bearing interest at 10.06% per annum (see note 6).
In the normal course of business Keystone performs subcontract towing
services for a related party company owned by another related party. Keystone
recognizes revenue on the towing services performed on behalf of the related
party net of subcontract expenses. The net revenue, recognized on subcontract
towing services performed amounted to approximately $17,000 and $19,000 for
1996 and 1997, respectively, and is included in net revenue on the statements
of operations. Additionally, Keystone recognized management fee income for
services performed on behalf of the related party company. Management fee
income amounted to approximately $0 and $16,000 for 1996 and 1997,
respectively.
The owner of Keystone is also a 10% owner of an Official Police Garage
("OPG"). Keystone recognizes management fee income for services performed on
behalf of the related party company. Management fee income amounted to
approximately $0 and $60,000 for 1996 and 1997, respectively.
The payable to related party of $40,909 on the accompanying balance sheet as
of December 31, 1997 represents miscellaneous obligations to the OPG discussed
above.
(11) CONTINGENT LIABILITIES
Various legal claims arise against Keystone during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(12) CONCENTRATION OF BUSINESS RISKS
Revenue generated from Keystone's exclusive agreement with the LAPD
discussed in note 1 represented approximately 30% of total revenues in 1996
and 27% in 1997. The loss of such business could significantly effect
Keystone's performance.
(13) SUBSEQUENT EVENT
(a) During February 1998, the stockholder entered into a definitive
agreement to sell Keystone to United Road Services, Inc. The sales
transaction, affected through a combination of cash and common stock of United
Road Services, Inc., is contingent upon the initial public offering of the
common stock of United Road Services, Inc., and the consent of the Los Angeles
City Council under Keystone's contract to provide police towing for a
specified police district in Los Angeles. The anticipated selling price of
Keystone exceeds its net assets as of December 31, 1997. Prior to the sale of
Keystone, the stockholder intends to take a distribution of not more than
$150,000.
(b) On May 1, 1998, United Road Services, Inc. successfully completed the
initial public offering of its common stock.
F-162
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fast Towing, Inc.:
We have audited the accompanying balance sheet of Fast Towing, Inc. as of
December 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fast Towing, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Phoenix, Arizona
July 31, 1998
F-163
<PAGE>
FAST TOWING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 92,186 $ 22,200
Trade accounts receivable........................... 214,958 100,449
Prepaid expenses and other current assets........... 7,214 37,514
-------- --------
Total current assets.............................. 314,358 160,163
Property and equipment, net (note 2).................. 469,825 515,119
Other assets.......................................... 18,531 1,600
Intangibles, net (note 3)............................. 17,014 16,431
-------- --------
Total assets...................................... $819,728 $693,313
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Line of credit (note 4)............................. $ 49,113 $238,763
Accounts payable.................................... 5,803 37,594
Income taxes payable (note 6)....................... 1,220 --
Deferred income taxes (note 6)...................... 5,889 5,889
Accrued expenses.................................... 8,460 14,054
Other accrued liabilities........................... 3,000 6,267
-------- --------
Total current liabilities......................... 73,485 302,567
-------- --------
Stockholders' equity:
Common stock, no par value, 100,000 shares
authorized and 550 shares issued and outstanding... 550 550
Retained earnings................................... 745,693 390,196
-------- --------
Total stockholders' equity........................ 746,243 390,746
Commitments and contingencies (notes 4, 5 and 8)
-------- --------
Total liabilities and stockholders' equity........ $819,728 $693,313
======== ========
</TABLE>
See accompanying notes to financial statements.
F-164
<PAGE>
FAST TOWING, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................ $3,354,597 $1,438,065 $1,850,910
Cost of revenue............................ 1,775,911 796,991 914,517
---------- ---------- ----------
Gross profit........................... 1,578,686 641,074 936,393
Selling, general and administrative
expenses.................................. 1,431,882 446,067 1,123,447
---------- ---------- ----------
Income (loss) from operations.......... 146,804 195,007 (187,054)
---------- ---------- ----------
Other (expense):
Interest (expense) income................ (6,703) 373 408
Gain (loss) on sale of assets............ (9,545) 7,708 (140,213)
---------- ---------- ----------
Income (loss) before income taxes...... 130,556 203,088 (326,859)
Income tax expense (note 6).............. 47,009 40,710 28,638
---------- ---------- ----------
Net income (loss)...................... $ 83,547 $ 162,378 $ (355,497)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-165
<PAGE>
FAST TOWING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------ --------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................... $550 $ 662,146 $ 662,696
Net income..................................... -- 83,547 83,547
---- --------- ---------
Balance at December 31, 1997................... 550 745,693 746,243
Net loss--six-months ended June 30, 1998
(unaudited)................................... -- (355,497) (355,497)
---- --------- ---------
Balance at June 30, 1998 (unaudited)........... $550 $ 390,196 $ 390,746
==== ========= =========
</TABLE>
F-166
<PAGE>
FAST TOWING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30
DECEMBER 31, -------------------
1997 1997 1998
------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 83,547 $162,378 $(355,497)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 212,144 93,703 90,196
Deferred income taxes.................... 5,889 -- --
Loss (gain) on sale of property and
equipment............................... 9,545 (7,708) 140,213
(Increase) decrease in trade accounts
receivable.............................. (20,750) (73,061) 114,509
Decrease (increase) in prepaid expenses
and other current assets................ 1,363 (18,023) (30,300)
Decrease in other assets................. 1,307 16,163 16,931
Increase in accounts payable............. 5,803 -- 31,791
(Decrease) increase in income taxes
payable................................. (30,031) 9,459 (30,760)
(Decrease) increase in accrued expenses.. (4,468) (4,047) 38,401
-------- -------- ---------
Net cash provided by operating
activities............................ 264,349 178,864 15,484
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment........ (158,455) (50,615) (321,066)
Proceeds from sale of equipment............ 119,600 21,195 45,946
Issuance of note receivable................ -- (15,000) --
-------- -------- ---------
Net cash used in investing activities.. (38,855) (44,420) (275,120)
-------- -------- ---------
Cash flows from financing activities:
Net increase in line of credit............. 49,113 -- 189,650
Principal payments on long-term debt....... (241,606) (48,066) --
-------- -------- ---------
Net cash (used in) provided by
financing activities.................. (192,493) (48,066) 189,650
-------- -------- ---------
Net increase (decrease) in cash and
cash equivalents...................... 33,001 86,378 (69,986)
Cash and cash equivalents at beginning of
period...................................... 59,185 59,185 92,186
-------- -------- ---------
Cash and cash equivalents at end of period... $ 92,186 $145,563 $ 22,200
======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................. $ 7,471
========
Income taxes............................. $ 70,660
========
</TABLE>
See accompanying notes to financial statements.
F-167
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Fast Towing, Inc. was founded in 1991 and operates as an Arizona
corporation. Fast Towing's primary business is towing, impounding and storing
vehicles. Fast Towing has two facilities in the Phoenix metropolitan area. It
operates approximately 34 vehicles.
On June 14, 1997, Fast Towing purchased substantially all of the assets and
assumed certain liabilities of Pars Towing, Inc. The purchase price of
$162,000 was conveyed in the form of a note payable to the seller. The
transaction was accounted for under the purchase method of accounting.
REVENUE RECOGNITION
Fast Towing operates as one segment related to the transportation of
vehicles for customers.
Fast Towing's revenue is derived from customers who require transportation
of vehicles. Transport revenue is recognized upon the delivery of the vehicles
to their final destination. Expenses related to the generation of revenue are
recognized as incurred.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents of $92,186 at December 31, 1997 consist of bank
accounts and certificates of deposit with an initial term of less than three
months. For purposes of the statements of cash flows, Fast Towing considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is determined for
financial statement purposes using the straight-line method for leasehold
improvements and the double-declining method for all other assets over the
estimated useful lives of the individual assets. For financial statement
purposes, Fast Towing provides for depreciation of property and equipment over
the following estimated useful lives.
<TABLE>
<S> <C>
Transportation equipment....................................... 5 years
Furniture and fixtures......................................... 7 years
Office equipment............................................... 5 years
Leasehold improvements......................................... 10-39 years
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the short-term nature of various financial instruments and the
current incremental borrowing rates available to Fast Towing on bank loans
with similar terms and maturities, the fair value of Fast Towing's financial
instruments approximates their carrying values.
INCOME TAXES
Income taxes are accounted for under the asset and liability method for Fast
Towing, Inc. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets
F-168
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Transportation equipment....................................... $ 842,948
Machinery and equipment........................................ 50,877
Office equipment............................................... 46,628
Leasehold improvements......................................... 98,393
----------
1,038,846
Less accumulated depreciation and amortization................. (569,021)
----------
$ 469,825
==========
</TABLE>
Depreciation of property and equipment in 1997 totaled $211,658.
(3) INTANGIBLES
Intangibles consist primarily of goodwill and a trade name. Intangibles are
being amortized on a straight-line basis over the expected period to be
benefited, generally 15 years.
(4) INDEBTEDNESS
Fast Towing maintains a $300,000 line of credit with Valley First Community
Bank. The line of credit bears interest at 9.5%. The line is collateralized by
substantially all the assets of Fast Towing. There were $49,113 in borrowings
against this line of credit at December 31, 1997.
F-169
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) LEASES
Fast Towing has several noncancelable operating leases, primarily for
transportation equipment and its operating facilities, that expire over the
next five years. Rental payments for the transportation equipment include
minimum rentals plus contingent rentals based on mileage. Rent expense in 1997
was $161,797.
Future minimum operating lease payments as of December 31, 1997 are:
<TABLE>
<S> <C>
Year ending December 31,
1998............................................................ $262,503
1999............................................................ 263,103
2000............................................................ 228,547
2001............................................................ 188,858
2002............................................................ 33,147
--------
$976,158
========
</TABLE>
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1997 consists of:
<TABLE>
<S> <C>
Current:
Federal.......................................................... $31,575
State............................................................ 9,545
-------
41,120
-------
Deferred:
Federal.......................................................... 4,522
State............................................................ 1,367
-------
5,889
-------
$47,009
=======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate to income before taxes. The sources and
tax effects of the differences are as follows:
<TABLE>
<S> <C>
Computed "expected" federal income tax expense.................... $38,832
Expected state income taxes, net of federal benefit............... 7,667
Non deductible item............................................... 31
Other............................................................. 479
-------
$47,009
=======
</TABLE>
The tax effects of temporary differences that give rise to a deferred tax
liability as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Trade accounts receivable...................................... $(8,175)
Accounts payable............................................... 2,286
-------
Net deferred tax liability................................... $(5,889)
=======
</TABLE>
F-170
<PAGE>
FAST TOWING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) RELATED PARTY TRANSACTIONS
During 1997, Fast Towing made payments of $39,606 to a stockholder in
payment of a note.
(8) CONTINGENT LIABILITIES
Various legal claims arise against Fast Towing during the normal course of
business. In the opinion of management, liabilities, if any, arising from
proceedings would not have a material effect on the financial statements.
(9) SUBSEQUENT EVENT
During June 1998, the stockholders entered into an agreement to sell Fast
Towing to United Road Services, Inc. The transaction, completed June 29, 1998,
was a cash transaction. The selling price of Fast Towing exceeds its net
assets as of December 31, 1997.
F-171
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alert Auto Transport, Inc.:
We have audited the accompanying balance sheet of Alert Auto Transport,
Inc., as of May 31, 1998, and the related statements of earnings and retained
earnings, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alert Auto Transport,
Inc., as of May 31, 1998 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
July 31, 1998
Birmingham, Alabama
F-172
<PAGE>
ALERT AUTO TRANSPORT, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MAY, 31, JUNE 30,
1998 1998
-------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 33,852 $184,657
Accounts receivable, net of allowance for doubtful
accounts of $7,000 and $7,000, respectively......... 158,244 216,234
Inventory............................................ 1,230 1,230
Income tax refund receivable (note 5)................ 1,212 1,212
Deferred income taxes (note 5)....................... 1,479 1,547
-------- --------
Total current assets............................... 196,017 404,880
Property and equipment, net (notes 2 and 3)............ 519,536 513,645
Notes receivable from stockholder (note 6)............. 17,500 17,500
-------- --------
Total assets....................................... $733,053 $936,025
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current installments of notes payable (note 3)....... $ 17,798 $139,295
Accounts payable..................................... 74,801 99,355
Income taxes payable................................. -- 22,499
Accrued payroll and related costs.................... 20,576 474
-------- --------
Total current liabilities.......................... 113,175 261,623
Long-term liabilities:
Deferred income taxes (note 5)....................... 78,854 83,037
-------- --------
Total liabilities.................................. 192,029 344,660
-------- --------
Stockholder's equity:
Common stock, $10 par value. Authorized, issued and
outstanding 100 shares.............................. 1,000 1,000
Retained earnings.................................... 540,024 590,365
-------- --------
Total stockholder's equity......................... 541,024 591,365
-------- --------
Total liabilities and stockholder's equity......... $733,053 $936,025
======== ========
</TABLE>
See accompanying notes to financial statements.
F-173
<PAGE>
ALERT AUTO TRANSPORT, INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
ONE-MONTH
YEAR ENDED ENDED JUNE 30
MAY 31, ------------------
1998 1997 1998
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue................................... $3,045,085 $298,818 $339,416
Cost of revenue (includes related party lease
expense of $488,421, $21,792, and $27,915,
respectively)................................ 2,657,228 183,162 240,063
---------- -------- --------
Gross profit.............................. 387,857 115,656 99,353
Selling, general, and administrative expenses
(includes related party lease expense of
$65,100, $4,800, and $5,150, respectively)... 267,851 20,692 22,279
---------- -------- --------
Income from operations.................... 120,006 94,964 77,074
Other income (expense):
Interest expense............................ (3,262) (365) (116)
Gain (loss) on sale of assets............... 21,690 (519) --
---------- -------- --------
Income before income taxes................ 138,434 94,080 76,958
Income tax expense (note 5)................... 23,660 16,078 26,617
---------- -------- --------
Net income................................ 114,774 78,002 50,341
Retained earnings, beginning of period........ 425,250 425,250 540,024
---------- -------- --------
Retained earnings, end of period.............. $ 540,024 $503,252 $590,365
========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-174
<PAGE>
ALERT AUTO TRANSPORT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
ONE-MONTH
YEAR ENDED ENDED JUNE 30
MAY 31, --------------------
1998 1997 1998
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 114,774 $ 78,002 $ 50,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 70,499 5,875 5,891
(Gain) loss on sale of property and
equipment.................................. (21,690) 519 --
Deferred income taxes....................... 12,072 12,073 4,115
Increase in trade accounts receivable....... (41,855) (41,791) (57,990)
Increase in income tax refund receivable.... (1,212) -- --
(Decrease) increase in accounts payable..... (37,836) 24,689 24,554
(Decrease) increase in income taxes payable. (11,686) 4,005 22,499
Increase (decrease) in accrued payroll and
related costs.............................. 4,139 (5,795) (20,102)
--------- --------- ---------
Net cash provided by operating activities. 87,205 77,577 29,308
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.......... (187,233) -- --
Proceeds from sale of equipment.............. 72,500 -- --
Loans to stockholder......................... (15,500) -- --
--------- --------- ---------
Net cash used in investing activities..... (130,233) -- --
--------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings.......... -- -- 125,000
Principal payments on long-term debt......... (40,195) (3,254) (3,503)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................... (40,195) (3,254) 121,497
--------- --------- ---------
Net (decrease) increase in cash........... (83,223) 74,323 150,805
Cash at beginning of period................... 117,075 117,075 33,852
--------- --------- ---------
Cash at end of period......................... $ 33,852 $ 191,398 $ 184,657
========= ========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.................................... $ 3,262 $ 399 $ 116
========= ========= =========
Income taxes................................ $ 24,486 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-175
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Alert Auto Transportation, Inc. (the "Company") was founded on May 20, 1988.
The Company's primary business is transporting vehicles for auto auctions,
transportation brokers, auto dealers, and individuals, primarily in the
Southeast. The Company has facilities in Guntersville, Alabama.
(b) Revenue Recognition
Revenue is derived from customers who require transportation of vehicles.
Transport revenue is recognized upon the delivery of the vehicles to their
final destination. Expenses related to the generation of revenue are
recognized as incurred.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. The
Company provides for depreciation of property and equipment using estimated
useful lives as follows:
<TABLE>
<S> <C>
Transportation equipment........................................... 10 years
Machinery and equipment............................................ 5-7 years
Office equipment................................................... 5-7 years
</TABLE>
(d) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(e) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(f) Interim Financial Statements
The interim financial information included in these financial statements is
unaudited but reflects all adjustments (consisting of only normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
(2) PROPERTY AND EQUIPMENT
Property and equipment at May 31, 1998 consists of the following:
<TABLE>
<S> <C>
Transportation equipment........................................... $801,299
Machinery and equipment............................................ 16,587
Office equipment................................................... 17,741
--------
Total.......................................................... 835,627
Less accumulated depreciation...................................... 316,091
--------
Property and equipment, net........................................ $519,536
========
</TABLE>
F-176
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INDEBTEDNESS
Long-term debt at May 31, 1998 and 1997 consists of the following:
<TABLE>
<S> <C>
Note payable to AmSouth Bank, payable in monthly installments of
$3,618, including interest at 8.0 percent, maturing October 1998,
secured by equipment............................................. $ 17,798
Less installments due within one year............................. (17,798)
--------
Long-term debt, excluding current installments.................... $ --
========
</TABLE>
(4) LEASES AND RELATED PARTY TRANSACTIONS
The Company leases trucks from its sole stockholder which are utilized in
operations of the business. Lease payments are 25 percent of the revenue
generated by the leased trucks. The total payments made to the stockholder in
1998 related to the lease agreements was $488,421.
The Company leases the building used for its operations from its
stockholder. The lease is classified as an operating lease and the Company is
responsible for all operating costs related to the property. Rent paid to the
stockholder in 1998 was $65,100.
(5) INCOME TAXES
Income tax expense for the year ended May 31, 1998, consists of:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 9,099
State............................................................. 2,489
-------
11,588
-------
Deferred:
Federal........................................................... 7,978
State............................................................. 4,094
-------
12,072
-------
Total income tax expense........................................ $23,660
=======
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory tax rate to the effective tax rate for the year ended May 31, 1998:
<TABLE>
<S> <C>
Computed expected tax expense...................................... $ 47,068
State income tax, net of Federal tax benefit....................... 3,928
Effect of graduated tax rates...................................... (28,135)
Other.............................................................. 799
--------
Total income tax expense....................................... $ 23,660
========
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities as of May 31, 1998 are presented below:
<TABLE>
<S> <C>
Deferred tax asset:
Accounts receivable, principally due to allowance for doubtful
accounts....................................................... $ 1,479
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation................................................... (78,854)
--------
Net deferred tax liability.................................... $(77,375)
========
</TABLE>
F-177
<PAGE>
ALERT AUTO TRANSPORT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies, as
well as carryback opportunities, in making this assessment. Based upon the
level of historical taxable income, projections for future taxable income and
carryback opportunities over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income are reduced.
(6) CONCENTRATION OF BUSINESS RISKS
One customer, TNT Incorporated, accounted for approximately 22 percent of
Alert's sales in 1998. The loss of this customer could significantly affect
Alert's performance.
(7) SUBSEQUENT EVENTS
The Company's sole stockholder entered into a definitive agreement to sell
the Company to United Road Services, Inc. as of July 1, 1998.
F-178
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different. This prospectus is not an offer to sell Common
Stock and it is not soliciting an offer to buy Common Stock in any state where
the offer or sale is not permitted.
5,000,000 SHARES
UNITED ROAD
SERVICES, INC.
COMMON STOCK
JANUARY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of the Common Stock being registered
hereby.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC registration fee............................................ $ 25,223
Nasdaq National Market Listing Fee.............................. 17,500
Legal fees and expenses......................................... 75,000*
Accounting fees and expenses.................................... 150,000*
Miscellaneous expenses.......................................... 2,277
--------
Total......................................................... $270,000
========
</TABLE>
--------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS,
The Registrant has included in its Certificate of Incorporation and Bylaws
provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the General Corporation Law of the State of Delaware (the "DGCL")
and (ii) indemnify its directors and officers to the fullest extent permitted
by the DGCL, including circumstances in which indemnification is otherwise
discretionary.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlements actually and reasonably incurred by each in connection
with any action, suit or proceeding brought by third parties by reason of the
fact that they were or are directors, officers, employees or agents of the
corporation, if such directors, officers, employees or agents acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a
derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses (including attorneys' fees)
actually and reasonably incurred by directors, officers, employees or agents
in connection with the defense or settlement of an action or suit, and only
with respect to a matter as to which they shall have acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought
shall determine upon application that the defendant directors, officers,
employees or agents are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
The Registrant has entered into indemnification agreements with its
directors and certain key officers pursuant to which the Registrant is
generally obligated to indemnify its directors and such officers to the full
extent permitted by the DGCL as described above.
The Registrant has purchased insurance for its directors and officers
indemnifying them against certain civil liabilities, including liabilities
under the federal securities laws, which might be incurred by them in such
capacity.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The information in this Item 15 gives effect to a 100-for-1 split of the
Common Stock effected on December 29, 1997 and a 3.72-for-1 split of the
Common Stock effected on February 23, 1998.
Since its incorporation in July 1997, the Registrant has issued and sold the
following unregistered securities the purchasers of which were all accredited
investors:
(1) In August 1997, in connection with its formation, the Company issued
930,000 shares of Common Stock to each of Mark McKinney and Ross Berner for
aggregate cash consideration of $50,000.
(2) In November 1997, pursuant to a Stock Purchase and Restriction
Agreement between the Company and Edward T. Sheehan, the Company issued
744,000 shares of Common Stock to Mr. Sheehan for cash consideration of
$20,000.
(3) In January 1998, the Company issued an aggregate of 218,736 shares of
Common Stock to private investors for cash consideration of $735,000. Such
shares were issued pursuant to Subscription Agreements between the Company
and each of the investors.
(4) On May 6, 1998, the Company issued an aggregate of 2,375,741 shares
of Common Stock in connection with its acquisitions of Northland Auto
Transporters, Inc., Northland Fleet Leasing, Inc., Falcon Towing and Auto
Delivery, Inc., Smith Christensen Enterprises, Inc., Caron Auto Works,
Inc., Caron Auto Brokers, Inc., Absolute Towing and Transporting, Inc., ASC
Transportation Services, and Silver State Tow & Recovery, Inc.
(5) On June 12, 1998, the Company issued an aggregate of 212,023 shares
of Common Stock in connection with its acquisition of 5L Corporation and
ADP Transport, Inc.
(6) On June 16, 1998, the Company issued a warrant to purchase 117,789
shares of Common Stock at $13.00 per share to Bank of America National
Trust and Savings Association, in connection with the credit facility. The
warrant expires on June 16, 2003.
(7) On June 22, 1998, the Company issued an aggregate of 93,902 shares of
Common Stock in connection with its acquisition of D&M Auto Towing, Inc.
(8) On June 29, 1998, the Company issued an aggregate of 35,956 shares of
Common Stock in connection with its acquisition of Rouse's Body Shop, Inc.
(9) On June 30, 1998, the Company issued an aggregate of 22,023 shares of
Common Stock in connection with its acquisition of Northshore Towing, Inc.,
Northshore Recycling Inc. and Evanston Reliable Maintenance, Inc.
(10) On July 1, 1998, the Company issued an aggregate of 29,778 shares of
Common Stock in connection with its acquisition of Bill and Wags, Inc.
(11) On July 1, 1998, the Company issued an aggregate of 125,000 shares
of Common Stock in connection with its acquisition of Schroeder Auto
Carriers, Inc.
(12) On July 2, 1998, the Company issued an aggregate of 144,785 shares
of Common Stock in connection with its acquisitions of PBM, Inc. and Alert
Auto Transport.
(13) On July 2, 1998, the Company issued an aggregate of 24,757 shares of
Common Stock in connection with its acquisition of West Nashville Wrecker
Service, Inc.
(14) On July 14, 1998, the Company issued an aggregate of 36,657 shares
of Common Stock in connection with its acquisition of AAAmazing, Inc.
(15) On July 20, 1998, the Company issued an aggregate of 99,602 shares
of Common Stock in connection with its acquisition of Healey Automotive,
Inc.
II-2
<PAGE>
(16) On July 21, 1998, the Company issued an aggregate of 17,735 shares
of Common Stock in connection with its acquisition of Sid's Wrecker
Service, Inc.
(17) On July 22, 1998, the Company issued an aggregate of 113,208 shares
of Common Stock in connection with its acquisition of Patrick K. Willis and
Company, Inc.
(18) On July 31, 1998, the Company issued an aggregate of 9,724 shares of
Common Stock in connection with its acquisition of Kirk's Sineath Motor
Company, Inc.
(19) On August 3, 1998, the Company issued an aggregate of 29,148 shares
of Common Stock in connection with its acquisition of Better All Auto
Transport, Inc.
(20) On August 6, 1998, the Company issued an aggregate of 91,116 shares
of Common Stock in connection with its acquisition of El Paso Towing, Inc.
(21) On August 7, 1998, the Company issued an aggregate of 377,624 shares
of Common Stock in connection with its acquisition of Keystone Towing, Inc.
(22) On August 14, 1998, the Company issued an aggregate of 23,480 shares
of Common Stock in connection with its acquisition of A&B Towing, Inc.
(23) On August 21, 1998, the Company issued an aggregate of 173,498
shares of Common Stock in connection with its acquisition of Environmental
Auto Removal, Inc.
(24) On August 26, 1998, the Company issued an aggregate of 9,424 shares
of Common Stock in connection with its acquisition of Arri Brothers, Inc.
(25) On September 8, 1998, the Company issued an aggregate of 39,467
shares of Common Stock in connection with its acquisition of 1113
Enterprises, Inc. d/b/a Central Service Center and T.J. West, Inc.
(26) On October 14, 1998, the Company issued an aggregate of 41,346
shares of Common Stock in connection with its acquisition of Freeman's
Transporting, Inc.
(27) On December 7, 1998, the Company issued $43,500,000 aggregate
principal amount of its 8% Convertible Subordinated Notes due 2008 to
Charter URS LLC pursuant to a Purchase Agreement, dated as of November 19,
1998, between the Company and Charter URS LLC.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act or
Regulation D promulgated thereunder as transactions by an issuer not involving
a public offering. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were attached to the share certificates issued in such
transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Northland Auto Transporters, Inc. and the
Stockholder named therein (incorporated by reference to the same-
numbered Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-46925)).
2.2 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Northland Fleet Leasing, Inc. and the
Stockholder named therein (incorporated by reference to the same-
numbered Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-46925)).
2.3 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Falcon Towing and Auto Delivery, Inc. and the
Stockholder named therein (incorporated by reference to the same-
numbered Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-46925)).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
2.4 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Smith-Christensen Enterprises, Inc. and City
Towing, Inc. and the Stockholders named therein (incorporated by
reference to the same-numbered Exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 333-46925)).
2.5 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Caron Auto Works, Inc. and the Stockholders
named therein (incorporated by reference to the same-numbered Exhibit
to the Company's Registration Statement on Form S-1 (Registration No.
333-46925)).
2.6 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Caron Auto Brokers, Inc. and the Stockholder
named therein (incorporated by reference to the same-numbered Exhibit
to the Company's Registration Statement on Form S-1 (Registration No.
333-46925)).
2.7 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Absolute Towing and Transporting, Inc. and the
Stockholder named therein (incorporated by reference to the same-
numbered Exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-46925)).
2.8 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Keystone Towing, Inc. and the Stockholder named
therein (incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
2.9 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, ASC Transportation Services, Auto Service Center
and the Stockholders named therein (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on Form
S-1 (Registration No. 333-46925)).
2.10 Agreement and Plan of Reorganization dated as of February 23, 1998, by
and among the Company, Silver State Tow & Recovery, Inc. and the
Stockholders named therein (incorporated by reference to the same-
numbered Exhibit to the Company's Registration Statement on Form S-1
(Registration
No. 333-46925)).
2.11 Form of Amendment Number One to Agreement and Plan of Reorganization
dated as of February 23, 1998, by and among the Company, Keystone
Towing, Inc. and the Stockholder named therein (incorporated by
reference to the same-numbered Exhibit to Amendment No. 3 to the
Company's Form S-1 Registration Statement (Registration No. 333-
46925)).
2.12 Stock Purchase Agreement, dated as of August 21, 1998, by and among the
Company, E & R Towing and Garage, Inc., Gerald J. Corcoran, Edward V.
Corcoran, Edward V. Corcoran, Jr. and David Corcoran (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed September 1, 1998).
2.13 Stock Purchase Agreement, dated as of August 21, 1998, by and among the
Company, Environmental Auto Removal, Inc., Gerald J. Corcoran and
Edward V. Corcoran (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed September 1, 1998).
2.14 Merger Agreement, dated November 5, 1998, by and among the Company, URS
Transport, Inc., Pilot Transport, Inc. and the Shareholders named
therein (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated December 9, 1998).
2.15 First Amendment to Merger Agreement, dated December 2, 1998, by and
among the Company, URS Transport, Inc., Pilot Transport, Inc. and the
Shareholders named therein (incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K, dated December 9, 1998).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to the same-numbered Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-46925)).
4.1 Specimen Common Stock Certificate (incorporated by reference to the
same-numbered Exhibit to Amendment No. 3 to the Company's Form S-1
Registration Statement (Registration No. 333-46925)).
4.2 Form of 8% Convertible Subordinated Debenture due 2008 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated November 19, 1998).
5.1 Opinion of McDermott, Will & Emery, as to the validity of the issuance
of the securities registered hereby (previously filed).
10.1 United Road Services, Inc. 1998 Stock Option Plan (incorporated by
reference to the same-numbered Exhibit to the Company's Registration
Statement on Form S-1 (Registration No. 333-46925)).
10.2 Stock Purchase and Restriction Agreement between the Company and Edward
Sheehan (incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
10.3 Executive Employment Agreement between the Company and Edward T.
Sheehan (incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
10.4 Resignation letter from Mark McKinney in favor of the Company
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
56603)).
10.5 Resignation letter from Ross Berner in favor of the Company
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
56603)).
10.6 Executive Employment Agreement between the Company and Allan D. Pass
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
10.7 Executive Employment Agreement between the Company and Donald J. Marr
(incorporated by reference to the same-numbered Exhibit to the
Company's Registration Statement on Form S-1 (Registration No. 333-
46925)).
10.8 Employment Agreement between the Company and Edward Morawski
(incorporated by reference to the same-numbered Exhibit to Amendment
No. 1 to the Company's Form S-1 Registration Statement (Registration
No. 333-46925)).
10.9 Consulting Agreement between the Company and Todd Q. Smart
(incorporated by reference to the same-numbered Exhibit to Amendment
No. 1 to the Company's Form S-1 Registration Statement (Registration
No. 333-46925)).
10.10 Credit Agreement dated as of May 8, 1998 among United Road Services,
Inc., various financial institutions and Bank of America National Trust
and Savings Association, as Agent (incorporated by reference to the
same-numbered Exhibit to the Company's Registration Statement on Form
S-1 (Registration No. 333-56603)).
10.11 Amended and Restated Executive Employment Agreement, dated as of May 1,
1998, between the Company and Donald J. Marr (incorporated by reference
to the same-numbered Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-56603)).
10.12 [Reserved]
10.13 Form of Registration Rights Agreement between the Company and
Stockholders named therein (incorporated by reference to the same-
number Exhibit to Amendment No. 1 to the Company's Form S-1
Registration Statement (Registration No. 333-46925)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<C> <S>
10.14 Form of Indemnification Agreement between the Company and each of the
Company's executive officers and directors (incorporated by reference
to the same-numbered Exhibit to Amendment No. 2 to the Company's Form
S-1 Registration Statement Registration No. 333-46925)).
10.15 Lease between the Company and Edward Morawski (incorporated by
reference to the same-numbered Exhibit to Amendment No. 1 to the
Company's Form S-1 Registration Statement (Registration
No. 333-46925)).
10.16 Consulting Agreement, dated as of May 7, 1998, by and between the
Company and Mark J. Henninger (incorporated by reference to the same-
numbered Exhibit to Amendment No. 1 to the Company's Form S-1
Registration Statement (Registration No. 333-65563)).
10.17 Employment Agreement, dated as of June 1, 1998, between the Company and
Robert Joseph Adams, Jr. (incorporated by reference to Exhibit 10.7 to
the Company's Quarterly Report on Form 10-Q for the period ended June
30, 1998).
10.18 First Amendment to Credit Agreement, dated as of June 26, 1998, by and
among the Company, various financial institutions and Bank of America
National Trust and Savings Association, as Agent (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-
Q for the period ended June 30, 1998).
10.19 Second Amendment to Credit Agreement, dated as of July 15, 1998, by and
among the Company, various financial institutions and Bank of America
National Trust and Savings Association, as Agent (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-
Q for the period ended June 30, 1998).
10.20 Third Amendment to Credit Agreement, dated as of September 30, 1998, by
and among the Company, various financial institutions and Bank of
America National Trust and Savings Association, as Agent (incorporated
by reference to the same-numbered Exhibit to Amendment No. 1 to the
Company's Form S-1 Registration Statement (Registration No. 333-
65563)).
10.21 Stock Purchase Warrant, dated as of June 16, 1998, issued by the
Company to Bank of America National Trust and Savings Association
(incorporated by reference to the same-numbered Exhibit to Amendment
No. 1 to the Company's Form S-1 Registration Statement (Registration
No. 333-65563)).
10.22 Amended and Restated Credit Agreement, dated as of November 2, 1998, by
and among the Company, various financial institutions, BankBoston,
N.A., as Documentation Agent and Bank of America National Trust and
Savings Association, as Agent (filed herewith).
10.23 First Amendment to Amended and Restated Credit Agreement, dated as of
December 4, 1998, by and among the Company, various financial
institutions, BankBoston, N.A., as Documentation Agent and Bank of
America National Trust and Savings Association, as Agent (filed
herewith).
10.24 Purchase Agreement, dated as of November 19, 1998, by and between
Charter URS LLC and the Company (incorporated by reference to Exhibit
99.1 to the Company's Current Report on Form 8-K, dated November 19,
1998).
10.25 Registration Rights Agreement, dated as of November 19, 1998, by and
between Charter URS LLC and the Company (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-K, dated
November 19, 1998).
10.26 Investors Agreement, dated as of November 19, 1998, by and between
Charter URS LLC and the Company (incorporated by reference to Exhibit
99.3 to the Company's Current Report on Form 8-K, dated November 19,
1998).
10.27 Merger Agreement dated as of November 12, 1998, by and among the
Company, URS Transport, Inc., MPG Transco, Ltd., Michael A. Wysocki,
Patrick M. Riley and Gary R. Sienkiewicz (filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
24.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1).
24.2 Consent of KPMG LLP (filed herewith).
</TABLE>
- --------
II-6
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements of the registrant or related
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 2 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Albany, State of
New York, on the 4th day of January, 1999.
United Road Services, Inc.
By: /s/ Edward T. Sheehan
----------------------------------
EDWARD T. SHEEHAN
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
AND SECRETARY
KNOW ALL PERSONS BY THESE PRESENTS, that each of Messrs. Halpern and Berner,
whose signature appears below, constitutes and appoints Edward T. Sheehan and
Allan D. Pass and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution for him in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 2 has been signed on January 4th, 1999 by the following
persons in the capacities indicated.
SIGNATURE TITLE
/s/ Edward T. Sheehan Chairman of the Board
- ------------------------ Chief Executive Officer (Principal Executive
EDWARD T. SHEEHAN Officer),
Secretary and Director
/s/ Donald J. Marr Senior Vice President and Chief Financial
- ------------------------ Officer (Principal Financial and Accounting
DONALD J. MARR Officer)
/s/ Grace M. Hawkins* Director
- ------------------------
GRACE M. HAWKINS
/s/ Donald F. Director
Moorehead, Jr.*
- ------------------------
DONALD F. MOOREHEAD,
JR.
/s/ Edward W. Morawski* Director
- ------------------------
EDWARD W. MORAWSKI
/s/ Todd Q. Smart* Director
- ------------------------
TODD Q. SMART
Director
/s/ Richard A.
Molyneux*
- ------------------------
RICHARD A. MOLYNEUX
Director
/s/ Mark J. Henninger*
- ------------------------
MARK J. HENNINGER
Director
- ------------------------
MERRIL M. HALPERN
/s/ Robert L. Berner, Director
III
- ------------------------
ROBERT L. BERNER, III
/s/ Edward T. Sheenan
* By: __________________
EDWARD T. SHEENAN
ATTORNEY-IN-FACT
II-8
<PAGE>
Exhibit 10.22
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of November 2, 1998
among
UNITED ROAD SERVICES, INC.,
VARIOUS FINANCIAL INSTITUTIONS,
BANKBOSTON, N.A.,
as Documentation Agent
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
================================================================================
Arranged by NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS...................................................... 1
1.1 Definitions.................................................. 1
1.2 Other Interpretive Provisions................................ 13
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT,
BORROWING, CONVERSION AND CONTINUATION PROCEDURES................ 14
2.1 Commitments.................................................. 14
2.1.1 Loan Commitment....................................... 14
2.1.2 L/C Commitment........................................ 14
2.2 Revolving Loan Procedures.................................... 14
2.2.1 Various Types of Loans................................ 14
2.2.2 Borrowing Procedures.................................. 15
2.2.3 Conversion and Continuation Procedures................ 15
2.3 Letter of Credit Procedures.................................. 16
2.3.1 L/C Applications...................................... 16
2.3.2 Participation in Letters of Credit.................... 17
2.3.3 Reimbursement Obligations............................. 17
2.3.4 Limitation on Obligations of Issuing Banks............ 18
2.3.5 Funding by Banks to Issuing Banks..................... 18
2.4 Swing Line Loans............................................. 19
2.4.1 Swing Line Loans...................................... 19
2.4.2 Swing Line Loan Procedures............................ 19
2.4.3 Refunding of, or Funding of Participations
in,Swing Line Loans................................... 19
2.4.4 Repayment of Participations........................... 20
2.4.5 Participation Obligations Unconditional............... 20
2.5 Commitments Several.......................................... 21
2.6 Certain Conditions........................................... 21
SECTION 3 NOTES EVIDENCING LOANS........................................... 21
3.1 Notes........................................................ 21
3.2 Recordkeeping................................................ 21
SECTION 4 INTEREST......................................................... 22
4.1 Interest Rates............................................... 22
4.2 Interest Payment Dates....................................... 22
4.3 Setting and Notice of IBOR Rates............................. 22
4.4 Computation of Interest...................................... 23
SECTION 5 FEES............................................................. 23
5.1 Non-Use Fee.................................................. 23
5.2 Letter of Credit Fees........................................ 23
5.3 Arrangement and Agent's Fees................................. 24
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<PAGE>
5.4 Closing Fees................................................. 24
SECTION 6 INCREASE, REDUCTION AND TERMINATION OF THE COMMITMENTS;
PREPAYMENTS..................................................... 24
6.1 Changes in Commitment Amount................................. 24
6.1.1 Reduction or Termination of the Commitments........... 24
6.1.2 Optional Increase in Commitment Amount................ 24
6.2 Voluntary Prepayments........................................ 25
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES................. 25
7.1 Making of Payments........................................... 25
7.2 Application of Certain Payments.............................. 26
7.3 Due Date Extension........................................... 26
7.4 Setoff....................................................... 26
7.5 Proration of Payments........................................ 26
7.6 Taxes........................................................ 27
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS........ 28
8.1 Increased Costs.............................................. 28
8.2 Basis for Determining Interest Rate Inadequate or
Unfair....................................................... 29
8.3 Changes in Law Rendering Eurodollar Loans Unlawful........... 30
8.4 Funding Losses............................................... 30
8.5 Right of Banks to Fund through Other Offices................. 31
8.6 Discretion of Banks as to Manner of Funding.................. 31
8.7 Mitigation of Circumstances; Replacement of Affected
Bank......................................................... 31
8.8 Conclusiveness of Statements; Survival of
Provisions................................................... 32
SECTION 9 WARRANTIES...................................................... 32
9.1 Organization, etc............................................ 32
9.2 Authorization; No Conflict................................... 32
9.3 Validity and Binding Nature.................................. 33
9.4 Financial Condition.......................................... 33
9.5 No Material Adverse Change................................... 33
9.6 Litigation and Contingent Liabilities........................ 34
9.7 Ownership of Properties; Liens............................... 34
9.8 Subsidiaries................................................. 34
9.9 Pension and Welfare Plans.................................... 34
9.10 Investment Company Act....................................... 35
9.11 Public Utility Holding Company Act........................... 35
9.12 Regulation U................................................. 35
9.13 Taxes........................................................ 35
9.14 Solvency, etc................................................ 35
9.15 Environmental Matters........................................ 35
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<PAGE>
9.16 Year 2000 Problem............................................ 37
9.17 Copyrights, Patents, Trademarks and Licenses, etc............ 37
9.18 Transactions with Affiliates................................. 38
9.19 Information.................................................. 38
SECTION 10 COVENANTS...................................................... 38
10.1 Reports, Certificates and Other Information.................. 38
10.1.1 Audit Report........................................ 38
10.1.2 Quarterly Reports................................... 39
10.1.3 Monthly Reports..................................... 39
10.1.4 Compliance Certificates............................. 39
10.1.5 Reports to SEC and to Shareholders.................. 40
10.1.6 Notice of Default, Litigation and ERISA
Matters............................................. 40
10.1.7 Subsidiaries........................................ 41
10.1.8 Management Reports.................................. 41
10.1.9 Projections......................................... 41
10.1.10 Contracts........................................... 41
10.1.11 Fleet Audit Reports................................. 41
10.1.12 Other Information................................... 41
10.2 Books, Records and Inspections............................... 41
10.3 Insurance.................................................... 42
10.4 Compliance with Laws; Payment of Taxes and
Liabilities.................................................. 42
10.5 Maintenance of Existence, etc................................ 42
10.6 Financial Covenants.......................................... 43
10.6.1 Minimum Consolidated Net Income..................... 43
10.6.2 Funded Debt to Funded Debt plus Net Worth
Ratio............................................... 43
10.6.3 Funded Debt to EBITDA Ratio......................... 43
10.6.4 Capital Expenditures................................ 43
10.6.5 EBITR to Interest Expense plus Rental
Expense Ratio....................................... 43
10.6.6 Senior Funded Debt to Tangible Assets Ratio......... 43
10.7 Limitations on Debt.......................................... 43
10.8 Liens........................................................ 44
10.9 Restricted Payments.......................................... 45
10.10 Mergers, Consolidations, Sales.............................. 46
10.11 Modification of Organizational Documents.................... 46
10.12 Use of Proceeds............................................. 47
10.13 Further Assurances.......................................... 47
10.14 Transactions with Affiliates................................ 47
10.15 Employee Benefit Plans...................................... 47
10.16 Environmental Matters....................................... 47
10.17 Unconditional Purchase Obligations.......................... 48
10.18 Inconsistent Agreements..................................... 48
10.19 Business Activities......................................... 48
10.20 Advances and Other Investments.............................. 48
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<PAGE>
10.21 Maintenance of Property..................................... 49
10.22 Performance of Obligations.................................. 49
10.23 Leases...................................................... 50
10.24 Assignability of Contracts.................................. 50
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC...................... 50
11.1 Initial Credit Extensions................................... 50
11.1.1 Notes............................................... 50
11.1.2 Resolutions......................................... 50
11.1.3 Consents, etc....................................... 51
11.1.4 Incumbency and Signature Certificates............... 51
11.1.5 Guaranty............................................ 51
11.1.6 Security Agreement.................................. 51
11.1.7 Pledge Agreements................................... 51
11.1.8 Confirmation and Omnibus Amendment.................. 51
11.1.9 Trust Agreements.................................... 51
11.1.10 Opinions of Counsels for the Company and
the Guarantors...................................... 51
11.1.11 Other............................................... 51
11.2 Conditions.................................................. 52
11.2.1 Compliance with Warranties, No Default,
etc................................................. 52
11.2.2 Confirmatory Certificate............................ 53
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT............................. 53
12.1 Events of Default........................................... 53
12.1.1 Non-Payment of the Loans, etc....................... 53
12.1.2 Non-Payment of Other Debt........................... 53
12.1.3 Other Material Obligations.......................... 53
12.1.4 Bankruptcy, Insolvency, etc......................... 54
12.1.5 Non-Compliance with Provisions of This
Agreement........................................... 54
12.1.6 Warranties.......................................... 54
12.1.7 Pension Plans....................................... 54
12.1.8 Judgments........................................... 55
12.1.9 Invalidity of Guaranty, etc......................... 55
12.1.10 Invalidity of Collateral Documents, etc............. 55
12.1.11 Change in Control................................... 55
12.2 Effect of Event of Default.................................. 56
SECTION 13 THE AGENT...................................................... 56
13.1 Appointment and Authorization............................... 56
13.2 Delegation of Duties........................................ 57
13.3 Liability of Agent.......................................... 57
13.4 Reliance by Agent........................................... 58
13.5 Notice of Default........................................... 58
13.6 Credit Decision............................................. 59
13.7 Indemnification............................................. 59
13.8 Agent in Individual Capacity................................ 60
13.9 Successor Agent............................................. 61
-iv-
<PAGE>
13.10 Withholding Tax............................................. 61
13.11 Collateral Matters.......................................... 63
13.12 Funding Reliance............................................ 63
13.13 Documentation Agent......................................... 64
SECTION 14 GENERAL........................................................ 64
14.1 Waiver; Amendments.......................................... 64
14.2 Confirmations............................................... 65
14.3 Notices..................................................... 65
14.4 Computations................................................ 65
14.5 Regulation U................................................ 66
14.6 Costs, Expenses and Taxes................................... 66
14.7 Subsidiary References....................................... 66
14.8 Captions.................................................... 67
14.9 Assignments; Participations................................. 67
14.9.1 Assignments......................................... 67
14.9.2 Participations...................................... 68
14.10 Governing Law............................................... 69
14.11 Counterparts................................................ 69
14.12 Successors and Assigns...................................... 69
14.13 Indemnification by the Company.............................. 70
14.14 Forum Selection and Consent to Jurisdiction................. 70
14.15 Waiver of Jury Trial........................................ 71
SCHEDULES
SCHEDULE 1.1A Pricing Schedule
SCHEDULE 2.1 Banks and Percentages
SCHEDULE 2.1.2 Existing Letters of Credit
SCHEDULE 9.6 Litigation and Contingent Liabilities
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.15 Environmental Matters
SCHEDULE 10.7 Existing Debt
SCHEDULE 10.8 Existing Liens
SCHEDULE 12.1.11A Key Executives
SCHEDULE 12.1.11B Key Directors
SCHEDULE 14.3 Addresses for Notices
-v-
<PAGE>
EXHIBITS
EXHIBIT A Form of Note
(Section 3.1)
EXHIBIT B Form of Compliance Certificate
(Section 10.1.4)
EXHIBIT C Guaranty
(Section 1)
EXHIBIT D Security Agreement
(Section 1)
EXHIBIT E Company Pledge Agreement
(Section 1)
EXHIBIT F Form of Subsidiary Pledge Agreement
(Section 11.1.7)
EXHIBIT G Form of Assignment Agreement
(Section 14.9)
EXHIBIT H Form of Notice of Borrowing
(Section 2.2.2)
EXHIBIT I Form of Notice of Conversion/Continuation
(Section 2.2.3)
EXHIBIT J Form of Confirmation and Omnibus Amendment
(Section 11.1.8)
EXHIBIT K Form of Request for Increase
(Section 6.1.2)
||
-vi-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 2, 1998
(this "Agreement"), is entered into among UNITED ROAD SERVICES, INC., a Delaware
---------
corporation (the "Company"), the financial institutions that are or may from
-------
time to time become parties hereto (together with their respective successors
and assigns, the "Banks"), BANKBOSTON, N.A., as Documentation Agent, and BANK OF
-----
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (in its individual capacity,
"BofA"), as agent for the Banks.
- -----
WHEREAS, the Company, the Banks and the Agent have entered into a Credit
Agreement dated as of May 8, 1998 (as heretofore amended, modified or
supplemented, the "Existing Agreement");
------------------
WHEREAS, the parties hereto have agreed to amend and restate the Existing
Agreement; and
WHEREAS, the parties hereto intend that this Agreement and the documents
executed in connection herewith not effect a novation of the obligations of the
Company under the Existing Agreement, but merely a restatement and, where
applicable, an amendment of the terms governing such obligations;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS.
1.1 Definitions. When used herein the following terms shall have the
-----------
following meanings:
Affected Bank means any Bank that has given notice to the Company (which
-------------
has not been rescinded) of (i) any obligation by the Company to pay any amount
pursuant to Section 7.6 or 8.1 or (ii) the occurrence of any circumstances of
----------- ---
the nature described in Section 8.2 or 8.3.
----------- ---
Affiliate of any Person means (i) any other Person which, directly or
---------
indirectly, controls or is controlled by or is under common control with such
Person and (ii) any officer or director of such Person.
Agent means BofA in its capacity as agent for the Banks hereunder and any
-----
successor thereto in such capacity.
<PAGE>
Agent-Related Persons means BofA and any successor agent arising under
---------------------
Section 13.9, together with their respective Affiliates (including, in the case
- ------------
of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
Agreement - see the Preamble.
--------- --------
Arranger means NationsBanc Montgomery Securities LLC, a Delaware limited
--------
liability company.
Assignment Agreement - see Section 14.9.1.
-------------------- --------------
Bank - see the Preamble.
---- --------
Base Rate means at any time the greater of (a) the Federal Funds Rate plus
---------
0.5% and (b) the Reference Rate.
Base Rate Loan means any Loan which bears interest at or by reference to
--------------
the Base Rate.
Base Rate Margin - see Schedule 1.1A.
---------------- -------------
BofA - see the Preamble.
---- --------
Business Day means any day on which BofA is open for commercial banking
------------
business in Chicago, New York and San Francisco and, in the case of a Business
Day which relates to a Eurodollar Loan, on which dealings are carried on in the
interbank eurodollar market.
Capital Expenditures means all expenditures which, in accordance with GAAP,
--------------------
would be required to be capitalized and shown on the consolidated balance sheet
of the Company, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed within
three months (i) from insurance proceeds (or other similar recoveries) paid on
account of the loss of or damage to the assets being replaced or restored or
(ii) with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced.
Capital Lease means, with respect to any Person, any lease of (or other
-------------
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
2
<PAGE>
Cash Equivalent Investment means, at any time, (a) any evidence of Debt,
--------------------------
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case (unless issued by a Bank or its holding company) rated at least A-l by
Standard & Poor's Ratings Services Group or P-l by Moody's Investors Service,
Inc., (c) any certificate of deposit (or time deposits represented by such
certificates of deposit) or bankers acceptance, maturing not more than one year
after such time, or overnight Federal Funds transactions that are issued or sold
by a commercial banking institution that is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of not less
than $500,000,000, (d) any repurchase agreement entered into with any Bank (or
other commercial banking institution of the stature referred to in clause (c))
----------
which (i) is secured by a fully perfected security interest in any obligation of
the type described in any of clauses (a) through (c) and (ii) has a market value
----------- ---
at the time such repurchase agreement is entered into of not less than 100% of
the repurchase obligation of such Bank (or other commercial banking institution)
thereunder and (e) investments in short-term asset management accounts offered
by any Bank for the purpose of investing in loans to any corporation (other than
the Company or an Affiliate of the Company), state or municipality, in each case
organized under the laws of any state of the United States or of the District of
Columbia.
CERCLA - see Section 9.15.
------ ------------
Code means the Internal Revenue Code of 1986, as amended.
----
Collateral Documents means the Company Pledge Agreement, each Subsidiary
--------------------
Pledge Agreement, the Security Agreement and any other agreement pursuant to
which the Company or any Guarantor grants collateral to the Agent for the
benefit of the Banks.
Commitment Amount - see Section 2.1.1.
----------------- -------------
Commitments means the Loan Commitment and the L/C Commitment.
-----------
Company - see the Preamble.
------- --------
Company Pledge Agreement means the pledge agreement between the Company and
------------------------
the Agent, a copy of which is attached hereto as Exhibit E.
---------
3
<PAGE>
Computation Period means each period of four consecutive Fiscal Quarters
------------------
ending on the last day of a Fiscal Quarter.
Confirmation and Omnibus Amendment means the Confirmation and Omnibus
----------------------------------
Amendment among the Company, the Subsidiaries and the Agent, substantially in
the form of Exhibit J.
---------
Consolidated Net Income means, with respect to the Company and its
-----------------------
Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period, excluding any extraordinary gains during such
---------
period.
Controlled Group means all members of a controlled group of corporations
----------------
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Code or Section 4001 of ERISA.
Debt of any Person means, without duplication, (a) all indebtedness of such
----
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade accounts payable in the
ordinary course of business), (d) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person (it being understood that if such Person has not assumed
or otherwise become personally liable for any such indebtedness, the amount of
the Debt of such Person in connection therewith shall be limited to the lesser
of the face amount of such indebtedness or the fair market value of all property
of such Person securing such indebtedness), (e) all obligations, contingent or
otherwise, with respect to the face amount of all letters of credit (whether or
not drawn) and banker's acceptances issued for the account of such Person
(including the Letters of Credit), (f) net liabilities of such Person under all
Hedging Obligations and (g) all Suretyship Liabilities of such Person.
Disposal - see the definition of "Release".
-------- -------
Documentation Agent means BankBoston, N.A. in its capacity as documentation
-------------------
agent for the Banks hereunder and any successor thereto in such capacity.
Dollar and the sign "$" mean lawful money of the United States of America.
------ -
4
<PAGE>
EBITDA means, for any period, Consolidated Net Income for such period plus,
------ ----
to the extent deducted in determining such Consolidated Net Income, Interest
Expense, income tax expense, depreciation and amortization for such period;
provided that for purposes of calculating EBITDA for any period, the
- --------
consolidated net income of any Person acquired by the Company or any Subsidiary
during such period (plus, to the extent deducted in determining such
consolidated net income, interest expense, income tax expense, depreciation and
amortization of such Person) shall be included on a pro forma basis for such
--- -----
period (assuming the consummation of each such acquisition and the incurrence or
assumption of any Debt in connection therewith occurred on the first day of such
period) in accordance with Article 11 of Regulation S-X of the SEC.
EBITR means, for any period, Consolidated Net Income for such period plus
----- ----
Rental Expense and, to the extent deducted in determining such Consolidated Net
Income, Interest Expense and income tax expense.
Effective Date - see Section 11.1.
-------------- ------------
Environmental Claims means all claims, however asserted, by any
--------------------
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
Environmental Laws means all federal, state or local laws, statutes, common
------------------
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to environmental matters.
Equipment has the meaning assigned to such term in the Security Agreement.
---------
ERISA means the Employee Retirement Income Security Act of 1974.
-----
References to sections of ERISA also refer to any successor sections.
-----
Eurocurrency Reserve Percentage means, with respect to any Eurodollar Loan
-------------------------------
for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the aggregate
5
<PAGE>
maximum reserve requirements applicable to "Eurocurrency Liabilities" pursuant
to Regulation D or any other then applicable regulation of such Board of
Governors which prescribes reserve requirements applicable to "Eurocurrency
Liabilities" as presently defined in Regulation D.
Eurodollar Loan means any Loan which bears interest at a rate determined by
---------------
reference to the Eurodollar Rate (Reserve Adjusted).
Eurodollar Margin - see Schedule 1.1A.
----------------- -------------
Eurodollar Office means with respect to any Bank the office or offices of
-----------------
such Bank which shall be making or maintaining the Eurodollar Loans of such Bank
hereunder or such other office or offices through which such Bank determines its
IBOR Rate. A Eurodollar Office of any Bank may be, at the option of such Bank,
either a domestic or foreign office.
Eurodollar Rate (Reserve Adjusted) means, with respect to any Eurodollar
----------------------------------
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined pursuant to the following formula:
Eurodollar Rate = IBOR Rate
---------
(Reserve Adjusted) 1-Eurocurrency
Reserve Percentage
Event of Default means any of the events described in Section 12.1.
---------------- ------------
Existing Letters of Credit means the letters of credit listed on Schedule
-------------------------- --------
2.1.2.
- -----
Federal Funds Rate means, for any day, the rate set forth in the weekly
------------------
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
6
<PAGE>
Financial Letter of Credit means any Letter of Credit determined by the
--------------------------
applicable Issuing Bank to be a "financial guaranty-type Standby Letter of
Credit" as defined in footnote 13 to Appendix A to the Risk Based Capital
Guidelines issued by the Comptroller of the Currency (or in any successor
regulation, guideline or ruling by any applicable banking regulatory authority).
Fiscal Quarter means a fiscal quarter of a Fiscal Year.
--------------
Fiscal Year means the fiscal year of the Company and its Subsidiaries,
-----------
which period shall be the 12-month period ending on December 31 of each year.
References to a Fiscal Year with a number corresponding to any calendar year
(e.g., "Fiscal Year 1997") refer to the Fiscal Year ending on December 31 of
such calendar year.
Funded Debt means all Debt of the Company and its Subsidiaries, excluding
-----------
(i) contingent obligations in respect of undrawn letters of credit (other than
letters of credit supporting Debt of a Person other than the Company or any
Subsidiary), (ii) the first $6,000,000 of Suretyship Liabilities in respect of
guarantees of lease obligations described in Section 10.7(h) and any other
---------------
Suretyship Liabilities except (in the case of such other Suretyship Liabilities)
to the extent in respect of Debt of a Person which is not the Company or a
Subsidiary, (iii) Hedging Obligations and (iv) Debt of the Company to
Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries.
Funded Debt to EBITDA Ratio means, as of the last day of any Fiscal
---------------------------
Quarter, the ratio of (i) Funded Debt as of the last day of such Fiscal Quarter
to (ii) EBITDA for the Computation Period ending on the last day of such Fiscal
Quarter.
GAAP means generally accepted accounting principles set forth from time to
----
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
Group - see Section 2.2.1.
----- -------------
Guarantor means, on any day, each Subsidiary that has executed a
---------
counterpart of the Guaranty on or prior to that day
7
<PAGE>
(or is required to execute a counterpart of the Guaranty on that date).
Guaranty means the guaranty executed by various Subsidiaries of the
--------
Company, a copy of which is attached hereto as Exhibit C.
---------
Hazardous Substances - see Section 9.15.
-------------------- ------------
Hedging Obligations means, with respect to any Person, all liabilities of
-------------------
such Person under interest rate, currency and commodity swap agreements, cap
agreements and collar agreements, and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
IBOR Rate means, with respect to any Eurodollar Loan for any Interest
---------
Period, the rate per annum at which Dollar deposits in immediately available
funds are offered to the Eurodollar Office of BofA two Business Days prior to
the beginning of such Interest Period by major banks in the interbank eurodollar
market as at or about 10:00 A.M., Chicago time, for delivery on the first day of
such Interest Period, for the number of days comprised therein and in an amount
equal or comparable to the amount of the Eurodollar Loan of BofA for such
Interest Period.
Interest Expense means for any period the consolidated interest expense of
----------------
the Company and its Subsidiaries for such period (including all imputed interest
on Capital Leases and before giving effect to any capitalization of interest but
excluding amortization of deferred financing costs).
Interest Period means, as to any Eurodollar Loan, the period commencing on
---------------
the date such Loan is borrowed or continued as, or converted into, a Eurodollar
Loan and ending on the date one, two, three or six months thereafter as selected
by the Company pursuant to Section 2.2.2 or 2.2.3, as the case may be; provided
------------- ----- --------
that:
(i) if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the following
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period shall end on the
8
<PAGE>
last Business Day of the calendar month at the end of such Interest
Period; and
(iii) the Company may not select any Interest Period which would
extend beyond the scheduled Termination Date.
Investment means, relative to any Person, (a) any loan or advance made by
----------
such Person to any other Person (excluding any commission, travel or similar
advances made to directors, officers and employees of the Company or any of its
Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or
similar interest held by such Person in any other Person and (d) deposits and
the like relating to prospective acquisitions of businesses.
Issuing Bank means BofA in its capacity as an issuer of Letters of Credit
------------
hereunder and any other Bank which, with the written consent of the Company and
the Agent, is the issuer of one or more Letters of Credit hereunder.
L/C Application means, with respect to any request for the issuance of a
---------------
Letter of Credit, a letter of credit application in the form being used by the
applicable Issuing Bank at the time of such request for the type of letter of
credit requested.
L/C Commitment means the commitment of the Issuing Bank to issue, and of
--------------
each Bank to participate in, Letters of Credit pursuant to Section 2.1.2.
-------------
Letter of Credit - see Section 2.1.2.
---------------- -------------
Lien means, with respect to any Person, any interest granted by such Person
----
in any real or personal property, asset or other right owned or being purchased
or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
Loan Commitment means the commitment of the Banks to make Loans pursuant to
---------------
Section 2.1.1.
- -------------
Loan Documents means this Agreement, the Notes, the Guaranty, the L/C
--------------
Applications and the Collateral Documents.
Loans means Revolving Loans and Swing Line Loans.
-----
9
<PAGE>
Margin Stock means any "margin stock" as defined in Regulation U of the
------------
Board of Governors of the Federal Reserve System.
Material Adverse Effect means (a) a material adverse change in, or a
-----------------------
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole, or (b) a material adverse effect upon any substantial portion of the
collateral under the Collateral Documents or upon the legality, validity,
binding effect or enforceability against the Company or any Guarantor of any
Loan Document.
Multiemployer Pension Plan means a multiemployer plan, as such term is
--------------------------
defined in Section 4001(a)(3) of ERISA, and to which the Company or any member
of the Controlled Group may have any liability.
Net Worth means the Company's consolidated stockholders' equity (including
---------
preferred stock accounts).
Non-Financial Letter of Credit means any Letter of Credit other than a
------------------------------
Financial Letter of Credit.
Note - see Section 3.1.
---- -----------
Notice of Borrowing means a notice substantially in the Form of Exhibit H.
------------------- ---------
Notice of Conversion/Continuation means a notice substantially in the form
---------------------------------
of Exhibit I.
---------
Operating Lease means any lease of (or other agreement conveying the right
---------------
to use) any real or personal property by the Company or any Subsidiary, as
lessee, other than any Capital Lease.
PBGC means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
Pension Plan means a "pension plan", as such term is defined in Section
------------
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which the Company or any member of the Controlled Group
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of
10
<PAGE>
being deemed to be a contributing sponsor under Section 4069 of ERISA.
Percentage means, with respect to any Bank, the percentage specified
----------
opposite such Bank's name on Schedule 2.1 hereto, reduced (or increased) by
------------
subsequent assignments pursuant to Section 14.9.1.
--------------
Person means any natural person, corporation, partnership, trust, limited
------
liability company, association, governmental authority or unit, or any other
entity, whether acting in an individual, fiduciary or other capacity.
RCRA - see Section 9.15.
---- ------------
Reference Rate means, for any day, the rate of interest in effect for such
--------------
day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." (The "reference rate" is a rate set by
BofA based upon various factors, including BofA's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate.) Any change in the reference rate announced by BofA shall take effect at
the opening of business on the day specified in the public announcement of such
change.
Release has the meaning specified in CERCLA and the term "Disposal" (or
------- --------
"Disposed") has the meaning specified in RCRA; provided that in the event either
- --------- --------
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply as of the effective date of such
amendment; and provided, further, that to the extent that the laws of a state
-------- -------
wherein any affected property lies establish a meaning for "Release" or
-------
"Disposal" which is broader than is specified in either CERCLA or RCRA, such
- ---------
broader meaning shall apply.
Rental Expense means for any period the consolidated rental expense of the
--------------
Company and its Subsidiaries for such period.
Required Banks means Banks having Percentages aggregating 66-2/3% or more;
--------------
provided that if and so long as any Bank fails to fund its participation in any
- --------
Swing Line Loan when required by Section 2.4.3, such Bank's Percentage shall be
-------------
deemed for purposes of this definition to be reduced by the percentage which the
defaulted amount constitutes of such Bank's Percentage, and the Percentage of
the Swing Line Bank shall be deemed for purposes of this definition to be
increased by such percentage.
11
<PAGE>
Revolving Loans - see Section 2.1.1.
--------------- -------------
SEC means the Securities and Exchange Commission.
---
Security Agreement means the Security Agreement among the Company, various
------------------
Subsidiaries of the Company and the Agent, a copy of which is attached hereto as
Exhibit D.
- ---------
Senior Funded Debt means all Funded Debt of the Company and its
------------------
Subsidiaries other than Subordinated Debt.
Stated Amount means, with respect to any Letter of Credit at any date of
-------------
determination, the maximum aggregate amount available for drawing thereunder at
any time during the then ensuing term of such Letter of Credit under any and all
circumstances, plus the aggregate amount of all unreimbursed payments and
disbursements under such Letter of Credit.
Subordinated Debt means any unsecured indebtedness of the Company which (x)
-----------------
is owed to Persons other than officers, employees, directors or Affiliates of
the Company, (y) has no amortization prior to December 31, 2001 and (z) has
subordination terms, covenants, pricing and other terms applicable to such
indebtedness which have been approved in writing by the Required Banks.
Subsidiary means, with respect to any Person, a corporation of which such
----------
Person and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors. Unless the context otherwise requires, each reference to
Subsidiaries herein shall be a reference to Subsidiaries of the Company.
Subsidiary Pledge Agreement means each pledge agreement substantially in
---------------------------
the form of Exhibit F issued by any Subsidiary, whether pursuant to Section
--------- -------
11.1.7 or Section 10.14.
- ------ -------------
Suretyship Liability means any agreement, undertaking or arrangement by
--------------------
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's
12
<PAGE>
obligation in respect of any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability supported thereby.
Swing Line Bank means BofA in its capacity as swing line lender hereunder,
---------------
together with any replacement swing line lender arising under Section 13.9.
------------
Swing Line Loan - see Section 2.4.1.
--------------- -------------
Tangible Assets means at any time all assets of the Company and its
---------------
Subsidiaries excluding (i) amounts in excess of $5,000,000 in the aggregate of
---------
cash and Cash Equivalent Investments, and (ii) all Intangible Assets. For
purposes of the foregoing, "Intangible Assets" means goodwill, patents,
-----------------
tradenames, trademarks, copyrights, franchises, experimental expense,
organization expense, deferred financing costs and any other assets that are
properly classified as intangible assets in accordance with GAAP.
Termination Date means the earlier to occur of (a) October 31, 2001, or
----------------
such later date to which the Termination Date may be extended at the request of
the Company and with the consent of each Bank or (b) such other date on which
the Commitments shall terminate pursuant to Section 6 or 12.
--------- --
Trust Agreements means (i) the Trust Agreement dated as of September 21,
----------------
1998 among the Agent, the Company, the Subsidiaries of the Company and Truckers
Bookkeeping Service, L.L.C.; and (ii) the Trust Agreement dated as of October
30, 1998 among the Agent, the Company, the Subsidiaries of the Company and Road
Ready Registration.
13
<PAGE>
Type of Loan or Borrowing - see Section 2.2.1. The types of Loans or
------------------------- -------------
borrowings under this Agreement are as follows: Base Rate Loans or borrowings
and Eurodollar Loans or borrowings.
Unmatured Event of Default means any event that, if it continues uncured,
--------------------------
will, with lapse of time or notice or both, constitute an Event of Default.
Welfare Plan means a "welfare plan", as such term is defined in Section
------------
3(1) of ERISA.
1.2 Other Interpretive Provisions. (a) The meanings of defined terms are
-----------------------------
equally applicable to the singular and plural forms of the defined terms.
(b) Section, Schedule and Exhibit references are to this Agreement
------- -------- -------
unless otherwise specified.
(c) (i) The term "including" is not limiting and means "including
without limitation."
(ii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting such statute
or regulation.
(e) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by
14
<PAGE>
counsel to the Agent, the Company, the Banks and the other parties thereto and
are the products of all parties. Accordingly, they shall not be construed
against the Agent or the Banks merely because of the Agent's or Banks'
involvement in their preparation.
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT, BORROWING,
CONVERSION AND CONTINUATION PROCEDURES; SWING LINE LOANS.
2.1 Commitments. On and subject to the terms and conditions of this
-----------
Agreement, each of the Banks, severally and for itself alone, agrees to make
loans to, and to issue or participate in the issuance of letters of credit for
the account of, the Company as follows:
2.1.1 Loan Commitment. Each Bank will make loans on a revolving basis
---------------
("Revolving Loans") from time to time before the Termination Date in such Bank's
- -----------------
Percentage of such aggregate amounts as the Company may from time to time
request from all Banks; provided that the sum of (x) the aggregate outstanding
--------
principal amount of all Loans plus (y) the aggregate Stated Amount of all
Letters of Credit shall not at any time exceed $80,000,000, as such amount may
be changed from time to time pursuant to Section 6.1 (as so changed, the
-----------
"Commitment Amount").
- ------------------
2.1.2 L/C Commitment. (a) The Issuing Banks will issue standby letters
--------------
of in each case containing such terms and conditions as are permitted by this
Agreement and are reasonably satisfactory to the applicable Issuing Bank (each,
a "Letter of Credit" and, together with the Existing Letters of Credit, the
"Letters of Credit"), at the request of and for the account of the Company or
- -------------------
any Subsidiary from time to time before the Termination Date and (b) as more
fully set forth in Section 2.3.5, each Bank agrees to purchase a participation
--------------
in each such Letter of Credit; provided that the proposed Letter of Credit shall
--------
not cause the aggregate Stated Amount of all Letters of Credit at any time to
exceed the lesser of (i)$5,000,000 and (ii) the excess, if any, of the
Commitment Amount over the sum of the aggregate principal amount of all
outstanding Loans plus the aggregate Stated Amount of all Letters of Credit.
2.2 Revolving Loan Procedures.
-------------------------
2.2.1 Various Types of Loans. Each Revolving Loan shall be either a Base
----------------------
Rate Loan or a Eurodollar Loan (each a "type" of Loan), as the Company shall
----
specify in the related notice of borrowing or conversion pursuant to Section
-------
2.2.2 or 2.2.3. Eurodollar Loans having the same Interest Period are sometimes
- ----- -----
15
<PAGE>
called a "Group" or collectively "Groups". Base Rate Loans and Eurodollar Loans
----- ------
may be outstanding at the same time, provided that (i) not more than seven
--------
different Groups of Revolving Loans shall be outstanding at any one time and
(ii) the aggregate principal amount of each Group of Eurodollar Loans shall at
all times be at least $1,000,000 and an integral multiple of $100,000. All
borrowings, conversions and repayments of Loans shall be effected so that each
Bank will have a pro rata share (according to its Percentage) of all types and
Groups of Revolving Loans.
2.2.2 Borrowing Procedures. The Company shall give written notice
--------------------
pursuant to a Notice of Borrowing or telephonic notice (followed immediately by
written confirmation thereof pursuant to a Notice of Borrowing) to the Agent of
each proposed borrowing not later than (a) in the case of a Base Rate borrowing,
10:00 A.M., Chicago time, on the proposed date of such borrowing, and (b) in the
case of a Eurodollar borrowing, 10:00 A.M., Chicago time, at least three
Business Days prior to the proposed date of such borrowing. Each such notice
shall be effective upon receipt by the Agent, shall be irrevocable, and shall
specify the date, amount and type of borrowing and, in the case of a Eurodollar
borrowing, the initial Interest Period therefor. Promptly upon receipt of such
notice, the Agent shall advise each Bank thereof. Not later than 1:00 p.m.,
Chicago time, on the date of a proposed borrowing, each Bank shall provide the
Agent at the office specified by the Agent with immediately available funds
covering such Bank's Percentage of such borrowing and, so long as the Agent has
not received written notice that the conditions precedent set forth in Section
-------
11 with respect to such borrowing have not been satisfied (and does not have
- --
knowledge of any default in the payment of any principal, interest or fees to be
paid to the Agent for the account of the Banks), the Agent shall pay over the
requested amount to the Company on the requested borrowing date. Each borrowing
shall be on a Business Day. Each Base Rate borrowing shall be in an aggregate
amount of at least $1,000,000 and an integral multiple of $500,000.
2.2.3 Conversion and Continuation Procedures. (a) Subject to Section
-------------------------------------- -------
2.2.1, the Company may, upon irrevocable written notice to the Agent in
- -----
accordance with clause (b) below:
----------
(i) elect, as of any Business Day, to convert any Revolving
Loans (or any part thereof in an aggregate amount not less than
$1,000,000 or a higher integral multiple of $500,000) into Revolving
Loans of the other type; or
16
<PAGE>
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Eurodollar Loans having Interest Periods
expiring on such day (or any part thereof in an aggregate amount not
less than $1,000,000 or a higher integral multiple of $500,000) for a
new Interest Period.
(b) The Company shall give written notice pursuant to a Notice of
Conversion/Continuation or telephonic notice (followed immediately by written
confirmation thereof pursuant to a Notice of Conversion/Continuation) to the
Agent of each proposed conversion or continuation not later than (i) in the case
of conversion into Base Rate Loans, 10:00 A.M., Chicago time, on the proposed
date of such conversion; and (ii) in the case of conversion into or continuation
of Eurodollar Loans, 10:00 A.M., Chicago time, at least three Business Days
prior to the proposed date of such conversion or continuation, specifying in
each case:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Revolving Loans to be converted or
continued;
(iii) the type of Revolving Loans resulting from the proposed
conversion or continuation; and
(iv) in the case of conversion into, or continuation of,
Eurodollar Loans, the duration of the requested Interest Period
therefor.
(c) If upon the expiration of any Interest Period applicable to
Eurodollar Loans, the Company has failed to select timely a new Interest Period
to be applicable to such Eurodollar Loans, the Company shall be deemed to have
elected to convert such Eurodollar Loans into Base Rate Loans effective on the
last day of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
notice of conversion or continuation pursuant to this Section 2.2.3 or, if no
-------------
timely notice is provided by the Company, of the details of any automatic
conversion.
(e) Any conversion of a Eurodollar Loan on a day other than the last
day of an Interest Period therefor shall be subject to Section 8.4.
-----------
17
<PAGE>
2.3 Letter of Credit Procedures.
---------------------------
2.3.1 L/C Applications. The Company shall give notice to the Agent and
----------------
the applicable Issuing Bank of the proposed issuance of each Letter of Credit on
a Business Day which is at least three Business Days (or such lesser number of
days as the Agent and such Issuing Bank shall agree in any particular instance)
prior to the proposed date of issuance of such Letter of Credit. Each such
notice shall be accompanied by an L/C Application, duly executed by the Company
(together with any Subsidiary for the account of which the related Letter of
Credit is to be issued) and in all respects satisfactory to the Agent and the
applicable Issuing Bank, together with such other documentation as the Agent or
such Issuing Bank may request in support thereof, it being understood that each
L/C Application shall specify, among other things, the date on which the
proposed Letter of Credit is to be issued, the expiration date of such Letter of
Credit (which shall not be later than the Termination Date) and whether such
Letter of Credit is to be transferable in whole or in part. So long as the
applicable Issuing Bank has not received written notice that the conditions
precedent set forth in Section 11 with respect to the issuance of such Letter of
----------
Credit have not been satisfied, such Issuing Bank shall issue such Letter of
Credit on the requested issuance date. Each Issuing Bank shall promptly advise
the Agent of the issuance of each Letter of Credit by such Issuing Bank and of
any amendment thereto, extension thereof or event or circumstance changing the
amount available for drawing thereunder.
2.3.2 Participation in Letters of Credit. Concurrently with the issuance
----------------------------------
of each Letter of Credit (and with respect to each Existing Letter of Credit, on
the Effective Date), the applicable Issuing Bank shall be deemed to have sold
and transferred to each other Bank, and each other Bank shall be deemed
irrevocably and unconditionally to have purchased and received from such Issuing
Bank, without recourse or warranty, an undivided interest and participation, to
the extent of such other Bank's Percentage, in such Letter of Credit and the
Company's reimbursement obligations with respect thereto. For the purposes of
this Agreement, the unparticipated portion of each Letter of Credit shall be
deemed to be the applicable Issuing Bank's "participation" therein. Each
Issuing Bank hereby agrees, upon request of the Agent or any Bank, to deliver to
such Bank a list of all outstanding Letters of Credit issued by such Issuing
Bank, together with such information related thereto as such Bank may reasonably
request.
18
<PAGE>
2.3.3 Reimbursement Obligations. The Company hereby unconditionally and
-------------------------
irrevocably agrees to reimburse the applicable Issuing Bank for each payment or
disbursement made by such Issuing Bank under any Letter of Credit honoring any
demand for payment made by the beneficiary thereunder, in each case on the date
that such payment or disbursement is made. Any amount not reimbursed on the
date of such payment or disbursement shall bear interest from the date of such
payment or disbursement to the date that such Issuing Bank is reimbursed by the
Company therefor, payable on demand, at a rate per annum equal to the Base Rate
from time to time in effect plus the Base Rate Margin from time to time in
----
effect plus, beginning on the three Business Day after receipt of notice from
----
the Issuing Bank of such payment or disbursement, 2%. The applicable Issuing
Bank shall notify the Company and the Agent whenever any demand for payment is
made under any Letter of Credit by the beneficiary thereunder; provided,
--------
however, that the failure of such Issuing Bank to so notify the Company shall
- -------
not affect the rights of such Issuing Bank or the Banks in any manner
whatsoever.
2.3.4 Limitation on Obligations of Issuing Banks. In determining whether
------------------------------------------
to pay under any Letter of Credit, no Issuing Bank shall have any obligation to
the Company or any Bank other than to confirm that any documents required to be
delivered under such Letter of Credit appear to have been delivered and appear
to comply on their face with the requirements of such Letter of Credit. Any
action taken or omitted to be taken by an Issuing Bank under or in connection
with any Letter of Credit, if taken or omitted in the absence of gross
negligence and willful misconduct, shall not impose upon such Issuing Bank any
liability to the Company or any Bank and shall not reduce or impair the
Company's reimbursement obligations set forth in Section 2.3.3 or the
-------------
obligations of the Banks pursuant to Section 2.3.5.
-------------
2.3.5 Funding by Banks to Issuing Banks. If an Issuing Bank makes any
---------------------------------
payment or disbursement under any Letter of Credit and the Company has not
reimbursed such Issuing Bank in full for such payment or disbursement by 11:00
A.M., Chicago time, on the date of such payment or disbursement, or if any
reimbursement received by such Issuing Bank from the Company is or must be
returned or rescinded upon or during any bankruptcy or reorganization of the
Company or otherwise, each other Bank shall be obligated to pay to the Agent for
the account of such Issuing Bank, in full or partial payment of the purchase
price of its participation in such Letter of Credit, its pro rata share
(according to its Percentage) of such payment or disbursement (but no such
payment shall diminish the obligations of the Company under Section 2.3.3), and
-------------
upon notice from the applicable
19
<PAGE>
Issuing Bank, the Agent shall promptly notify each other Bank thereof. Each
other Bank irrevocably and unconditionally agrees to so pay to the Agent in
immediately available funds for the applicable Issuing Bank's account the amount
of such other Bank's Percentage of such payment or disbursement. If and to the
extent any Bank shall not have made such amount available to the Agent by 2:00
P.M., Chicago time, on the Business Day on which such Bank receives notice from
the Agent of such payment or disbursement (it being understood that any such
notice received after noon, Chicago time, on any Business Day shall be deemed to
have been received on the next following Business Day), such Bank agrees to pay
interest on such amount to the Agent for the applicable Issuing Bank's account
forthwith on demand for each day from the date such amount was to have been
delivered to the Agent to the date such amount is paid, at a rate per annum
equal to (a) for the first three days after demand, the Federal Funds Rate from
time to time in effect and (b) thereafter, the Base Rate from time to time in
effect. Any Bank's failure to make available to the Agent its Percentage of any
such payment or disbursement shall not relieve any other Bank of its obligation
hereunder to make available to the Agent such other Bank's Percentage of such
payment, but no Bank shall be responsible for the failure of any other Bank to
make available to the Agent such other Bank's Percentage of any such payment or
disbursement.
2.4 Swing Line Loans.
----------------
2.4.1 Swing Line Loans. Subject to the terms and conditions of this
----------------
Agreement, the Swing Line Bank may from time to time, in its discretion, make
loans to the Company (collectively the "Swing Line Loans" and individually each
----------------
a "Swing Line Loan") in accordance with this Section 2.4 in an aggregate amount
--------------- -----------
not at any time exceeding $5,000,000; provided that the aggregate outstanding
--------
principal amount of all Loans plus the aggregate Stated Amount of all Letters of
Credit shall not at any time exceed the Commitment Amount. Amounts borrowed
under this Section 2.4 may be borrowed, repaid and (subject to the agreement of
-----------
the Swing Line Bank) reborrowed until the Termination Date.
2.4.2 Swing Line Loan Procedures. The Company shall give written or
--------------------------
telephonic notice to the Agent (which shall promptly inform the Swing Line Bank)
of each proposed Swing Line Loan not later than 12:00 noon, Chicago time, on the
proposed date of such Swing Line Loan. Each such notice shall be effective upon
receipt by the Agent and shall specify the date and amount of such Swing Line
Loan, which shall be not less than $100,000 or a higher integral multiple
thereof. So long as the Swing Line Bank
20
<PAGE>
has not received written notice that the conditions precedent set forth in
Section 11 with respect to the making of such Swing Line Loan have not been
- ----------
satisfied, the Swing Line Bank may make the requested Swing Line Loan. If the
Swing Line Bank agrees to make the requested Swing Line Loan, the Swing Line
Bank shall pay over the requested amount to the Company on the requested
borrowing date. Concurrently with the making of any Swing Line Loan, the Swing
Line Bank shall be deemed to have sold and transferred to each other Bank, and
each other Bank shall be deemed to have purchased and received from the Swing
Line Bank, an undivided interest and participation to the extent of such other
Bank's Percentage in such Swing Line Loan (but such participation shall remain
unfunded until required to be funded pursuant to Section 2.4.3).
-------------
2.4.3 Refunding of, or Funding of Participations in, Swing Line Loans. The
---------------------------------------------------------------
Swing Line Bank may at any time, in its sole discretion, on behalf of the
Company (which hereby irrevocably authorizes the Swing Line Bank to act on its
behalf) deliver a notice to the Agent requesting that each Bank (including the
Swing Line Bank in its individual capacity) make a Revolving Loan (which shall
be a Base Rate Loan) in such Bank's Percentage of the aggregate amount of Swing
Line Loans outstanding on such date for the purpose of repaying all Swing Line
Loans (and, upon receipt of the proceeds of such Revolving Loans, the Agent
shall apply such proceeds to repay Swing Line Loans); provided that if the
--------
conditions precedent to a borrowing of Revolving Loans are not then satisfied or
for any other reason the Banks may not then make Revolving Loans, then instead
of making Revolving Loans each Bank (other than the Swing Line Bank) shall
become immediately obligated to fund its participation in all outstanding Swing
Line Loans and shall pay to the Agent for the account of the Swing Line Bank an
amount equal to such Bank's Percentage of such Swing Line Loans. If and to the
extent any Bank shall not have made such amount available to the Agent by 2:00
P.M., Chicago time, on the Business Day on which such Bank receives notice from
the Agent of its obligation to fund its participation in Swing Line Loans (it
being understood that any such notice received after 12:00 noon, Chicago time,
on any Business Day shall be deemed to have been received on the next following
Business Day), such Bank agrees to pay interest on such amount to the Agent for
the Swing Line Bank's account forthwith on demand for each day from the date
such amount was to have been delivered to the Agent to the date such amount is
paid, at a rate per annum equal to (a) for the first three days after demand,
the Federal Funds Rate from time to time in effect and (b) thereafter, the Base
Rate from time to time in effect. Any Bank's failure to make available to the
Agent its Percentage of the amount of all outstanding Swing
21
<PAGE>
Line Loans shall not relieve any other Bank of its obligation hereunder to make
available to the Agent such other Bank's Percentage of such amount, but no Bank
shall be responsible for the failure of any other Bank to make available to the
Agent such other Bank's Percentage of any such amount.
2.4.4 Repayment of Participations. Upon (and only upon) receipt by the
---------------------------
Agent for the account of the Swing Line Bank of immediately available funds from
or on behalf of the Company (a) in reimbursement of any Swing Line Loan with
respect to which a Bank has paid the Agent for the account of the Swing Line
Bank the amount of such Bank's participation therein or (b) in payment of any
interest on a Swing Line Loan, the Agent will pay to such Bank its pro rata
share (according to its Percentage) thereof (and the Swing Line Bank shall
receive the amount otherwise payable to any Bank which did not so pay the Agent
the amount of such Bank's participation in such Swing Line Loan).
2.4.5 Participation Obligations Unconditional. (a) Each Bank's obligation
---------------------------------------
to make available to the Agent for the account of the Swing Line Bank the amount
of its participation interest in all Swing Line Loans as provided in Section
-------
2.4.3 shall be absolute and unconditional and shall not be affected by any
- -----
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Bank may have against the Swing Line Bank or any other
Person, (ii) the occurrence or continuance of an Event of Default or Unmatured
Event of Default, (iii) any adverse change in the condition (financial or
otherwise) of the Company or any Subsidiary, (iv) any termination of the
Commitments or (v) any other circumstance, happening or event whatsoever.
(b) Notwithstanding the provisions of clause (a) above, no Bank shall
----------
be required to purchase a participation interest in any Swing Line Loan if,
prior to the making by the Swing Line Bank of such Swing Line Loan, the Swing
Line Bank received written notice specifying that one or more of the conditions
precedent to the making of such Swing Line Loan were not satisfied and, in fact,
such conditions precedent were not satisfied at the time of the making of such
Swing Line Loan.
2.5 Commitments Several. The failure of any Bank to make a requested
-------------------
Loan on any date shall not relieve any other Bank of its obligation to make a
Loan on such date, but no Bank shall be responsible for the failure of any other
Bank to make any Loan to be made by such other Bank.
22
<PAGE>
2.6 Certain Conditions. Notwithstanding any other provision of this
------------------
Agreement, no Bank shall have an obligation to make any Loan, or to permit the
continuation of or any conversion into any Eurodollar Loan, and no Issuing Bank
shall have any obligation to issue any Letter of Credit, if an Event of Default
or Unmatured Event of Default exists.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 Notes. The Loans of each Bank shall be evidenced by a promissory
-----
note (each a "Note") substantially in the form set forth in Exhibit A, with
---- ---------
appropriate insertions, payable to the order of such Bank in an amount equal to
such Bank's Percentage of the Loan Commitment or, (x) if less, in the aggregate
unpaid principal amount of such Bank's Loans, or (y) in the case of the Swing
Line Bank, an amount equal to the maximum principal amount of all Revolving
Loans and Swing Line Loans which the Swing Line Bank may at any time have
outstanding hereunder.
3.2 Recordkeeping. Each Bank shall record in its records, or at its
-------------
option on the schedule attached to its Note, the date and amount of each Loan
made by such Bank, each repayment or conversion thereof and, in the case of each
Eurodollar Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
Company hereunder or under any Note to repay the principal amount of the Loans
evidenced by such Note together with all interest accruing thereon.
SECTION 4 INTEREST.
4.1 Interest Rates. The Company promises to pay interest on the unpaid
--------------
principal amount of each Loan for the period commencing on the date of such Loan
until such Loan is paid in full as follows:
(a) at all times while such Loan is a Base Rate Loan, at a rate per
annum equal to the sum of the Base Rate from time to time in effect plus
the Base Rate Margin from time to time in effect;
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for
23
<PAGE>
such Loan plus the Eurodollar Margin from time to time in effect; and
(c) at all times while such Loan is a Swing Line Loan, at a rate per
annum separately agreed to by the Company and the Swing Line Bank from time
to time (provided that if at any time the Banks are obligated to fund
participations in Swing Line Loans pursuant to Section 2.4.3, all of such
-------------
Swing Line Loans shall bear interest, from the date the obligation to fund
such participations first arises to the date such Swing Line Loans are paid
in full, at a rate per annum equal to the sum of the Base Rate from time to
time in effect plus the Base Rate Margin from time to time in effect);
provided, however, that at any time an Event of Default exists, the interest
- -------- -------
rate applicable to each Loan shall be increased by 2% (200 basis points per
annum).
4.2 Interest Payment Dates. Accrued interest on each Base Rate Loan and
----------------------
Swing Line Loan shall be payable in arrears on the last Business Day of each
calendar month and at maturity. Accrued interest on each Eurodollar Loan shall
be payable on the last day of each Interest Period relating to such Loan (and,
in the case of a Eurodollar Loan with a six-month Interest Period, on the three-
month anniversary of the first day of such Interest Period) and at maturity.
After maturity, accrued interest on all Loans shall be payable on demand.
4.3 Setting and Notice of IBOR Rates. The applicable IBOR Rate for each
--------------------------------
Interest Period shall be determined by the Agent, and notice thereof shall be
given by the Agent promptly to the Company and each Bank. Each determination of
the applicable IBOR Rate by the Agent shall be conclusive and binding upon the
parties hereto, in the absence of demonstrable error. The Agent shall, upon
written request of the Company or any Bank, deliver to the Company or such Bank
a statement showing the computations used by the Agent in determining any
applicable IBOR Rate hereunder.
4.4 Computation of Interest. All determinations of interest for Base
-----------------------
Rate Loans and Swing Line Loans when the Base Rate is determined by the
Reference Rate shall be made on the basis of a year of 365 or 366 days, as the
case may be, and the actual number of days elapsed. All other computations of
interest shall be computed for the actual number of days elapsed on the basis of
a year of 360 days. The applicable interest rate
24
<PAGE>
for each Base Rate Loan (and each Swing Line Loan, if applicable) shall change
simultaneously with each change in the Base Rate.
SECTION 5 FEES.
5.1 Non-Use Fee. The Company agrees to pay to the Agent for the account
-----------
of each Bank a non-use fee, for the period from the Effective Date to the
Termination Date, at the rate per annum in effect from time to time pursuant to
Schedule 1.1A of the daily average of the unused amount of such Bank's
- -------------
Percentage of the Commitment Amount. For purposes of calculating usage under
this Section, the Commitment Amount shall be deemed used to the extent of the
aggregate principal amount of all outstanding Revolving Loans plus the undrawn
amount of all Letters of Credit. Such non-use fee shall be payable in arrears on
the last Business Day of each calendar quarter and on the Termination Date for
any period then ending for which such non-use fee shall not have theretofore
been paid. The non-use fee shall be computed for the actual number of days
elapsed on the basis of a year of 360 days.
5.2 Letter of Credit Fees. (a) The Company agrees to pay to the Agent
---------------------
for the account of the Banks pro rata according to their respective Percentages
a letter of credit fee for each Letter of Credit in an amount equal to the rate
per annum in effect from time to time pursuant to Schedule 1.1A of the undrawn
-------------
amount of such Letter of Credit (computed for the actual number of days elapsed
on the basis of a year of 360 days); provided that the rate applicable to each
--------
Letter of Credit shall be increased by 2% (200 basis points per annum)at any
time that an Event of Default exists. Such letter of credit fee shall be
payable in arrears on the last Business Day of each calendar quarter and on the
Termination Date for the period from the date of the issuance of each Letter of
Credit to the date such payment is due or, if earlier, the date on which such
Letter of Credit expired or was terminated.
(b) In addition, with respect to each Letter of Credit, the Company agrees
to pay to the applicable Issuing Bank, for its own account, (i) such fees and
expenses as such Issuing Bank customarily requires in connection with the
issuance, negotiation, processing and/or administration of letters of credit in
similar situations and (ii) a letter of credit fee in the amount separately
agreed to by the Company and such Issuing Bank.
5.3 Arrangement and Agent's Fees. The Company agrees to pay to the
----------------------------
Arranger and the Agent such arrangement and agent's
25
<PAGE>
fees as are mutually agreed to from time to time by the Company and the Agent.
5.4 Closing Fees. On the Effective Date, the Company shall pay to the
------------
Agent for the account of each Bank a closing fee in the amount previously agreed
with such Bank.
SECTION 6 INCREASE, REDUCTION AND TERMINATION OF THE COMMITMENTS;
PREPAYMENTS.
6.1 Changes in Commitment Amount.
----------------------------
6.1.1 Reduction or Termination of the Commitments. The Company may from
-------------------------------------------
time to time on at least five Business Days' prior written notice received by
the Agent (which shall promptly advise each Bank thereof) permanently reduce the
Commitment Amount to an amount not less than the sum of the aggregate unpaid
principal amount of the Loans and the aggregate Stated Amount of all Letters of
Credit. Any such reduction shall be in an amount not less than $5,000,000 or a
higher integral multiple of $1,000,000. The Company may at any time on like
notice terminate the Commitments upon payment in full of all Loans and all other
obligations of the Company hereunder and cash collateralization in full,
pursuant to documentation in form and substance reasonably satisfactory to the
Banks, of all obligations arising with respect to the Letters of Credit. All
reductions of the Commitment Amount shall reduce the Commitments pro rata among
the Banks according to their respective Percentages.
6.1.2 Optional Increase in Commitment Amount. The Company may, from time
--------------------------------------
to time prior to February 28, 1999, by means of a letter to the Agent
substantially in the form of Exhibit K, request that the Commitment Amount be
---------
increased by (a) increasing the Commitment of one or more Banks which have
agreed to such increase and/or (b) adding one or more commercial banks or other
Persons as a party hereto with a Commitment in an amount agreed to by any such
commercial bank or other Person; provided that (i) no commercial bank or other
Person shall be added as a party hereto without the written consent of the Agent
(which shall not be unreasonably withheld) and (ii) in no event shall the
Commitment Amount exceed $100,000,000 without the written consent of all Banks.
Any increase in the Commitment Amount pursuant to this Section 6.1.2 shall be
-------------
effective three Business Days after the date on which the Agent has received and
accepted the applicable increase letter in the form of Annex 1 to Exhibit K (in
---------
the case of an increase in the Commitment of an existing Bank) or assumption
letter in the form of Annex 2 to Exhibit K
---------
26
<PAGE>
(in the case of the addition of a commercial bank or other Person as a new
Bank). The Agent shall promptly notify the Company and the Banks of any increase
in the amount of the Commitment Amount pursuant to this Section 6.1.2 and of the
-------------
Commitment and Percentage of each Bank after giving effect thereto. The Company
acknowledges that, in order to maintain Loans in accordance with each Bank's
Percentage, a reallocation of the Commitments as a result of a non-pro-rata
increase in the Commitment Amount may require prepayment of all or portions of
certain Loans on the date of such increase (and any such prepayment shall be
subject to the provisions of Section 8.4). The Agent shall promptly notify all
-----------
Banks of any increase in the Commitment Amount pursuant to this Section 6.1.2.
-------------
6.2 Voluntary Prepayments. The Company may from time to time prepay the
---------------------
Loans in whole or in part, provided that (a) the Company shall give the Agent
--------
(which shall promptly advise each Bank) notice thereof not later than 10:00 A.M.
(Chicago time) on the day of such prepayment (which shall be a Business Day)
specifying the Loans to be prepaid and the date and amount of prepayment,(b)
each partial prepayment shall be in a principal amount of at least $500,000 and
an integral multiple of $100,000, or such lesser amount as may be necessary to
prepay in full all Loans outstanding, (c) any prepayment of a Eurodollar Loan on
a day other than the last day of an Interest Period therefor shall be subject to
Section 8.4, and (d) if any prepayment shall result in the aggregate principal
- -----------
amount of a Group of Eurodollar Loans being less than $1,000,000, such
Eurodollar Loans shall be automatically converted into Base Rate Loans.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 Making of Payments. All payments of principal of or interest on the
------------------
Notes, and of all non-use fees and Letter of Credit fees, shall be made by the
Company to the Agent in immediately available funds at the office specified by
the Agent not later than noon, Chicago time, on the date due; and funds received
after that hour shall be deemed to have been received by the Agent on the next
following Business Day. The Agent shall promptly remit to each Bank or other
holder of a Note its share of all such payments received in collected funds by
the Agent for the account of such Bank or holder.
All payments under Section 8.1 shall be made by the Company directly to the
-----------
Bank entitled thereto.
7.2 Application of Certain Payments. Each payment of principal shall be
-------------------------------
applied to such Loans as the Company shall
27
<PAGE>
direct by notice to be received by the Agent on or before the date of such
payment or, in the absence of such notice, as the Agent shall determine in its
discretion. Concurrently with each remittance to any Bank of its share of any
such payment, the Agent shall advise such Bank as to the application of such
payment.
7.3 Due Date Extension. If any payment of principal or interest with
------------------
respect to any of the Notes, or of non-use fees or Letter of Credit fees, falls
due on a day which is not a Business Day, then such due date shall be extended
to the immediately following Business Day (unless, in the case of a Eurodollar
Loan, such immediately following Business Day is the first Business Day of a
calendar month, in which case such date shall be the immediately preceding
Business Day) and, in the case of principal, additional interest shall accrue
and be payable for the period of any such extension.
7.4 Setoff. The Company agrees that the Agent and each Bank have all
------
rights of set-off and bankers' lien provided by applicable law, and in addition
thereto, the Company agrees that at any time any Event of Default exists, the
Agent and each Bank may apply to the payment of any obligations of the Company
hereunder, whether or not then due, any and all balances, credits, deposits,
accounts or moneys of the Company then or thereafter with the Agent or such
Bank.
7.5 Proration of Payments. If any Bank shall obtain any payment or other
---------------------
recovery (whether voluntary, involuntary, by application of offset or otherwise
but excluding any payment made to give effect to a non-pro-rata increase in the
Commitment Amount as described in Section 6.1.2 or any payment to the Swing Line
-------------
Bank in respect of a Swing Line Loan) on account of principal of or interest on
any Note (or on account of its participation in any Letter of Credit or Swing
Line Loan) in excess of its pro rata share of payments and other recoveries
obtained by all Banks on account of principal of and interest on Notes (or such
participation) then held by them, such Bank shall purchase from the other Banks
such participation in the Notes (or sub-participation in Letters of Credit or
Swing Line Loans) held by them as shall be necessary to cause such purchasing
Bank to share the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess payment or other
- -------- -------
recovery is thereafter recovered from such purchasing Bank, the purchase shall
be rescinded and the purchase price restored to the extent of such recovery.
28
<PAGE>
7.6 Taxes. All payments of principal of, and interest on, the Loans and
-----
all other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by any Bank's net income or receipts (all non-
excluded items being called "Taxes"). If any withholding or deduction from any
-----
payment to be made by the Company hereunder is required in respect of any Taxes
pursuant to any applicable law, rule or regulation, then the Company will:
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank hereunder, the Agent
or such Bank may pay such Taxes and the Company will promptly pay such
additional amounts (including any penalty, interest and expense) as is necessary
in order that the net amount received by such Person after the payment of such
Taxes (including any Taxes on such additional amount) shall equal the amount
such Person would have received had such Taxes not been asserted.
If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Banks, the required receipts or other required documentary evidence, the Company
shall indemnify the Banks for any incremental Taxes, interest or penalties that
may become payable by any Bank as a result of any such failure. For purposes of
this Section 7.6, a distribution hereunder by the Agent or any Bank to or for
-----------
the account of any Bank shall be deemed a payment by the Company.
Upon the request from time to time of the Company or the Agent, each Bank
that is organized under the laws of a jurisdiction other than the United States
of America shall
29
<PAGE>
execute and deliver to the Company and the Agent one or more (as the Company or
the Agent may reasonably request) United States Internal Revenue Service Forms
4224 or Forms 1001 or such other forms or documents, appropriately completed, as
may be applicable to establish the extent, if any, to which a payment to such
Bank is exempt from withholding or deduction of Taxes.
The obligations of the Company under this Section 7.6 are subject to the
-----------
limitation set out in Section 14.9.1.
--------------
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
8.1 Increased Costs. (a) If, after the date hereof, the adoption of any
---------------
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any Eurodollar Office of such Bank) with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency
(A) shall subject any Bank (or any Eurodollar Office of such Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, its
Note or its obligation to make Eurodollar Loans, or shall change the basis
of taxation of payments to any Bank of the principal of or interest on its
Eurodollar Loans or any other amounts due under this Agreement in respect
of its Eurodollar Loans or its obligation to make Eurodollar Loans (except
for changes in the rate of tax on the overall net income of such Bank or
its Eurodollar Office imposed by the jurisdiction in which such Bank's
principal executive office or Eurodollar Office is located); or
(B) shall impose, modify or deem applicable any reserve (including any
reserve imposed by the Board of Governors of the Federal Reserve System,
but excluding any reserve included in the determination of interest rates
pursuant to Section 4), special deposit or similar requirement against
---------
assets of, deposits with or for the account of, or credit extended by any
Bank (or any Eurodollar Office of such Bank); or
(C) shall impose on any Bank (or its Eurodollar Office) any other
condition affecting its Eurodollar Loans, its Note or its obligation to
make Eurodollar Loans;
30
<PAGE>
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System, to
impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or
maintaining any Eurodollar Loan, or to reduce the amount of any sum received or
receivable by such Bank (or its Eurodollar Office) under this Agreement or under
its Note with respect to any Eurodollar Loan, then within 10 days after demand
by such Bank (which demand shall be accompanied by a statement setting forth the
basis for such demand and a calculation of the amount thereof in reasonable
detail, a copy of which shall be furnished to the Agent), the Company shall pay
directly to such Bank such additional amount as will compensate such Bank for
such increased cost or such reduction.
(b) If any Bank shall reasonably determine that the adoption or phase-in of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank or any
Person controlling such Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Bank's or such controlling Person's capital as a consequence of
such Bank's obligations hereunder (including such Bank's obligations under the
Loan Commitment or the L/C Commitment) or under any Letter of Credit to a level
below that which such Bank or such controlling Person could have achieved but
for such adoption, change or compliance (taking into consideration such Bank's
or such controlling Person's policies with respect to capital adequacy) by an
amount deemed by such Bank or such controlling Person to be material, then from
time to time, within 10 days after demand by such Bank (which demand shall be
accompanied by a statement setting forth the basis for such demand and a
calculation of the amount thereof in reasonable detail, a copy of which shall be
furnished to the Agent), the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank or such controlling Person for
such reduction.
8.2 Basis for Determining Interest Rate Inadequate or Unfair. If with
--------------------------------------------------------
respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent
31
<PAGE>
otherwise reasonably determines (which determination, if made in good
faith, shall be binding and conclusive on the Company) that by reason of
circumstances affecting the interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable IBOR Rate; or
(b) Banks having an aggregate Percentage of 40% or more advise the
Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the
Agent will not adequately and fairly reflect the cost to such Banks of
maintaining or funding such Loans for such Interest Period (taking into
account any amount to which such Banks may be entitled under Section 8.1)
-----------
or that the making or funding of Eurodollar Loans has become impracticable
as a result of an event occurring after the date of this Agreement which in
the opinion of such Banks materially affects such Loans;
then the Agent shall promptly notify the other parties thereof and, so long as
- ----
such circumstances shall continue, (i) no Bank shall be under any obligation to
make or convert into Eurodollar Loans and (ii) on the last day of the current
Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in
full, automatically convert to a Base Rate Loan.
8.3 Changes in Law Rendering Eurodollar Loans Unlawful. In the event
--------------------------------------------------
that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Bank cause a substantial question as to whether it is) unlawful for any Bank to
make, maintain or fund Eurodollar Loans, then such Bank shall promptly notify
each of the other parties hereto and, so long as such circumstances shall
continue, (a) such Bank shall have no obligation to make or convert into
Eurodollar Loans (but shall make Base Rate Loans concurrently with the making of
or conversion into Eurodollar Loans by the Banks which are not so affected, in
each case in an amount equal to such Bank's pro rata share of all Eurodollar
Loans which would be made or converted into at such time in the absence of such
circumstances) and (b) on the last day of the current Interest Period for each
Eurodollar Loan of such Bank (or, in any event, on such earlier date as may be
required by the relevant law, regulation or interpretation), such Eurodollar
Loan shall, unless then repaid in full, automatically convert to a Base Rate
Loan. Each Base Rate Loan made by a Bank which, but for the circumstances
described in the foregoing sentence, would be a Eurodollar Loan (an "Affected
Loan") shall remain outstanding for
32
<PAGE>
the same period as the Group of Eurodollar Loans of which such Affected Loan
would be a part absent such circumstances.
8.4 Funding Losses. The Company hereby agrees that upon demand by any
--------------
Bank (which demand shall be accompanied by a statement setting forth the basis
for the amount being claimed, a copy of which shall be furnished to the Agent),
the Company will indemnify such Bank against any net loss or expense which such
Bank may sustain or incur (including any net loss or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by such
Bank to fund or maintain any Eurodollar Loan), as reasonably determined by such
Bank, as a result of (a) any payment, prepayment or conversion of any Eurodollar
Loan of such Bank on a date other than the last day of an Interest Period for
such Loan (including any conversion pursuant to Section 8.3) or (b) any failure
-----------
of the Company to borrow or convert any Loan on a date specified therefor in a
notice of borrowing or conversion pursuant to this Agreement. For this purpose,
all notices to the Agent pursuant to this Agreement shall be deemed to be
irrevocable.
8.5 Right of Banks to Fund through Other Offices. Each Bank may, if it
--------------------------------------------
so elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign
branch or affiliate of such Bank to make such Loan, provided that in such event
--------
for the purposes of this Agreement such Loan shall be deemed to have been made
by such Bank and the obligation of the Company to repay such Loan shall
nevertheless be to such Bank and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or affiliate.
8.6 Discretion of Banks as to Manner of Funding. Notwithstanding any
-------------------------------------------
provision of this Agreement to the contrary, each Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Bank had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the IBOR Rate for such
Interest Period.
8.7 Mitigation of Circumstances; Replacement of Affected Bank. (a) Each
---------------------------------------------------------
Bank shall promptly notify the Company and the Agent of any event of which it
has knowledge which will result in, and will use reasonable commercial efforts
available to it (and not, in such Bank's good faith judgment, otherwise
33
<PAGE>
disadvantageous to such Bank) to mitigate or avoid, (i) any obligation by the
Company to pay any amount pursuant to Section 7.6 or 8.1 or (ii) the occurrence
----------- ---
of any circumstances of the nature described in Section 8.2 or 8.3 (and, if any
----------- ---
Bank has given notice of any such event described in clause (i) or (ii) above
---------- ----
and thereafter such event ceases to exist, such Bank shall promptly so notify
the Company and the Agent). Without limiting the foregoing, each Bank will
designate a different funding office if such designation will avoid (or reduce
the cost to the Company of) any event described in clause (i) or (ii) of the
---------- ----
preceding sentence and such designation will not, in such Bank's sole judgment,
be otherwise disadvantageous to such Bank.
(b) At any time any Bank is an Affected Bank, the Company may replace such
Affected Bank as a party to this Agreement with one or more other bank(s) or
financial institution(s) reasonably satisfactory to the Agent (and upon notice
from the Company such Affected Bank shall assign pursuant to an Assignment
Agreement, and without recourse or warranty, its Commitment, its Loans, its
Note, its participation in Letters of Credit, and all of its other rights and
obligations hereunder to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal amount of
the Loans so assigned, all accrued and unpaid interest thereon, its ratable
share of all accrued and unpaid non-use fees and Letter of Credit fees, any
amounts payable under Section 8.4 as a result of such Bank receiving payment of
-----------
any Eurodollar Loan prior to the end of an Interest Period therefor and all
other obligations owed to such Affected Bank hereunder).
8.8 Conclusiveness of Statements; Survival of Provisions. Determinations
----------------------------------------------------
and statements of any Bank pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be
----------- --- --- ---
conclusive absent demonstrable error. Banks may use reasonable averaging and
attribution methods in determining compensation under Sections 8.1 and 8.4, and
------------ ---
the provisions of such Sections shall survive repayment of the Loans,
cancellation of the Notes, cancellation or expiration of the Letters of Credit
and any termination of this Agreement.
SECTION 9 WARRANTIES.
To induce the Agent and the Banks to enter into this Agreement and to
induce the Banks to make Loans and issue or purchase participations in Letters
of Credit hereunder, the Company warrants to the Agent and the Banks that:
9.1 Organization, etc. The Company is a corporation duly organized,
------------------
validly existing and in good standing under the laws
34
<PAGE>
of the State of Delaware; each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation; and the Company and each Subsidiary is duly qualified to do
business in each jurisdiction where the nature of its business makes such
qualification necessary (except in those instances in which the failure to be
qualified or in good standing does not have a Material Adverse Effect) and has
full power and authority to own its property and conduct its business as
presently conducted by it.
9.2 Authorization; No Conflict. The execution and delivery by the
--------------------------
Company of this Agreement and each other Loan Document to which it is a party,
the borrowings hereunder, the execution and delivery by each Guarantor of each
Loan Document to which it is a party and the performance by each of the Company
and each Guarantor of its obligations under each Loan Document to which it is a
party are within the corporate powers of the Company and each Guarantor, have
been duly authorized by all necessary corporate action on the part of the
Company and each Guarantor (including any necessary shareholder action), have
received all necessary governmental approval (if any shall be required), and do
not and will not (a) violate any provision of law or any order, decree or
judgment of any court or other government agency which is binding on the Company
or any Guarantor, (b) contravene or conflict with, or result in a breach of, any
provision of the Certificate of Incorporation, By-Laws or other organizational
documents of the Company or any Guarantor or of any agreement, indenture,
instrument or other document which is binding on the Company, any Guarantor or
any other Subsidiary or (c) result in, or require, the creation or imposition of
any Lien on any property of the Company, any Guarantor or any other Subsidiary
(other than Liens arising under the Loan Documents).
9.3 Validity and Binding Nature. Each of this Agreement and each other
---------------------------
Loan Document to which the Company is a party is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms; and each Loan Document to which any Guarantor is a party is, or upon
the execution and delivery thereof by such Guarantor will be, the legal, valid
and binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms.
9.4 Financial Condition. The financial statements of the Company and its
-------------------
Subsidiaries incorporated in the Form S-1 Registration Statement filed on
October 9, 1998, copies of which have been furnished to each Bank:
35
<PAGE>
(i) were prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, except as otherwise expressly noted
therein (subject, in the case of the unaudited financial statements, to the
absence of footnotes and to customary year-end audit adjustments); and
(ii fairly present in all material respects the financial
condition of the Company and its Subsidiaries as of the dates thereof and
the results of operations for the periods covered thereby.
9.5 No Material Adverse Change. As of the Effective Date, there has been
--------------------------
no material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Company or any Subsidiary since the
date of the applicable financial statements referred to in Section 9.4 and since
-----------
the Effective Date there has been no material adverse change in the financial
condition, operations, assets, business, properties or prospects of the Company
and its Subsidiaries taken as a whole.
9.6 Litigation and Contingent Liabilities. No litigation (including
-------------------------------------
derivative actions), arbitration proceeding, labor controversy or governmental
investigation or proceeding is pending or, to the Company's knowledge,
threatened against the Company or any Subsidiary which might reasonably be
expected to have a Material Adverse Effect, except as set forth in Schedule 9.6.
------------
Other than any liability incident to such litigation or proceedings, neither the
Company nor any Subsidiary has any material contingent liabilities not listed in
such Schedule 9.6.
------------
9.7 Ownership of Properties; Liens. Each of the Company and each
------------------------------
Subsidiary owns good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all Liens, charges and material claims (including material infringement
claims with respect to patents, trademarks, copyrights and the like) except as
permitted pursuant to Section 10.8.
------------
9.8 Subsidiaries. As of the Effective Date, the Company has no
------------
Subsidiaries except those listed in Schedule 9.8.
------------
9.9 Pension and Welfare Plans. (a) During the twelve-consecutive-month
-------------------------
period prior to the date of the execution and delivery of this Agreement or the
making of any Loan hereunder, (i) no steps have been taken to terminate any
Pension Plan and
36
<PAGE>
(ii) no contribution failure has occurred with respect to any Pension Plan
sufficient to give rise to a lien under Section 302(f) of ERISA. No condition
exists or event or transaction has occurred with respect to any Pension Plan
which could result in the incurrence by the Company of any material liability,
fine or penalty. The Company has no contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Subtitle B of Title I of ERISA.
(b) All contributions (if any) have been made to any Multiemployer Pension
Plan that are required to be made by the Company or any other member of the
Controlled Group under the terms of the plan or of any collective bargaining
agreement or by applicable law; neither the Company nor any member of the
Controlled Group has withdrawn or partially withdrawn from any Multiemployer
Pension Plan, incurred any withdrawal liability with respect to any such plan,
received notice of any claim or demand for withdrawal liability or partial
withdrawal liability from any such plan, and no condition has occurred which, if
continued, might result in a withdrawal or partial withdrawal from any such
plan; and neither the Company nor any member of the Controlled Group has
received any notice that any Multiemployer Pension Plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code, that any
such plan is or may be terminated, or that any such plan is or may become
insolvent.
9.10 Investment Company Act. Neither the Company nor any Subsidiary is an
----------------------
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940.
9.11 Public Utility Holding Company Act. Neither the Company nor any
----------------------------------
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935.
9.12 Regulation U. The Company is not engaged principally, or as one of
------------
its important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
37
<PAGE>
9.13 Taxes. Each of the Company and each Subsidiary has filed all tax
-----
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
9.14 Solvency, etc. On the Effective Date (or, in the case of any Person
--------------
which becomes a Guarantor after the Effective Date, on the date such Person
becomes a Guarantor), and immediately prior to and after giving effect to the
issuance of each Letter of Credit and each borrowing hereunder and the use of
the proceeds thereof, (a) each of the Company's and each Guarantor's assets will
exceed its liabilities and (b) each of the Company and each Guarantor will be
solvent, will be able to pay its debts as they mature, will own property with
fair saleable value greater than the amount required to pay its debts and will
have capital sufficient to carry on its business as then constituted.
9.15 Environmental Matters.
---------------------
(a) No Violations. Except as set forth on Schedule 9.15, neither the
------------- -------- ----
Company nor any Subsidiary, nor any operator of the Company's or any
Subsidiary's properties, is in violation, or alleged violation, of any judgment,
decree, order, law, permit, license, rule or regulation pertaining to
environmental matters, including those arising under the Resource Conservation
and Recovery Act ("RCRA"), the Comprehensive Environmental Response,
----
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
------
Reauthorization Act of 1986 or any other Environmental Law which (i) in any
single case, requires expenditures in any three-year period of $500,000 or more
by the Company and its Subsidiaries in penalties and/or for investigative,
removal or remedial actions or (ii) individually or in the aggregate otherwise
might reasonably be expected to have a Material Adverse Effect.
(b) Notices. Except as set forth on Schedule 9.15, neither the
------- -------------
Company nor any Subsidiary has received notice from any third party, including
any Federal, state or local governmental authority: (a) that any one of them
has been identified by the U.S. Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous waste, as
defined by 42 U.S.C. (S)6903(5), any hazardous substance as defined by 42 U.S.C.
(S)9601(14), any pollutant or contaminant as defined by 42 U.S.C.
38
<PAGE>
(S)9601(33) or any toxic substance, oil or hazardous material or other chemical
or substance regulated by any Environmental Law, excluding household hazardous
waste (all of the foregoing, "Hazardous Substances"), which any one of them has
----------------------
generated, transported or disposed of has been found at any site at which a
Federal, state or local agency or other third party has conducted a remedial
investigation, removal or other response action pursuant to any Environmental
Law; (c) that the Company or any Subsidiary must conduct a remedial
investigation, removal, response action or other activity pursuant to any
Environmental Law; or (d) of any Environmental Claim.
(c) Handling of Hazardous Substances. Except as set forth on Schedule
-------------------------------- --------
9.15, (i) no portion of any real property or other assets owned, leased or
- ----
operated by the Company or any Subsidiary has been used for the handling,
processing, storage or disposal of Hazardous Substances except in accordance in
all material respects with applicable Environmental Laws; and no underground
tank or other underground storage receptacle for Hazardous Substances is located
on such properties; (ii) in the course of any activities conducted by the
Company, any Subsidiary or the operators of any real property owned, leased or
operated by the Company or any Subsidiary, no Hazardous Substances have been
generated or are being used on such properties except in accordance in all
material respects with applicable Environmental Laws; (iii) there have been no
Releases or threatened Releases of Hazardous Substances on, upon, into or from
any real property or other assets owned, leased or operated by the Company or
any Subsidiary, which Releases singly or in the aggregate might reasonably be
expected to have a material adverse effect on the value of such real property or
assets; (iv) to the Company's actual knowledge, there have been no Releases on,
upon, from or into any real property in the vicinity of any real property or
other assets owned, leased or operated by the Company or any Subsidiary which,
through soil or groundwater contamination, may have come to be located on, and
which might reasonably be expected to have a material adverse effect on the
value of, any real property or other assets owned, leased or operated by the
Company or any Subsidiary; and (v) any Hazardous Substances generated by the
Company and its Subsidiaries have been transported offsite only by properly
licensed carriers and delivered only to treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Company's
knowledge, operating in compliance with such permits and applicable
Environmental Laws.
39
<PAGE>
(d) Investigations. Except as set forth on Schedule 9.15, the Company
-------------- -------------
and its Subsidiaries have taken all reasonable steps to investigate the past and
present condition and usage of any real property owned, leased or operated by
the Company and its Subsidiaries and the operations conducted by the Company and
its Subsidiaries with regard to environmental matters.
9.16 Year 2000 Problem. The Company and its Subsidiaries have reviewed
-----------------
the areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the "Year 2000 Problem" (that is, the risk that computer applications used by
the Company and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, the Company reasonably
believes that the "Year 2000 Problem" will not have a Material Adverse Effect.
9.17 Copyrights, Patents, Trademarks and Licenses, etc. The Company and
-------------------------------------------------
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. No slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by the Company or any Subsidiary infringes upon any rights held by
any other Person. No claim or litigation regarding any of the foregoing is
pending or, to the knowledge of the Company, threatened, and no patent,
invention, device, application, principle or any statute, law, rule, regulation,
standard or code is pending or, to the knowledge of the Company, proposed,
which, in either case, could reasonably be expected to have a Material Adverse
Effect.
9.18 Transactions with Affiliates. Neither the Company nor any Subsidiary
----------------------------
has entered into or participated in any agreements or transactions of any kind
with any Affiliates of the Company except agreements or transactions entered
into in the ordinary course of business on an arms-length basis.
9.19 Information. All information heretofore or contemporaneously
-----------
herewith furnished in writing by the Company or any Subsidiary to any Bank for
purposes of or in connection with this Agreement and the transactions
contemplated hereby is, and all written information hereafter furnished by or on
behalf of the Company or any Subsidiary to any Bank pursuant hereto or in
40
<PAGE>
connection herewith will be, true and accurate in every material respect on the
date as of which such information is dated or certified, and none of such
information is or will be incomplete by omitting to state any material fact
necessary to make such information not misleading in light of the circumstances
under which made (it being recognized by the Agent and the Banks that (a) any
projections and forecasts provided by the Company are based on good faith
estimates and assumptions believed by the Company to be reasonable as of the
date of the applicable projections or assumptions and that actual results during
the period or periods covered by any such projections and forecasts may differ
from projected or forecasted results and (b) any information provided by the
Company or any Subsidiary with respect to any Person or assets acquired or to be
acquired by the Company or any Subsidiary shall, for all periods prior to the
date of such acquisition, be limited to the knowledge of the Company or the
acquiring Subsidiary after reasonable inquiry).
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Company hereunder and under the other Loan Documents are
paid in full and all Letters of Credit have been terminated, the Company agrees
that, unless at any time the Required Banks shall otherwise expressly consent in
writing, it will:
10.1 Reports, Certificates and Other Information. Furnish to the Agent
-------------------------------------------
and each Bank:
10.1.1 Audit Report. Promptly when available and in any event within 90
------------
days after the close of each Fiscal Year: (a) a copy of the annual audit report
of the Company and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year and consolidated statements of earnings and cash flow of the
Company and its Subsidiaries for such Fiscal Year certified without
qualification by independent auditors of recognized standing selected by the
Company and reasonably acceptable to the Required Banks, together with a written
statement from such accountants to the effect that in making the examination
necessary for the signing of such annual audit report by such accountants,
nothing came to their attention that caused them to believe that the Company was
not in compliance with any provision of Section 10.6, 10.7 or 10.9 of this
------------ ---- ----
Agreement insofar as such provision relates to accounting matters or, if
something has come to their attention that caused them to believe that the
Company was not in compliance with any such provision, describing
41
<PAGE>
such non-compliance in reasonable detail (it being understood that any such
audit is not directed primarily toward obtaining knowledge of such non-
compliance); and (b) consolidating balance sheets of the Company and its
Subsidiaries as of the end of such Fiscal Year and a consolidating statement of
earnings for the Company and its Subsidiaries for such Fiscal Year, certified by
the Chief Financial Officer, the Vice President, Finance, Controller or
Treasurer of the Company.
10.1.2 Quarterly Reports. Promptly when available and in any event within
-----------------
45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of
each Fiscal Year, consolidated and consolidating balance sheets of the Company
and its Subsidiaries as of the end of such Fiscal Quarter, together with
consolidated and consolidating statements of earnings and a consolidated
statement of cash flows for such Fiscal Quarter and for the period beginning
with the first day of such Fiscal Year and ending on the last day of such Fiscal
Quarter, certified by the Chief Financial Officer, the Vice President, Finance,
Controller or Treasurer of the Company.
10.1.3 Monthly Reports. Promptly when available and in any event within
---------------
45 days after the end of each of the first two months of each Fiscal Quarter,
balance sheets of the Company and its Subsidiaries as of the end of such month,
together with statements of earnings for such month and for the period beginning
with the first day of the Fiscal Year and ending on the last day of such month,
certified by the Chief Financial Officer, the Vice President, Finance,
Controller or Treasurer of the Company.
10.1.4 Compliance Certificates. Contemporaneously with the furnishing
-----------------------
of a copy of each annual audit report pursuant to Section 10.1.1 and of each
--------------
set of quarterly statements pursuant to Section 10.1.2, a duly completed
--------------
compliance certificate in the form of Exhibit B, with appropriate insertions,
---------
dated the date of such annual report or such quarterly statements and signed by
the Chief Financial Officer, the Vice President, Finance, Controller or
Treasurer of the Company, containing a computation of each of the financial
ratios and restrictions set forth in Section 10.6 and to the effect that such
------------
officer has not become aware of any Event of Default or Unmatured Event of
Default that has occurred and is continuing or, if there is any such event,
describing it and the steps, if any, being taken to cure it.
10.1.5 Reports to SEC and to Shareholders. Promptly upon the filing or
----------------------------------
sending thereof, copies of all regular, periodic or special reports of the
Company or any Subsidiary filed with the
42
<PAGE>
SEC (excluding exhibits thereto, provided that the Company shall promptly
deliver any such exhibit to the Agent or any Bank upon request therefor); copies
of all registration statements of the Company or any Subsidiary filed with the
SEC (other than on Form S-8); and copies of all proxy statements or other
communications made to security holders generally concerning material
developments in the business of the Company or any Subsidiary.
10.1.6 Notice of Default, Litigation and ERISA Matters. Promptly upon
-----------------------------------------------
becoming aware of any of the following, written notice describing the same and
the steps being taken by the Company or the Subsidiary affected thereby with
respect thereto:
(a) the occurrence of an Event of Default or an Unmatured Event of
Default;
(b) any litigation, arbitration or governmental investigation or
proceeding not previously disclosed by the Company to the Banks which has
been instituted or, to the knowledge of the Company, is threatened against
the Company or any Subsidiary or to which any of the properties of any
thereof is subject which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect;
(c) the institution of any steps by any member of the Controlled Group
or any other Person to terminate any Pension Plan, or the failure of any
member of the Controlled Group to make a required contribution to any
Pension Plan (if such failure is sufficient to give rise to a lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that the Company furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan or Multiemployer Pension Plan which could result in the
incurrence by any member of the Controlled Group of any material liability,
fine or penalty (including any claim or demand for withdrawal liability or
partial withdrawal from any Multiemployer Pension Plan), or any material
increase in the contingent liability of the Company with respect to any
post-retirement Welfare Plan benefit, or any notice that any Multiemployer
Pension Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of an
excise tax, that any such plan is or has been funded at a rate less than
that required under Section 412 of the Code, that any such plan is or may
be terminated, or that any such plan is or may become insolvent;
43
<PAGE>
(d) any cancellation or material change in any insurance maintained by
the Company or any Subsidiary;
(e) any event (including (i) any violation of any Environmental Law or
the assertion of any Environmental Claim or (ii) the enactment or
effectiveness of any law, rule or regulation) which might reasonably be
expected to have a Material Adverse Effect; or
(f) any setoff, claims, withholdings or other defenses to which any of
the Collateral, or the Banks' rights with respect to the Collateral, are
subject.
10.1.7 Subsidiaries. Promptly upon any change in the list of its
------------
Subsidiaries, a written report of such change.
10.1.8 Management Reports. Promptly upon the request of the Agent or any
------------------
Bank, copies of all detailed financial and management reports submitted to the
Company by independent auditors in connection with each annual or interim audit
made by such auditors of the books of the Company.
10.1.9 Projections. As soon as practicable and in any event within 60
-----------
days after the commencement of each Fiscal Year, financial projections for the
Company and its Subsidiaries for such Fiscal Year prepared in a manner
consistent with those projections delivered by the Company to the Banks prior to
the Effective Date or otherwise in a manner reasonably satisfactory to the
Agent.
10.1.10 Contracts. As soon as practicable after becoming aware of the
---------
event and in any event within 30 days of such event, written notice of any
termination by a customer of a material contract with a Subsidiary (with
materiality being measured at the Subsidiary level).
10.1.11 Fleet Audit Reports. From time to time as requested by the Agent,
-------------------
a written report by appraisers acceptable to the Agent of an audit and appraisal
of the Equipment of the Company and its Subsidiaries.
10.1.12 Other Information. From time to time such other information
-----------------
concerning the Company and its Subsidiaries as any Bank or the Agent may
reasonably request.
10.2 Books, Records and Inspections. Keep, and cause each Subsidiary to
------------------------------
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of
44
<PAGE>
financial statements in accordance with GAAP; permit, and cause each Subsidiary
to permit, any Bank or the Agent or any representative thereof to inspect the
properties and operations of the Company and of such Subsidiary; and permit, and
cause each Subsidiary to permit, at any reasonable time and with reasonable
notice (or at any time without notice if an Event of Default exists), any Bank
or the Agent or any representative thereof to visit any or all of its offices,
to discuss its financial matters with its officers and its independent auditors
(and the Company hereby authorizes such independent auditors to discuss such
financial matters with any Bank or the Agent or any representative thereof,
provided that so long as no Event of Default exists, a representative of the
Company shall be present at any such discussions), and to examine (and, at the
expense of the Company or the applicable Subsidiary, photocopy extracts from)
any of its books or other corporate records.
10.3 Insurance. Maintain, and cause each Subsidiary to maintain, with
---------
responsible insurance companies, such insurance as may be required by any law or
governmental regulation or court decree or order applicable to it and such other
insurance, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated and that is acceptable to
the Agent; and, on each anniversary of the Effective Date and from time to time
upon request of the Agent or any Bank, furnish to the Agent or such Bank a
certificate setting forth in reasonable detail the nature and extent of all
insurance maintained by the Company and its Subsidiaries.
10.4 Compliance with Laws; Payment of Taxes and Liabilities. (a) Comply,
------------------------------------------------------
and cause each Subsidiary to comply, in all material respects with all
applicable laws (including Environmental Laws), rules, regulations, decrees,
orders, judgments, licenses and permits; and (b) pay, and cause each Subsidiary
to pay, prior to delinquency, all taxes and other governmental charges against
it or any of its property, as well as claims of any kind which, if unpaid, might
become a Lien on any of its property; provided, however, that the foregoing
-------- -------
shall not require the Company or any Subsidiary to pay any such tax or charge so
long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves with respect
thereto in accordance with GAAP.
10.5 Maintenance of Existence, etc. Maintain and preserve, and (subject
------------------------------
to Section 10.11) cause each Subsidiary to maintain and preserve, (a) its
-------------
existence and good standing in the jurisdiction of its incorporation and (b) its
qualification and good standing as a foreign corporation in each jurisdiction
where
45
<PAGE>
the nature of its business makes such qualification necessary (except in those
instances in which the failure to be qualified or in good standing does not have
a Material Adverse Effect).
10.6 Financial Covenants.
-------------------
10.6.1 Minimum Consolidated Net Income. Not permit its Consolidated Net
-------------------------------
Income as of the last day of any Fiscal Quarter to be less than zero.
10.6.2 Funded Debt to Funded Debt plus Net Worth Ratio. Not permit the
-----------------------------------------------
ratio of (a) Funded Debt to (b) the sum of Funded Debt plus Net Worth as of the
last day of any Fiscal Quarter to exceed 0.50 to 1.0.
10.6.3 Funded Debt to EBITDA Ratio. Not permit the Funded Debt to EBITDA
---------------------------
Ratio as of the last day of any Fiscal Quarter to exceed the applicable ratio
set forth below:
Fiscal Funded Debt to
Quarter Ending EBITDA Ratio
-------------- --------------
12/31/98 through 6/30/99 2.75 to 1.0
9/30/99 and thereafter 2.50 to 1.0.
10.6.4 Capital Expenditures. The Company will not permit the aggregate
--------------------
amount of all Capital Expenditures made by the Company and its Subsidiaries to
exceed $9,000,000 in Fiscal Year 1998 or $10,000,000 in any subsequent Fiscal
Year.
10.6.5 EBITR to Interest Expense plus Rental Expense Ratio. Not permit
---------------------------------------------------
the ratio of EBITR to Interest Expense plus Rental Expense to be less than 2.0
to 1.0 as of the last day of any Fiscal Quarter.
10.6.6 Senior Funded Debt to Tangible Assets Ratio. Not permit the ratio
-------------------------------------------
of Senior Funded Debt to Tangible Assets to exceed at any time the applicable
ratio set forth below:
Senior Funded Debt to
Period Tangible Assets Ratio
- ------------------------------------- ---------------------
Effective Date through 6/29/99 1.50 to 1.0
6/30/99 through 12/30/99 1.40 to 1.0
12/31/99 and thereafter 1.25 to 1.0
46
<PAGE>
10.7 Limitations on Debt. Not, and not permit any Subsidiary to, create,
-------------------
incur, assume or suffer to exist any Debt, except:
(a) obligations in respect of the Loans, the L/C Applications and the
Letters of Credit;
(b) unsecured Debt of the Company or any Subsidiary which represents all or
part of the purchase price payable in connection with a transaction
permitted by Section 10.10(c); provided that the aggregate principal amount
---------------- --------
of all such unsecured Debt shall not at any time exceed $2,500,000;
(c) Debt secured by Liens permitted by subsection 10.8(c) or (d), and
------------------ ---
refinancings of any such Debt so long as the terms applicable to such
refinanced Debt are no less favorable to the Company or the applicable
Subsidiary than the terms in effect immediately prior to such refinancing,
provided that the aggregate amount of all such Debt at any time outstanding
--------
shall not exceed (i) $4,500,000 in the case of all Debt described in
subsections 10.8(c) and clauses (i), (ii) and (iii) of subsection 10.8(d)
------------------- ----------------- ----- ------------------
and (ii) $10,000,000 in the case of all Debt described in clause (iv) of
---- -----------
subsection 10.8(d);
------------------
(d) Debt of Subsidiaries owed to the Company;
(e) unsecured Debt of the Company to Subsidiaries;
(f) Subordinated Debt;
(g) other Debt outstanding on the date hereof and listed in Schedule 10.7;
-------------
and
(h) guarantees of lease obligations of independent carriers in connection
with leases of equipment by such carriers, provided that (c) each
--------
independent carrier agrees to subcontract the applicable equipment to the
Company or a Subsidiary for the balance of the applicable lease term and
(y) the aggregate principal amount so guaranteed by the Company and its
Subsidiaries (without duplication) shall not at any time exceed
$10,000,000).
10.8 Liens. Not, and not permit any Subsidiary to, create or permit to
-----
exist any Lien on any of its real or personal properties, assets or rights of
whatsoever nature (whether now owned or hereafter acquired), except:
47
<PAGE>
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and, in each case, for which it maintains
adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i) Liens of
carriers, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and (ii) Liens incurred in connection with worker's
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety bonds,
bids, performance bonds and similar obligations) for sums not overdue or
being contested in good faith by appropriate proceedings and not involving
any deposits or advances or borrowed money or the deferred purchase price
of property or services, and, in each case, for which it maintains adequate
reserves;
(c) Liens identified in Schedule 10.8;
-------------
(d) subject to the limitations set forth in subsection 10.7(c), (i) Liens
------------------
arising in connection with Capital Leases (and attaching only to the
property being leased), (ii) Liens existing on property at the time of the
acquisition thereof (or the acquisition of the owner of such property) by
the Company or any Subsidiary (and not created in contemplation of such
acquisition), (iii) Liens that constitute purchase money security interests
on any tangible property securing Debt incurred for the purpose of
financing all or any part of the cost of acquiring such property, provided
--------
that any such Lien attaches to such property within 60 days of the
acquisition thereof and such Lien attaches solely to the property so
acquired, and (iv) Liens on vehicles existing at the time the Company or a
Subsidiary acquires such vehicles, or acquires the owner of such vehicles,
pursuant to an acquisition described in clause (c) of Section 10.10,
---------- -------------
provided that, except to the extent such Liens are permitted by clause (i),
-----------
(ii) or (iii) of this subsection (d), each such Lien shall be released not
---- ----- --------------
later than 90 days after such acquisition;
(e) attachments, appeal bonds, judgments and other similar Liens, for sums
not exceeding $250,000 arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
48
<PAGE>
(f) easements, rights of way, restrictions, minor defects or irregularities
in title and other similar Liens not interfering in any material respect
with the ordinary conduct of the business of the Company or any Subsidiary;
and
(g) Liens in favor of the Agent arising under the Loan Documents.
10.9 Restricted Payments. Not, and not permit any Subsidiary to, (a)
-------------------
declare or pay any dividends on any of its capital stock (other than stock
dividends), (b) purchase or redeem any such stock or any warrants, units,
options or other rights in respect of such stock, (c) make any other
distribution to shareholders, (d) prepay, purchase, defease or redeem any
Subordinated Debt or (e) set aside funds for any of the foregoing; provided that
--------
any Subsidiary may declare and pay dividends to the Company or to any other
wholly-owned Subsidiary.
10.10 Mergers, Consolidations, Sales. Not, and not permit any Subsidiary
------------------------------
to, be a party to any merger or consolidation, or purchase or otherwise acquire
all or substantially all of the assets or any stock of any class of, or any
partnership or joint venture interest in, any other Person, or sell, transfer,
convey or lease all or any substantial part of its assets, or sell or assign
with or without recourse any receivables, except for (a) any such merger or
consolidation, sale, transfer, conveyance, lease or assignment of or by any
wholly-owned Subsidiary into the Company or into, with or to any other wholly-
owned Subsidiary; (b) any such purchase or other acquisition by the Company or
any wholly-owned Subsidiary of the assets or stock of any wholly-owned
Subsidiary; (c) any such purchase or other acquisition by the Company or any
wholly-owned Subsidiary of the assets or stock of any other Person where (1)
such assets (in the case of an asset purchase) are for use, or such Person (in
the case of a stock purchase) is engaged, solely in providing towing services
and/or vehicle transport; (2) immediately before or after giving effect to such
purchase or acquisition, no Event of Default or Unmatured Event of Default shall
have occurred and be continuing; (3) either (i) (x) the aggregate consideration
to be paid by the Company and its Subsidiaries (including any Debt assumed or
issued in connection therewith, the amount thereof to be calculated in
accordance with GAAP) in connection with such purchase or other acquisition (or
any series of related acquisitions) is not greater than $5,000,000 and (y) the
aggregate consideration to be paid in cash by the Company and its Subsidiaries
in connection with such purchase or acquisition (or any series of related
acquisitions) is not greater than
49
<PAGE>
$2,500,000, (ii) immediately after giving effect to such purchase or
acquisition, the Funded Debt to EBITDA Ratio is less than 1.0 to 1.0 or (iii)
the Required Lenders have consented to such purchase or acquisition; (4) the
Company is in pro forma compliance with all the financial ratios and
--- -----
restrictions set forth in Section 10.6; and (5) such Person (or its board of
------------
directors or similar body) has approved such acquisition or other purchase; and
(d) sales and dispositions of assets (including the stock of Subsidiaries) so
long as the net book value of all assets sold or otherwise disposed of in any
Fiscal Year does not exceed 5% of the aggregate net book value of all assets of
the Company and its Subsidiaries.
10.11 Modification of Organizational Documents. Not permit the
----------------------------------------
Certificate of Incorporation, By-Laws or other organizational documents of the
Company or any Subsidiary to be amended or modified in any way which might
reasonably be expected to materially adversely affect the interests of the
Banks.
10.12 Use of Proceeds. Use the proceeds of the Loans solely to finance
---------------
the Company's working capital, for acquisitions permitted by Section 10.10, for
-------------
Capital Expenditures and for other general corporate purposes; and not use or
permit any proceeds of any Loan to be used, either directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying" any Margin Stock.
10.13 Further Assurances. Take, and cause each Subsidiary to take, such
------------------
actions as are necessary, or as the Agent or the Required Banks may reasonably
request, from time to time (including the execution and delivery of guaranties,
security agreements, pledge agreements, financing statements and other
documents, the filing or recording of any of the foregoing, and the delivery of
stock certificates and other collateral with respect to which perfection is
obtained by possession) to ensure that (i) the obligations of the Company
hereunder and under the other Loan Documents are secured by substantially all of
the assets of the Company and guaranteed by all of the Subsidiaries (including,
promptly upon the acquisition or creation thereof, any Subsidiary acquired or
created after the date hereof) by execution of a counterpart of the Guaranty and
(ii) the obligations of each Guarantor under the Guaranty are secured by
substantially all of the assets of such Guarantor.
10.14 Transactions with Affiliates. Not, and not permit any Subsidiary
----------------------------
to, enter into, or cause, suffer or permit to exist any transaction, arrangement
or contract with any of its other Affiliates (other than the Company and its
Subsidiaries)
50
<PAGE>
which is on terms which are less favorable than are obtainable from any Person
which is not one of its Affiliates.
10.15 Employee Benefit Plans. Maintain, and cause each Subsidiary to
----------------------
maintain, each Pension Plan in substantial compliance with all applicable
requirements of law and regulations.
10.16 Environmental Matters. (a) If any material Release or Disposal of
---------------------
Hazardous Substances shall occur or shall have occurred on any real property or
any other assets owned, leased or operated by the Company or any Subsidiary, the
Company shall, or shall cause the applicable Subsidiary to, cause the prompt
containment and removal of such Hazardous Substances and the remediation of such
real property or other assets as necessary to comply in all material respects
with all Environmental Laws and to preserve the value of such real property or
other assets. Without limiting the generality of the foregoing, the Company
shall, and shall cause each Subsidiary to, comply in a reasonable and cost-
effective manner with any valid Federal or state judicial or administrative
order requiring the performance at any real property owned, leased or operated)
of the Company or any Subsidiary of activities in response to the Release or
threatened Release of a Hazardous Substance except for the period of time that
the Company or such Subsidiary is diligently and in good faith contesting such
order.
(b) To the extent that the transportation of "hazardous waste" as
defined by RCRA is permitted by this Agreement, the Company shall, and shall
cause its Subsidiaries to, dispose of such hazardous waste only at licensed
disposal facilities operating, to the best of the Company's or such Subsidiary's
knowledge after reasonable inquiry, in compliance with Environmental Laws.
10.17 Unconditional Purchase Obligations. Not, and not permit any
----------------------------------
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services; provided that the
foregoing shall not prohibit the Company or any Subsidiary from entering into
options for the purchase of particular assets or businesses.
10.18 Inconsistent Agreements. Not, and not permit any Subsidiary to,
-----------------------
enter into any agreement containing any provision which (a) would be violated or
breached by any borrowing by the Company hereunder or by the performance by the
Company or any
51
<PAGE>
Subsidiary of any of its obligations hereunder or under any other Loan Document
or (b) would prohibit the Company or any Subsidiary from granting to the Agent,
for the benefit of the Banks, a Lien on any of its assets.
10.19 Business Activities. Not, and not permit any Subsidiary to, engage
-------------------
in any line of business other than the towing service and vehicle transport
businesses and businesses which are reasonably related thereto.
10.20 Advances and Other Investments. Not, and not permit any Subsidiary
------------------------------
to, make, incur, assume or suffer to exist any Investment in any other Person,
except (without duplication) the following:
(a) equity Investments existing on the Effective Date in wholly-owned
Subsidiaries identified in Schedule 9.8;
------------
(b) equity Investments in Subsidiaries acquired after the Effective Date
in transactions permitted as acquisitions of stock or assets pursuant to
Section 10.10;
-------------
(c) in the ordinary course of business, contributions by the Company to
the capital of any of its Subsidiaries, or by any such Subsidiary to the
capital of any of its Subsidiaries;
(d) in the ordinary course of business, Investments by the Company in any
Subsidiary or by any of the Subsidiaries in the Company, by way of
intercompany loans, advances or guaranties, all to the extent permitted by
Section 10.7;
------------
(e) Suretyship Liabilities permitted by Section 10.7;
------------
(f) good faith deposits made in connection with prospective acquisitions
of stock or assets permitted by Section 10.10;
-------------
(g) loans to officers and employees not exceeding (i) $100,000 in the
aggregate to any single individual or (ii) $250,000 in the aggregate for
all such individuals;
(h) Cash Equivalent Investments; and
(i) bank deposits in the ordinary course of business; provided that the
--------
aggregate amount of all such deposits (excluding amounts in payroll
accounts or for accounts payable, in each case to the extent that checks
have been issued to third parties) which are maintained with any bank other
than the Agent shall not at any time exceed (x) in the
52
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case of such deposits with any single bank, $100,000 for three consecutive
Business Days and (y) in the case of all such deposits, $2,500,000 for
three consecutive Business Days;
provided, however, that no Investment otherwise permitted by clause (b), (c),
- -------- ------- ---------- ---
(d), (e), (f) or (g) shall be permitted to be made if, immediately before or
- --- --- --- ---
after giving effect thereto, any Event of Default or Unmatured Event of Default
shall have occurred and be continuing.
10.21 Maintenance of Property. The Company shall, and shall cause each
-----------------------
Subsidiary to, maintain and preserve all its property which is used or useful in
its business in good working order and condition, ordinary wear and tear
excepted.
10.22 Performance of Obligations. The Company shall, and shall cause
--------------------------
each Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets; and
(b) all lawful claims which, if unpaid, would by law become a Lien upon its
property; unless, in each case, the same are being contested in good faith
by appropriate proceedings and adequate reserves in accordance with GAAP
are being maintained by the Company or such Subsidiary.
10.23 Leases. Enter into, and cause each Subsidiary to enter into,
------
leases acceptable to the Agent with respect to any real property used by the
Company or any Subsidiary in the conduct of its business.
10.24 Assignability of Contracts. The Company shall, and shall cause
--------------------------
each Subsidiary to, ensure that any contracts acquired as a result of an
acquisition permitted by Section 10.10 shall be properly assigned to the Company
-------------
or such Subsidiary.
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of each Bank to make its Loans and of any Issuing Bank to
issue Letters of Credit is subject to the following conditions precedent:
11.1 Initial Credit Extensions. The obligation of each Bank to make its
-------------------------
initial Loan and of any Issuing Bank to issue any Letter of Credit, whichever
first occurs, is, in addition to
53
<PAGE>
the conditions precedent specified in Section 11.2, subject to the conditions
------------
precedent (and the date on which all such conditions precedent have been
satisfied or waived in writing by the Banks is called the "Effective Date") that
--------------
(a) the Agent shall have received all amounts which are then due and payable
pursuant to Section 5 and (to the extent billed) Section 14.6, and (b) all of
--------- ------------
the following, each duly executed and dated the Effective Date (or such other
date as shall be satisfactory to the Agent), in form and substance satisfactory
to the Agent, and each (except for the Notes, of which only the originals shall
be signed) in sufficient number of signed counterparts to provide one for each
Bank:
11.1.1 Notes. The Notes.
-----
11.1.2 Resolutions. Certified copies of resolutions of the Board of
-----------
Directors of the Company authorizing or ratifying the execution, delivery and
performance by the Company of this Agreement, the Notes and the other Loan
Documents to which the Company is a party; and certified copies of resolutions
of the Board of Directors of each Subsidiary (if any) which is to execute and
deliver any document pursuant to Section 11.1.5, 11.1.6, 11.1.7, 11.1.8 or
-------------- ------ ------ ------
11.1.9 authorizing or ratifying the execution, delivery and performance by such
- ------
Subsidiary of each Loan Document to which such Subsidiary is a party.
11.1.3 Consents, etc. Certified copies of all documents evidencing any
--------------
necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Company and each
Subsidiary of the documents referred to in this Section 11.
----------
11.1.4 Incumbency and Signature Certificates. A certificate of the
-------------------------------------
Secretary or an Assistant Secretary of the Company and each Subsidiary of the
Company as of the Effective Date certifying the names of the officer or officers
of such entity authorized to sign the Loan Documents to which such entity is a
party, together with a sample of the true signature of each such officer (it
being understood that the Agent and each Bank may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein).
11.1.5 Guaranty. Counterparts to the Guaranty executed by each Subsidiary
--------
(if any) as of the Effective Date which has not previously executed a
counterpart thereof.
11.1.6 Security Agreement. Counterparts to the Security Agreement
------------------
executed by each Subsidiary (if any) as of the Effective Date which has not
previously executed a counterpart
54
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thereof, together with evidence, satisfactory to the Agent, that all filings
necessary to perfect the Agent's Lien on any collateral granted under the
Security Agreement have been duly made and are in full force and effect.
11.1.7 Pledge Agreements. With respect to any Subsidiary that as of the
-----------------
Effective Date has one or more Subsidiaries, a Subsidiary Pledge Agreement, in
each case together with all stock certificates, stock powers and other items
required to be delivered in connection with the Company Pledge Agreement or the
Subsidiary Pledge Agreement and not previously delivered.
11.1.8 Confirmation and Omnibus Amendment. The Confirmation and
----------------------------------
Omnibus Amendment executed by the Company and each Subsidiary.
11.1.9 Trust Agreements. To the extent not already received by the
----------------
Agent, the Trust Agreements (or counterparts thereof) executed by the Company
and each Subsidiary.
11.1.10 Opinions of Counsels for the Company and the Guarantors. The
-------------------------------------------------------
opinion of McDermott, Will & Emery, transaction counsel to the Company and the
Guarantors and the opinions of local counsels to certain Guarantors.
11.1.11 Other. Such other documents as the Agent or any Bank may
-----
reasonably request.
11.2 Conditions. The obligation (a) of each Bank to make each Loan and
----------
(b) of each Issuing Bank to issue each Letter of Credit is subject to the
following further conditions precedent that:
11.2.1 Compliance with Warranties, No Default, etc. Both before and
--------------------------------------------
after giving effect to any borrowing and the issuance of any Letter of Credit
(but, if any Event of Default of the nature referred to in Section 12.1.2 shall
--------------
have occurred with respect to any other Debt, without giving effect to the
application, directly or indirectly, of the proceeds thereof) the following
statements shall be true and correct:
(a) the representations and warranties of the Company and the
Guarantors set forth in this Agreement (excluding Section 9.6) and the
-----------
other Loan Documents shall be true and correct in all material respects
with the same effect as if then made (except to the extent stated to relate
to an earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date);
55
<PAGE>
(b) except as disclosed by the Company to the Agent and the Banks
pursuant to Section 9.6,
-----------
(i) no litigation (including derivative actions), arbitration
proceeding, labor controversy or governmental investigation or
proceeding shall be pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries which might
reasonably be expected to have a Material Adverse Effect or which
purports to affect the legality, validity or enforceability of this
Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any litigation
(including derivative actions), arbitration proceeding, labor
controversy or governmental investigation or proceeding disclosed
pursuant to Section 9.6 which might reasonably be expected to have a
-----------
Material Adverse Effect; and
(c) no Event of Default or Unmatured Event of Default shall have then
occurred and be continuing, and neither the Company nor any of its
Subsidiaries shall be in violation of any law or governmental regulation or
court order or decree where such violation or violations singly or in the
aggregate might reasonably be expected to have a Material Adverse Effect;
and
(d) there shall have been no change in the operations, financial
condition or prospects of the Company and its Subsidiaries or in the market
for syndicated loans that might reasonably be expected to have a Material
Adverse Effect.
11.2.2 Confirmatory Certificate. If requested by the Agent or any Bank,
------------------------
the Agent shall have received (in sufficient counterparts to provide one to each
Bank) a certificate dated the date of such requested Loan or Letter of Credit
and signed by a duly authorized representative of the Company as to the matters
set out in Section 11.2.1 (it being understood that each request by the Company
--------------
for the making of a Loan or the issuance of a Letter of Credit shall be deemed
to constitute a warranty by the Company that the conditions precedent set forth
in Section 11.2.1 will be satisfied at the time of the making of such Loan or
--------------
the issuance of such Letter of Credit), together with such other documents as
the Agent or any Bank may reasonably request in support thereof.
56
<PAGE>
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 Events of Default. Each of the following shall constitute an Event
-----------------
of Default under this Agreement:
12.1.1 Non-Payment of the Loans, etc. Default in the payment when due of
------------------------------
the principal of any Loan; or default, and continuance thereof for five days, in
the payment when due of any interest, fee, reimbursement obligation with respect
to any Letter of Credit or other amount payable by the Company hereunder or
under any other Loan Document.
12.1.2 Non-Payment of Other Debt. Any default shall occur under the terms
-------------------------
applicable to any Debt of the Company or any Subsidiary in an aggregate amount
(for all such Debt so affected) exceeding $250,000 and such default shall (a)
consist of the failure to pay such Debt when due (subject to any applicable
grace period), whether by acceleration or otherwise, or (b) accelerate the
maturity of such Debt or permit the holder or holders thereof, or any trustee or
agent for such holder or holders, to cause such Debt to become due and payable
prior to its expressed maturity.
12.1.3 Other Material Obligations. Default in the payment when due, or in
--------------------------
the performance or observance of, any material obligation of, or condition
agreed to by, the Company or any Subsidiary with respect to any material
purchase or lease of goods or services where such default, singly or in the
aggregate with other such defaults might reasonably be expected to have a
Material Adverse Effect (except only to the extent that the existence of any
such default is being contested by the Company or such Subsidiary in good faith
and by appropriate proceedings and appropriate reserves have been made in
respect of such default).
12.1.4 Bankruptcy, Insolvency, etc. The Company or any Subsidiary becomes
----------------------------
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or the Company or any Subsidiary
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for the Company or such Subsidiary or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee, receiver or
other custodian is appointed for the Company or any Subsidiary or for a
substantial part of the property of any thereof and is not discharged within 60
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding (except the voluntary
57
<PAGE>
dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is
commenced in respect of the Company or any Subsidiary, and if such case or
proceeding is not commenced by the Company or such Subsidiary, it is consented
to or acquiesced in by the Company or such Subsidiary, or remains for 60 days
undismissed; or the Company or any Subsidiary takes any corporate action to
authorize, or in furtherance of, any of the foregoing.
12.1.5 Non-Compliance with Provisions of This Agreement. (a) Failure by
------------------------------------------------
the Company to comply with or to perform any covenant set forth in Sections 10.6
-------------
through 10.11, 10.14 or 10.17 through 10.20; or (b) failure by the Company to
----- ----- ----- -----
comply with or to perform any other provision of this Agreement (and not
constituting an Event of Default under any of the other provisions of this
Section 12) and continuance of such failure described in this clause (b) for 30
- ---------- ----------
days (or, in the case of Section 10.13, five Business Days) after notice thereof
-------------
to the Company from the Agent, any Bank or the holder of any Note.
12.1.6 Warranties. Any warranty made by the Company herein is breached
----------
or is false or misleading in any material respect, or any schedule, certificate,
financial statement, report, notice or other writing furnished by the Company to
the Agent or any Bank in connection herewith is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
12.1.7 Pension Plans. (i) Institution of any steps by the Company or any
-------------
other Person to terminate a Pension Plan if as a result of such termination the
Company could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of $250,000;
(ii) a contribution failure occurs with respect to any Pension Plan sufficient
to give rise to a Lien under section 302(f) of ERISA; or (iii) there shall occur
any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the
withdrawal liability (without unaccrued interest) to Multiemployer Pension Plans
as a result of such withdrawal (including any outstanding withdrawal liability
that the Company and the Controlled Group have incurred on the date of such
withdrawal) exceeds $250,000.
12.1.8 Judgments. Final judgments which exceed an aggregate of $250,000
---------
shall be rendered against the Company, or any Subsidiary and shall not have been
paid, discharged or vacated or had execution thereof stayed pending appeal
within 30 days after entry or filing of such judgments.
12.1.9 Invalidity of Guaranty, etc. The Guaranty shall cease to be in
----------------------------
full force and effect with respect to any
58
<PAGE>
Guarantor, any Guarantor shall fail (subject to any applicable grace period) to
comply with or to perform any applicable provision of the Guaranty, or any
Guarantor (or any Person by, through or on behalf of such Guarantor) shall
contest in any manner the validity, binding nature or enforceability of the
Guaranty with respect to such Guarantor.
12.1.10 Invalidity of Collateral Documents, etc. Any Collateral Document
----------------------------------------
shall cease to be in full force and effect with respect to the Company or any
Guarantor, the Company or any Guarantor shall fail (subject to any applicable
grace period) to comply with or to perform any applicable provision of any
Collateral Document to which such entity is a party, or the Company or any
Guarantor (or any Person by, through or on behalf of the Company or such
Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
12.1.11 Change in Control. (a) Any Person or group of Persons (within the
-----------------
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, but
excluding the executive managers of the Company as of the Effective Date) shall
acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 30% or more of the outstanding shares of common stock of the
Company; (b) during any 24-month period, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election by the Company's Board of Directors or whose nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors who either were directors at beginning of such
period or whose election or nomination was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company; (c) a
period of 60 consecutive days shall have elapsed during which any of the
individuals named in Schedule 12.1.11A shall have ceased to hold executive
-----------------
offices with the Company at least equal in seniority to such individual's
present offices, as set out in such Schedule 12.1.11A, excluding any such
----------------- ---------
individual who has been replaced by another individual or individuals reasonably
satisfactory to the Required Banks (it being understood that any such
replacement individual shall be deemed added to Schedule 12.1.11A on the date of
-----------------
approval thereof by the Required Banks); or (d) a period of 60 consecutive days
shall have elapsed during which all of the individuals named in Schedule
--------
12.1.11B shall have ceased to be members of the Company's Board of Directors.
- --------
12.2 Effect of Event of Default. If any Event of Default described in
--------------------------
Section 12.1.4 shall occur, the Commitments (if they have not theretofore
- --------------
terminated) shall immediately terminate and
59
<PAGE>
the Notes and all other obligations hereunder shall become immediately due and
payable and the Company shall become immediately obligated to deliver to the
Agent cash collateral in an amount equal to the outstanding face amount of all
Letters of Credit, all without presentment, demand, protest or notice of any
kind; and, if any other Event of Default shall occur and be continuing, the
Agent (upon written request of the Required Banks) shall declare the Commitments
(if they have not theretofore terminated) to be terminated and/or declare all
Notes and all other obligations hereunder to be due and payable and/or demand
that the Company immediately deliver to the Agent cash collateral in amount
equal to the outstanding face amount of all Letters of Credit, whereupon the
Commitments (if they have not theretofore terminated) shall immediately
terminate and/or all Notes and all other obligations hereunder shall become
immediately due and payable and/or the Company shall immediately become
obligated to deliver to the Agent cash collateral in an amount equal to the face
amount of all Letters of Credit, all without presentment, demand, protest or
notice of any kind. The Agent shall promptly advise the Company of any such
declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of Default of
any event described in Section 12.1.1 or Section 12.1.4 may be waived by the
-------------- --------------
written concurrence of all of the Banks, and the effect as an Event of Default
of any other event described in this Section 12 may be waived by the written
----------
concurrence of the Required Banks. Any cash collateral delivered hereunder shall
be held by the Agent (without liability for interest thereon) and applied to
obligations arising in connection with any drawing under a Letter of Credit.
After the expiration or termination of all Letters of Credit, such cash
collateral shall be applied by the Agent to any remaining obligations hereunder
and any excess shall be delivered to the Company or as a court of competent
jurisdiction may elect.
SECTION 13 THE AGENT.
13.1 Appointment and Authorization. (a) Each Bank hereby irrevocably
-----------------------------
(subject to Section 13.9) appoints, designates and authorizes the Agent to take
------------
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied
60
<PAGE>
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against the Agent.
(b) Each Issuing Bank shall act on behalf of the Banks with respect to any
Letters of Credit issued by it and the documents associated therewith. Each
Issuing Bank shall have all of the benefits and immunities (i) provided to the
Agent in this Section 13 with respect to any acts taken or omissions suffered by
----------
such Issuing Bank in connection with Letters of Credit issued by it or proposed
to be issued by it and the applications and agreements for letters of credit
pertaining to such Letters of Credit as fully as if the term "Agent", as used in
this Section 13, included such Issuing Bank with respect to such acts or
----------
omissions and (ii) as additionally provided in this Agreement with respect to
the Issuing Banks.
(c) The Swing Line Bank shall have all of the benefits and immunities (i)
provided to the Agent in this Section 13 with respect to any acts taken or
----------
omissions suffered by the Swing Line Bank in connection with Swing Line Loans
made or proposed to be made by it as fully as if the term "Agent", as used in
this Section 13, included the Swing Line Bank with respect to such acts or
----------
omissions and (ii) as additionally provided in this Agreement with respect to
the Swing Line Bank.
13.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
13.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
------------------
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
61
<PAGE>
any Loan Document to perform its obligations hereunder or thereunder. No Agent-
Related Person shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
13.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
-----------------
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Banks as it deems appropriate and, if it
so requests, confirmation from the Banks of their obligation to indemnify the
Agent against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Required Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
13.5 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Event of Default or Unmatured Event of
Default except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Agent for the account of the Banks, unless
the Agent shall have received written notice from a Bank or the Company
referring to this Agreement, describing such Event of Default or Unmatured Event
of Default and stating that such notice is a "notice of default". The Agent
will notify the Banks of its receipt of any such notice. The Agent shall take
such action with respect to such Event of Default or Unmatured Event of Default
as may be requested by the Required Banks in accordance with Section 12;
----------
provided, however, that unless and until the Agent has received any such
- -------- -------
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default or
Unmatured Event of Default as it shall deem advisable or in the best interest of
the Banks.
62
<PAGE>
13.6 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereafter taken, including any review of the affairs of the Company
and its Subsidiaries, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial or other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
13.7 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata, from and against any
and all Indemnified Liabilities; provided, however, that no Bank shall be liable
-------- -------
for any payment to the Agent-Related Person of any portion of the Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including reasonable fees of attorneys for the Agent (including the allocable
costs of internal legal services and all disbursements of internal counsel))
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities
63
<PAGE>
under, this Agreement, any other Loan Document, or any document contemplated by
or referred to herein, to the extent that the Agent is not reimbursed for such
expenses by or on behalf of the Company. The undertaking in this Section shall
survive repayment of the Loans, cancellation of the Notes, any foreclosure
under, or any modification, release or discharge of, any or all of the
Collateral Documents, any termination of this Agreement and the resignation or
replacement of the Agent.
For the purposes of this Section 13.7, "Indemnified Liabilities" shall
------------ -----------------------
mean: any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements (including
reasonable fees of attorneys for the Agent (including the allocable costs of
internal legal services and all disbursements of internal counsel)) of any kind
or nature whatsoever which may at any time (including at any time following
repayment of the Loan and the termination, resignation or replacement of the
Agent or the replacement of any Bank) be imposed on, incurred by or asserted
against any Agent-Related Person in any way relating to or arising out of this
Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including (a) any case, action
or proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any substantial
portion of its creditors; undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code, and including any appellate proceeding) related
to or arising out of this Agreement or the Commitments or the use of the
proceeds thereof, whether or not any Agent-Related Person, any Bank or any of
their respective officers, directors, employees, counsel, agents or attorneys-
in-fact is a party thereto.
13.8 Agent in Individual Capacity. BofA and its Affiliates may make
----------------------------
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent, the Issuing Bank
or the Swing Line Bank hereunder and without notice to or consent of the Banks.
The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates
may receive information regarding the Company or its Affiliates (including
64
<PAGE>
information that may be subject to confidentiality obligations in favor of the
Company or such Subsidiary) and acknowledge that the Agent shall be under no
obligation to provide such information to them. With respect to their Loans,
BofA and its Affiliates shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though BofA were not
the Agent, the Issuing Bank and the Swing Line Bank, and the terms "Bank" and
"Banks" include BofA and its Affiliates, to the extent applicable, in their
individual capacities.
13.9 Successor Agent. The Agent may, and at the request of the Required
---------------
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Required Banks shall, with (so long as no
Event of Default exists) the consent of the Company (which shall not be
unreasonably withheld or delayed), appoint from among the Banks a successor
agent for the Banks. If no successor agent is appointed prior to the effective
date of the resignation of the Agent, the Agent may appoint, after consulting
with the Banks and the Company, a successor agent from among the Banks. Upon
the acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring Agent
and the term "Agent" shall mean such successor agent, and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 13 and
----------
Sections 14.6 and 14.13 shall inure to its benefit as to any actions taken or
- ------------- -----
omitted to be taken by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is 30 days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Banks shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Required Banks appoint a successor agent as provided for above. Notwithstanding
the foregoing, however, BofA may not be removed as the Agent at the request of
the Required Banks unless BofA shall also simultaneously be replaced as an
"Issuing Bank" and the "Swing Line Bank" hereunder pursuant to documentation in
form and substance reasonably satisfactory to BofA.
13.10 Withholding Tax.
---------------
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the
Code, such Bank agrees to deliver to the Agent:
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<PAGE>
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed
Internal Revenue Service ("IRS") Forms 1001 and W-8 before the payment
---
of any interest in the first calendar year and before the payment of
any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest
may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such
Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of such obligations of the Company hereunder. To the
extent of such percentage amount, the Agent will treat such Bank's IRS Form
1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the obligations of
the Company to such Bank hereunder, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed
by Sections 1441 and 1442 of the Code.
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(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required
by subsection (a) of this Section are not delivered to the Agent, then the
--------------
Agent may withhold from any interest payment to such Bank not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.
(e) If the IRS or any other governmental authority of the United
States or any other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly
executed, or because such Bank failed to notify the Agent of a change in
circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall
indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses
(including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of
internal counsel)). The obligation of the Banks under this subsection shall
survive the repayment of the Loans, cancellation of the Notes, any
termination of this Agreement and the resignation or replacement of the
Agent.
13.11 Collateral Matters. The Banks irrevocably authorize the Agent, at
------------------
its option and in its discretion, to release any Lien granted to or held by the
Agent under any Collateral Document (i) upon termination of the Commitments and
payment in full of all Loans and all other obligations of the Company hereunder
and the expiration or termination of all Letters of Credit; (ii) constituting
property sold or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; or (iii) subject to Section 14.1, if approved,
------------
authorized or ratified in writing by the Required Banks. Upon request by the
Agent at any time, the Banks will confirm in writing the Agent's authority to
release particular types or items of collateral pursuant to this Section 13.11.
-------------
13.12 Funding Reliance. (a) Unless the Agent receives notice from a
----------------
Bank by 1:00 p.m., Chicago time, on the day of a
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<PAGE>
proposed borrowing that such Bank will not make available to the Agent an amount
equal to its Percentage of such borrowing, the Agent may assume that such Bank
has made such amount available to the Agent and, in reliance upon such
assumption, make a corresponding amount available to the Company. If and to the
extent such Bank has not made such amount available to the Agent, such Bank and
the Company jointly and severally agree to repay such amount to the Agent
forthwith on demand, together with interest thereon at the interest rate
applicable to Revolving Loans comprising such borrowing or, in the case of any
Bank which repays such amount within three Business Days, the Federal Funds Rate
(together with such other compensatory amounts as may be required to be paid by
such Bank to the Agent pursuant to the Rules for Interbank Compensation of the
Council on International Banking or the Clearinghouse Compensation Committee, as
applicable, as in effect from time to time). Nothing set forth in this
clause (a) shall relieve any Bank of any obligation it may have to make any
- ----------
Revolving Loan hereunder.
(b) Unless the Agent receives notice from the Company prior to the due date
for any payment hereunder that the Company does not intend to make such payment,
the Agent may assume that the Company has made such payment and, in reliance
upon such assumption, make available to each Bank its share of such payment. If
and to the extent that the Company has not made any such payment to the Agent,
each Bank which received a share of such payment shall repay such share (or the
relevant portion thereof) to the Agent forthwith on demand, together with
interest thereon at the Base Rate (or, in the case of any Bank which repays such
amount within three Business Days, the Federal Funds Rate). Nothing set forth
in this clause (b) shall relieve the Company of any obligation it may have to
----------
make any payment hereunder.
13.13 Documentation Agent. No Bank identified on the facing page or the
-------------------
signature pages of this Agreement as a "Documentation Agent" shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Banks as such. Without limiting the
foregoing, no Bank so identified as a "Documenation Agent" shall have or be
deemed to have any fiduciary relationship with any Bank. Each Bank acknowledges
that it has not relied, and will not rely, on any Bank so identified in deciding
to enter into this Agreement or in taking or not taking action hereunder.
SECTION 14 GENERAL.
14.1 Waiver; Amendments. No delay on the part of the Agent, any Bank or
------------------
any other holder of a Note in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor
68
<PAGE>
shall any single or partial exercise by any of them of any right, power or
remedy preclude other or further exercise thereof, or the exercise of any other
right, power or remedy. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement or the Notes shall in any event be
effective unless the same shall be in writing and signed and delivered by Banks
having an aggregate Percentage of not less than the aggregate Percentage
expressly designated herein with respect thereto or, in the absence of such
designation as to any provision of this Agreement or the Notes, by the Required
Banks, and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No amendment, modification, waiver or consent shall change the Percentage
of any Bank (except as provided in Section 6.1.2) without the consent of such
-------------
Bank. No amendment, modification, waiver or consent shall (i) extend or increase
the amount of the Commitments (except as provided in Section 6.1.2), (ii) extend
-------------
the date for payment of any principal of or interest on the Loans or any fees
payable hereunder, (iii) reduce the principal amount of any Loan, the rate of
interest thereon or any fees payable hereunder, (iv) release the Guaranty (other
than with respect to a Guarantor which ceases to be a Subsidiary as a result of
a transaction permitted hereunder) or all or any substantial part of the
collateral granted under the Collateral Documents or (v) reduce the aggregate
Percentage required to effect an amendment, modification, waiver or consent
without, in each case, the consent of all Banks. No provisions of Section 13 or
----------
other provision of this Agreement affecting the Agent in its capacity as such
shall be amended, modified or waived without the consent of the Agent. No
provision of this Agreement relating to the rights or duties of an Issuing Bank
in its capacity as such shall be amended, modified or waived without the consent
of such Issuing Bank. No provision of this Agreement relating to the rights or
duties of a Swing Line Bank in its capacity as such shall be amended, modified
or waived without the consent of such Swing Line Bank.
14.2 Confirmations. The Company and each holder of a Note agree from
-------------
time to time, upon written request received by it from the other, to confirm to
the other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans then outstanding under such Note.
14.3 Notices. Except as otherwise provided in Section 2.2, all notices
------- -----------
hereunder shall be in writing (including facsimile transmission) and shall be
sent to the applicable party at its address shown on Schedule 14.3 or at such
-------------
other address as such party may, by written notice received by the other
parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when
69
<PAGE>
sent; notices sent by mail shall be deemed to have been given three Business
Days after the date when sent by registered or certified mail, postage prepaid;
and notices sent by hand delivery or overnight courier service shall be deemed
to have been given when received. For purposes of Sections 2.2 and 2.4, the
------------ ---
Agent and the Swing Line Bank shall be entitled to rely on telephonic
instructions from any person that the Agent or the Swing Line Bank in good faith
believes is an authorized officer or employee of the Company, and the Company
shall hold the Agent, the Swing Line Bank and each Bank harmless from any loss,
cost or expense resulting from any such reliance.
14.4 Computations. Where the character or amount of any asset or
------------
liability or item of income or expense is required to be determined, or any
consolidation or other accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable and except as otherwise specified in this Agreement, be made
in accordance with GAAP, consistently applied; provided that if the Company
--------
notifies the Agent that the Company wishes to amend any covenant in Section 10
----------
to eliminate or to take into account the effect of any change in GAAP on the
operation of such covenant (or if the Agent notifies the Company that the
Required Banks wish to amend Section 10 for such purpose), then the Company's
----------
compliance with such covenant shall be determined on the basis of GAAP in effect
immediately before the relevant change in GAAP became effective, until either
such notice is withdrawn or such covenant is amended in a manner satisfactory to
the Company and the Required Banks.
14.5 Regulation U. Each Bank represents that it in good faith is not
------------
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
reasonable out-of-pocket costs and expenses of Agent-Related Persons (including
the reasonable accounting fees, appraisal fees and fees and charges of counsel
for the Agent-Related Persons and of local counsel, if any, who may be retained
by said counsel) in connection with the preparation, execution, delivery and
administration of this Agreement, the other Loan Documents and all other
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith (including any amendments, supplements or waivers to any
Loan Documents), and all reasonable out-of-pocket costs and expenses (including
reasonable accounting fees, appraisal fees and attorneys' fees, court costs and
other legal expenses and allocated costs of staff counsel) incurred by the
Agent-Related Persons and each Bank after an Event of Default in connection
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<PAGE>
with the enforcement of this Agreement, the other Loan Documents or any such
other documents. Each Bank agrees to reimburse the Agent for such Bank's pro
rata share (based on its respective Percentage) of any such costs and expenses
of the Agent not paid by the Company. In addition, the Company agrees to pay,
and to save the Agent and the Banks harmless from all liability for, (a) any
stamp or other taxes (excluding income taxes and franchise taxes based on net
income) which may be payable in connection with the execution and delivery of
this Agreement, the borrowings hereunder, the issuance of the Notes or the
execution and delivery of any other Loan Document or any other document provided
for herein or delivered or to be delivered hereunder or in connection herewith
and (b) any fees of the Company's auditors in connection with any reasonable
exercise by the Agent and the Banks of their rights pursuant to Section 10.2.
------------
All obligations provided for in this Section 14.6 shall survive repayment of the
------------
Loans, cancellation of the Notes and any termination of this Agreement.
14.7 Subsidiary References. The provisions of this Agreement relating to
---------------------
Subsidiaries shall apply only during such times as the Company has one or more
Subsidiaries.
14.8 Captions. Section captions used in this Agreement are for
--------
convenience only and shall not affect the construction of this Agreement.
14.9 Assignments; Participations.
---------------------------
14.9.1 Assignments. Any Bank may, with the prior written consents of the
-----------
Company and the Agent (which consents shall not be unreasonably delayed or
withheld), at any time assign and delegate to one or more commercial banks or
other Persons (any Person to whom such an assignment and delegation is to be
made being herein called an "Assignee"), all or any fraction of such Bank's
--------
Loans and Commitments (which assignment and delegation shall be of a constant,
and not a varying, percentage of all the assigning Bank's Loans and Commitments)
in a minimum aggregate amount equal to the lesser of (i) the assigning Bank's
remaining aggregate Commitments and (ii) $5,000,000; provided, however, that (a)
-------- -------
no assignment and delegation may be made to any Person if, at the time of such
assignment and delegation, the Company would be obligated to pay any greater
amount under Section 7.6 or Section 8 to the Assignee than the Company is then
----------- ---------
obligated to pay to the assigning Bank under such Sections (and if any
assignment is made in violation of the foregoing, the Company will not be
required to pay the incremental amounts) and (b) the Company and the Agent shall
be entitled to continue to deal solely and directly with such Bank in connection
with the
71
<PAGE>
interests so assigned and delegated to an Assignee until the date when all of
the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent
and the assigning Bank shall agree) shall have passed after written notice
of such assignment and delegation, together with payment instructions,
addresses and related information with respect to such Assignee, shall have
been given to the Company and the Agent by such assigning Bank and the
Assignee,
(y) the assigning Bank and the Assignee shall have executed and
delivered to the Company and the Agent an assignment agreement
substantially in the form of Exhibit G (an "Assignment Agreement"),
--------- --------------------
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been accepted by the Agent, and
(z) the assigning Bank or the Assignee shall have paid the Agent a
processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank hereunder, and (y) the assigning Bank, to the
extent that rights and obligations hereunder have been assigned and delegated by
it pursuant to such Assignment Agreement, shall be released from its obligations
hereunder. Within five Business Days after effectiveness of any assignment and
delegation, the Company shall execute and deliver to the Agent (for delivery to
the Assignee and the Assignor, as applicable) a new Note in the principal amount
of the Assignee's Loan Commitment and, if the assigning Bank has retained a Loan
Commitment hereunder, a replacement Note in the principal amount of the Loan
Commitment retained by the assigning Bank (such Note to be in exchange for, but
not in payment of, the predecessor Note held by such assigning Bank). Each such
Note shall be dated the effective date of such assignment. The assigning Bank
shall mark the predecessor Note "exchanged" and deliver it to the Company.
Accrued interest on that part of the predecessor Note being assigned shall be
paid as provided in the Assignment Agreement. Accrued interest and fees on that
part of the predecessor Note not being assigned shall be paid to the assigning
Bank. Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor Note and in this Agreement. Any attempted
assignment and delegation not made in accordance with this Section 14.9.1 shall
--------------
be null and void.
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<PAGE>
Notwithstanding the foregoing provisions of this Section 14.9.1 or any
--------------
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
14.9.2 Participations. Any Bank may at any time sell to one or more
--------------
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the Commitments of such Bank, the direct
or participation interest of such Bank in any Letter of Credit or any other
interest of such Bank hereunder (any Person purchasing any such participating
interest being herein called a "Participant"); provided that any Bank selling
----------- --------
any such participating interest shall give notice thereof to the Company. In
the event of a sale by a Bank of a participating interest to a Participant, (x)
such Bank shall remain the holder of its Note for all purposes of this
Agreement, (y) the Company and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
hereunder and (z) all amounts payable by the Company shall be determined as if
such Bank had not sold such participation and shall be paid directly to such
Bank. No Participant (other than a Participant which (i) is an affiliate of the
participating Bank and (ii) holds a 100% participation in the interests of such
Bank hereunder) shall have any direct or indirect voting rights hereunder except
with respect to any of the events (excluding the events described in clause (v)
----------
thereof) described in the third to last sentence of Section 14.1. Each Bank
------------
agrees to incorporate the requirements of the preceding sentence into each
participation agreement which such Bank enters into with any Participant. The
Company agrees that if amounts outstanding under this Agreement and the Notes
are due and payable (as a result of acceleration or otherwise), each Participant
shall be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement, any Note and with respect to any
Letter of Credit to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or such Note;
provided that such right of setoff shall be subject to the obligation of each
- --------
Participant to share with the Banks, and the Banks agree to share with each
Participant, as provided in Section 7.5. The Company also agrees that each
-----------
Participant shall be entitled to the benefits of Section 7.6 and Section 8 as if
----------- ---------
it were a Bank (provided that no Participant shall receive any greater
compensation pursuant to Section 7.6 or Section 8 than would have been paid to
----------- ---------
the participating Bank if no participation had been sold).
14.10 Governing Law. This Agreement and each Note shall be a contract
-------------
made under and governed by the internal laws of the
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<PAGE>
State of Illinois. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. All obligations of the Company
and rights of the Agent, the Banks and any other holder of a Note expressed
herein or in any other Loan Document shall be in addition to and not in
limitation of those provided by applicable law.
14.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement. When
counterparts executed by all of the parties hereto shall have been lodged with
the Agent (or, in the case of any Bank as to which an executed counterpart shall
not have been so lodged, the Agent shall have received confirmation from such
Bank of execution of a counterpart hereof by such Bank), this Agreement shall
become effective as of the date hereof, and at such time the Agent shall notify
the Company and each Bank.
14.12 Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of the Company, the Banks and the Agent and the
successors and assigns of the Banks and the Agent.
14.13 Indemnification by the Company.
------------------------------
(a) In consideration of the execution and delivery of this Agreement by the
Agent and the Banks and the agreement to extend the Commitments provided
hereunder, the Company hereby agrees to indemnify, exonerate and hold the Agent,
each Bank and each of the officers, directors, employees, Affiliates and agents
of the Agent and each Bank (each a "Bank Party") free and harmless from and
----------
against any and all actions, causes of action, suits, losses, liabilities,
damages and expenses, including reasonable attorneys' fees and charges and
allocated costs of staff counsel (collectively, for purposes of this Section
-------
14.13, called the "Indemnified Liabilities"), incurred by the Bank Parties or
- ----- -----------------------
any of them as a result of, or arising out of, or relating to (i) any tender
offer, merger, purchase of stock, purchase of assets or other similar
transaction financed or proposed to be financed in whole or in part, directly or
indirectly, with the proceeds of any of the Loans, (ii) the use, handling,
release, emission, discharge, transportation, storage, treatment or disposal of
any
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<PAGE>
hazardous substance at any property owned or leased by the Company or any
Subsidiary, (iii) any violation of any Environmental Laws with respect to
conditions at any property owned or leased by the Company or any Subsidiary or
the operations conducted thereon, (iv) the investigation, cleanup or remediation
of offsite locations at which the Company or any Subsidiary or their respective
predecessors are alleged to have directly or indirectly disposed of hazardous
substances or (v) the execution, delivery, performance or enforcement of this
Agreement or any other Loan Document by any of the Bank Parties, except for any
such Indemnified Liabilities arising on account of any such Bank Party's gross
negligence or willful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Company hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. Nothing set
forth above shall be construed to relieve any Bank Party from any obligation it
may have under this Agreement.
(b) All obligations provided for in this Section 14.13 shall survive
-------------
repayment of the Loans, cancellation of the Notes, any foreclosure under, or any
modification, release or discharge of any or all of the Collateral Documents and
any termination of this Agreement.
14.14 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
-------------------------------------------
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
-------- -------
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION
OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF ILLINOIS. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
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<PAGE>
ITSELF OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
14.15 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK
--------------------
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN
DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING
FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
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Delivered at Chicago, Illinois, as of the day and year first above written.
UNITED ROAD SERVICES, INC.
By____________________________________
Title_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By____________________________________
Title_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVING ASSOCIATION, as Issuing Bank,
Swing Line Bank and as a Bank
By____________________________________
Title_________________________________
BANKBOSTON, N.A., as Documenation Agent
and a Bank
By____________________________________
Title_________________________________
COMERICA BANK, as a Bank
By____________________________________
Title_________________________________
FLEET NATIONAL BANK, as a Bank
By____________________________________
Title_________________________________
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Exhbit 10.23
FIRST AMENDMENT
THIS FIRST AMENDMENT (this "Amendment") dated as of December 3, 1998 is
---------
among UNITED ROAD SERVICES, INC. (the "Company"), various financial institutions
-------
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent (in such
capacity, the "Agent").
-----
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the Company, various financial institutions and the Agent are
parties to an Amended and Restated Credit Agreement dated as of November 2, 1998
(the "Existing Credit Agreement" and, as amended and modified by this Amendment,
-------------------------
the "Amended Credit Agreement"); and
------------------------
WHEREAS, the parties hereto desire to amend the Existing Credit Agreement
as hereinafter provided;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1 Defined Terms. Terms used in this Amendment which are defined in the
-------------
Existing Credit Agreement shall have the respective meanings assigned to such
terms in the Existing Credit Agreement unless otherwise defined herein.
SECTION 2 Amendments to Existing Credit Agreement. The Existing Credit
---------------------------------------
Agreement is amended as set forth in Sections 2.1 through 2.5 below.
------------ ---
2.1 Additional Definitions. Section 1 is amended by inserting the
----------------------
following definitions in appropriate alphabetical sequence:
"Adjusted Interest Expense means Interest Expense excluding the
-------------------------
interest paid by the Company in the form of additional Charterhouse
Subordinated Notes."
"Charterhouse Subordinated Notes means up to $75,000,000 in principal
-------------------------------
amount of the 8% Convertible Subordinated Debentures due 2008 issued by the
Company."
2.2 Definition of Funded Debt. The definition of Funded Debt in Section 1
-------------------------
is amended by (a) deleting the word "and" at
<PAGE>
the end of clause (iii) thereof and replacing it with a comma and (b) deleting
the period at the end of clause (iv) thereof and replacing it with the
following:
", and (v) the Charterhouse Subordinated Notes."
2.3 Definition of Subordinated Debt. The definition of Subordinated Debt
-------------------------------
in Section 1 is amended in its entirety to read as follows:
"Subordinated Debt means (i) the Charterhouse Subordinated Notes and
-----------------
(ii) any other unsecured indebtedness of the Company which (x) is owed to
Persons other than officers, employees, directors or Affiliates of the
Company, (y) has no amortization prior to December 31, 2001 and (z) has
subordination terms, covenants, pricing and other terms applicable to such
indebtedness which have been approved in writing by the Required Banks."
2.4 Funded Debt to Funded Debt plus Net Worth Ratio. Section 10.6.2 is
-----------------------------------------------
amended in its entirety to read as follows:
"10.6.2 Funded Debt to Funded Debt plus Net Worth Ratio. Not permit
-----------------------------------------------
the ratio of (a) Funded Debt to (b) the sum of Funded Debt plus Net Worth
plus the principal amount of the Charterhouse Subordinated Notes as of the
last day of any Fiscal Quarter to exceed 0.50 to 1.0."
2.5 EBITR to Adjusted Interest Expense plus Rental Expense Ratio. Section
------------------------------------------------------------
10.6.5 is amended by deleting the term "Interest Expense" in the heading and in
the first line thereof and replacing it with the term "Adjusted Interest
Expense".
2.6 Limitations on Debt. Section 10.7 is amended by (a) deleting the word
-------------------
"and" at the end of clause (g) thereof, (b) deleting the period at the end of
clause (h) thereof and replacing it with a semicolon followed by the word "and"
and (c) inserting the following new clause (i):
"(i) Suretyship Liabilities of the Company in respect of obligations
of Subsidiaries permitted hereunder."
2.7 Restricted Payments. Section 10.9 is amended in its entirety to read
-------------------
as follows:
"10.9 Restricted Payments. Not, and not permit any Subsidiary to,
-------------------
(a) declare or pay any dividends on any of its capital stock (other than
stock dividends), (b) purchase
-2-
<PAGE>
or redeem any such stock or any warrants, units, options or other rights in
respect of such stock, (c) make any other distribution to shareholders, (d)
prepay, purchase, defease or redeem any Subordinated Debt, (e) make any
payment on or in respect of the Charterhouse Subordinated Notes (other than
the costs and expenses associated with the issuance of the Charterhouse
Subordinated Notes and payments made in the form of additional Charterhouse
Subordinated Notes) or (e) set aside funds for any of the foregoing;
provided that any Subsidiary may declare and pay dividends to the Company
--------
or to any other wholly-owned Subsidiary and the Company may convert the
Charterhouse Subordinated Notes into common stock of the Company in
accordance with the terms of such Charterhouse Subordinated Notes."
2.8 Change in Control. Section 12.1.11 is amended by (a) deleting the
-----------------
word "or" after clause (c) thereof and (b) deleting the period at the end of
clause (d) thereof and replacing it with the following:
"; or (e) any "Change of Control" shall occur under and as defined in the
Purchase Agreement for the Charterhouse Subordinated Notes."
SECTION 3. Conditions Precedent. This Amendment shall become effective as
--------------------
of the date hereof (the "Amendment Effective Date") when all of the following
------------------------
conditions shall have been satisfied:
3.1 Receipt of Documents. The Agent shall have received all of the
--------------------
following, each duly executed and dated a date acceptable to, and otherwise in
form and substance satisfactory to, the Agent, and in sufficient number of
signed counterparts to provide one for each Bank:
(a) Amendment. Counterpart originals of this Amendment, duly
---------
executed by the Company, the Required Banks and the Agent. For purposes of
this clause (a), a facsimile executed copy shall be treated as an original.
----------
(b) Certificates A certificate of the secretary or an assistant
------------
secretary of the Company, substantially in the form of Exhibit A to this
---------
Amendment, and a certificate of the President, the Chief Financial Officer
or the Vice President, Finance of the Company, substantially in the form of
Exhibit B to this Amendment.
---------
-3-
<PAGE>
(c) Opinion. An opinion of counsel to the Company in form and
-------
substance satisfactory to the Agent.
(d) Second Confirmation and Omnibus Amendment. The Second Confirmation
-----------------------------------------
and Omnibus Amendment, substantially in the form of Exhibit C to this
---------
Amendment.
(e) Other. Such other documents as the Agent or any Bank may
-----
reasonably request.
3.2 No Default. No Event of Default or Unmatured Event of Default shall
----------
have occurred and be continuing.
SECTION 4 Miscellaneous.
-------------
4.1 Warranties. In order to induce the Banks to enter into this
----------
Amendment, the Company hereby warrants to the Agent and each Bank that, as of
the date of the execution of this Amendment by the Company, the warranties of
the Company contained in the Existing Credit Agreement are true and correct as
if made on such date.
4.2 Expenses. The Company agrees to pay on demand all costs and expenses
--------
of the Agent (including fees, charges and expenses of counsel for the Agent) in
connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection herewith.
4.3 Captions. Section captions used in this Amendment are for convenience
--------
only and shall not affect the construction of this Amendment.
4.4 Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND
-------------
GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
4.5 Counterparts. This Amendment may be executed in any number of
------------
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
-4-
<PAGE>
4.6 Continuing Effectiveness. Except as herein amended, the Existing
------------------------
Credit Agreement shall remain in full force and effect and is hereby ratified in
all respects.
4.7 Successors and Assigns. This Amendment shall be binding upon the
----------------------
parties hereto and their respective successors and assigns, and shall inure to
the sole benefit of the parties hereto and the successors and assigns of the
Agent and the Banks.
-5-
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
UNITED ROAD SERVICES, INC.
By:__________________________________
Its:_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:__________________________________
Its:_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank,
Swing Line Bank and as a Bank
By:__________________________________
Its:_________________________________
BANKBOSTON, N.A.
By:__________________________________
Its:_________________________________
COMERICA BANK
By:__________________________________
Its:_________________________________
-6-
<PAGE>
FLEET NATIONAL BANK
By:__________________________________
Its:_________________________________
THE CHASE MANHATTAN BANK
By:__________________________________
Its:_________________________________
-7-
<PAGE>
EXHIBIT 10.27
EXECUTION COPY
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of November __,
1998 by and among UNITED ROAD SERVICES, INC., a Delaware corporation ("United");
URS TRANSPORT, INC., a Delaware corporation and wholly-owned subsidiary of
United (sometimes hereinafter referred to as the "United Merger Sub," and
together with United, the "United Companies"); MPG TRANSCO, LTD., an Illinois
corporation (the "Company"); and MICHAEL A. WYSOCKI, PATRICK M. RILEY and GARY
R. SIENKIEWICZ, each a resident of the State of Michigan, who together
constitute all of the shareholders of the Company (together, the
"Shareholders"). Certain other capitalized terms used herein are defined in
Article X and throughout this Agreement.
RECITALS
---------
The Boards of Directors of the United Companies and the Company have
determined that it is in the best interests of their respective shareholders for
United to acquire the Company upon the terms and subject to the conditions set
forth in this Agreement. In order to effectuate the transaction, United has
organized the United Merger Sub as a wholly-owned subsidiary, and the parties
have agreed, subject to the terms and conditions set forth in this Agreement, to
merge the Company with and into the United Merger Sub so that the United Merger
Sub continues as the surviving corporation. As a result, each of the
Shareholders will be issued certain shares of common stock of United and cash
consideration.
TERMS OF AGREEMENT
------------------
In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
----------
1.1 THE MERGER. Subject to the terms and conditions of this Agreement and
----------
in accordance with the Business Corporation Law of the State of Illinois and the
State of Delaware (the "Corporations Codes"), at the Effective Time (as defined
below) the Company shall be merged with and into the United Merger Sub (the
"Merger") pursuant to the terms and conditions set forth in the Plan of Merger
and Reorganization attached hereto as Exhibit "A" (the "Plan of Merger"). The
<PAGE>
terms and conditions of the Plan of Merger are incorporated herein by reference
as if fully set forth herein. As a result of the Merger, the separate corporate
existence of the Company shall cease and the United Merger Sub shall continue as
the surviving corporation (the "Surviving Corporation").
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
-----------
the consummation of the Merger (the "Closing") shall take place as promptly as
practicable (and in any event within five (5) business days) after satisfaction
or waiver of the conditions set forth in Articles VI and VII, at the offices of
Kerr, Russell and Weber, PLC, or such other time and place as the parties may
otherwise agree.
1.3 MERGER CONSIDERATION.
--------------------
(a) The Merger Consideration (the "Merger Consideration") that will be
paid in the Merger in exchange for all of the issued and outstanding shares of
capital stock of the Company shall be equal to $29,492,000.00 minus the amount
-----
of all Indebtedness of the Company at the Effective Time and minus the amount of
-----
all commitments for capital expenditures of the Company as of the Effective Time
as provided below.
(b) The Merger Consideration shall be payable to the Shareholders as
follows: (i) in an aggregate number of shares of common stock, par value $.001
per share, of United (the "United Common Stock") determined by dividing (x)
$14,746,000.00; by (y) the greater of (a) the average closing price of a share
of United Common Stock on The Nasdaq Stock Market ("Nasdaq") for the ten (10)
consecutive trading days which precede the third trading day which is
immediately prior to the date of this Agreement, as reported (absent manifest
error in the printing thereof) by the Wall Street Journal (Eastern Edition) or
(b) $13.00 per share of United Common Stock (the "Average Closing Price"); and
(ii) in cash in the amount of $14,746,000.00 minus the amount of all
-----
Indebtedness of the Company at the Effective Time and minus the amount of all
-----
commitments for capital expenditures of the Company as of the Effective Time.
1.4 FILING OF ARTICLES OF MERGER AND CERTIFICATE OF MERGER. At the time
------------------------------------------------------
of the Closing, the parties shall cause the Merger to be consummated by filing
(i) a duly executed Articles of Merger (with the completed Plan of Merger
attached thereto) with the Secretary of State of the State of Illinois and (ii)
a certificate of Merger with the Secretary of State of the State of Delaware,
each in such form as the parties determine is required by and is in accordance
with the relevant provisions of the Corporations Codes (the date and time of
such filing is referred to herein as the "Effective Date" or "Effective Time").
1.5 ISSUANCE OF UNITED SHARES; DELIVERY OF CERTIFICATES. At the Effective
---------------------------------------------------
Time, each of the Shareholders shall deliver the certificates representing all
issued and outstanding shares of Company Common Stock to United for
cancellation, and United shall issue to each of the Shareholders (a) the shares
of United Common Stock issuable pursuant to Section 1.3, and (b) the cash
consideration payable pursuant to Section 1.3, based on the number of shares of
Company Common Stock owned by such Shareholders on the Effective Date as set
forth on Schedule 3.5 and
------------
2
<PAGE>
shall deliver such shares and cash in the following manner: (i) United shall set
aside and hold in accordance with Article IX certificates for shares of United
Common Stock evidencing ten percent (10%) of the Merger Consideration (rounded
to the nearest whole share) (the "Held Back Shares"); (ii) United shall deliver
to each of such Shareholders one or more certificates evidencing the balance of
such shares of United Common Stock, and (iii) United shall deliver the remainder
of the Merger Consideration to the Shareholders by wire transfer of immediately
available funds . The shares of United Common Stock, including the Held Back
Shares, issuable by United in the Merger are sometimes referred to herein as the
"United Shares."
1.6 TAX TREATMENT. The parties hereto intend that the transactions
-------------
contemplated hereby are to be treated as a tax-free reorganization under Section
368 of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE UNITED COMPANIES
------------------------------------------------------
As a material inducement to each of the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, the United
Companies make the following representations and warranties to the Shareholders:
2.1 CORPORATE STATUS. Each of the United Companies is a corporation
----------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite power and authority to own or lease its
properties and to carry on its business as now being conducted. There is not a
pending or threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of either of the United Companies.
2.2 CORPORATE POWER AND AUTHORITY. Each of the United Companies has the
-----------------------------
corporate power and authority to execute and deliver this Agreement, to perform
its respective obligations hereunder and to consummate the transactions
contemplated hereby. Each of the United Companies has taken all action
necessary to authorize its execution and delivery of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
--------------
by each of the United Companies and constitutes a legal, valid and binding
obligation of each of the United Companies, enforceable against each of the
United Companies in accordance with its terms, except as the same may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 UNITED COMMON STOCK. Upon consummation of the Merger and the issuance
-------------------
and delivery of certificates representing the United Shares to the Shareholders,
the United Shares will be validly issued, fully paid and non-assessable shares
of United Common Stock.
3
<PAGE>
2.5 NO COMMISSIONS. Except with respect to any finder's or broker's or
--------------
agent's fees or commissions owed to any consultant or employee of the United
Companies, none of the United Companies has incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
2.6 NO VIOLATION. The execution and delivery of this Agreement by the
------------
United Companies, the performance by them of their respective obligations
hereunder and the consummation by them of the transactions contemplated by this
Agreement will not (i) contravene any provision of the articles of incorporation
or bylaws of the United Companies, (ii) violate or conflict with any law,
statute, ordinance, rule regulation, decree, writ, injunction, judgment or order
of any Governmental Authority or of any arbitration award which is either
applicable to, binding upon or enforceable against the United Companies, or
(iii) require the consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, any court or tribunal or any
other Person, except any SEC and other filings required to be made by the United
Companies and any filings pursuant to the HSR Act.
2.7 REGISTRATION STATEMENT. The United Shares will be issued pursuant to
----------------------
that certain prospectus dated November 3, 1998, which forms a part of post-
effective amendment No. 1 to Registration Statement on Form S-1 (No. 333-56603),
filed by United with the SEC.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS
----------------
As a material inducement to each of the United Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
and each of the Shareholders, jointly and severally, make the following
representations and warranties to United:
3.1 CORPORATE STATUS. Each of the Company and its subsidiary is a
----------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, and has the requisite power and authority to
own or lease its properties and to carry on its business as now being conducted.
Except as set forth on Schedule 3.1, each of the Company and its subsidiary is
------------
legally qualified to transact business as a foreign corporation in any
jurisdiction in which the nature of its properties and the conduct of its
business requires such qualification and such jurisdictions are set forth on
Schedule 3.1 attached hereto. Except as set forth on Schedule 3.24, each of the
- ------------ -------------
Company and its subsidiary has fully complied with all of the requirements of
any statute governing the use and registration of the names listed in Schedule
--------
3.1, and has the legal right to use the names under which it operates its
- ---
business. There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of the Company.
4
<PAGE>
3.2 POWER AND AUTHORITY. The Company has the corporate power and
-------------------
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Company
has taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. Each of the Shareholders is an individual
residing in the State of Michigan, and has the requisite competence and
authority to execute and deliver this Agreement, to perform his respective
obligations hereunder and to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
--------------
by the Company and the Shareholders, and constitutes the legal, valid and
binding obligation of each of them, enforceable against them in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
3.4 CAPITALIZATION. As of the date hereof, the Company has (a) 10,000
--------------
shares of Company Common Stock authorized and no other shares of any class of
capital stock, (b) 1,000 shares of Company Common Stock issued and outstanding,
and (c) no shares of Company Common Stock held in treasury. All of the issued
and outstanding shares of capital stock of the Company (i) have been duly
authorized and validly issued and are fully paid and non-assessable, (ii) were
issued in compliance with all applicable state and federal securities laws, and
(iii) were not issued in violation of any preemptive rights or rights of first
refusal. Except as described in Schedule 3.4, (i) no preemptive rights or
-------------
rights of first refusal exist with respect to the shares of capital stock of the
Company and no such rights arise by virtue of or in connection with the
transactions contemplated hereby; (ii) there are no outstanding or authorized
rights, options, warrants, convertible securities, subscription rights,
conversion rights, exchange rights or other agreements or commitments of any
kind that could require the Company to issue or sell any shares of its capital
stock (or securities convertible into or exchangeable for shares of its capital
stock); (iii) there are no outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company; (iv) there
are no proxies, voting rights or other agreements or understandings with respect
to the voting or transfer of the capital stock of the Company; and (v) the
Company is not obligated to redeem or otherwise acquire any of its outstanding
shares of capital stock.
3.5 SHAREHOLDERS OF THE COMPANY. Schedule 3.5 sets forth, with respect
--------------------------- ------------
to the Company, the name, address and federal taxpayer identification number of,
and the number of outstanding shares of each class of its capital stock owned of
record and/or beneficially by, each shareholder of the Company as of the close
of business on the date of this Agreement. As of the date hereof, the
Shareholders constitute all of the holders of all issued and outstanding shares
of capital stock of the Company, and, except as set forth on Schedule 3.5, each
------------
of the Shareholders owns such shares free and clear of all Liens, restrictions
and claims of any kind.
5
<PAGE>
3.6 NO VIOLATION. Except as set forth in Schedule 3.6, the execution and
------------ ------------
delivery of this Agreement by the Company and the Shareholders, the performance
by them of their respective obligations hereunder and the consummation by them
of the transactions contemplated by this Agreement will not (i) contravene any
provision of the articles of incorporation or bylaws of the Company or its
subsidiary, (ii) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any Governmental
Authority or of any arbitration award which is either applicable to, binding
upon or enforceable against the Company, its subsidiary or any of the
Shareholders, (iii) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any Material Contract which is
applicable to, binding upon or enforceable against the Company, its subsidiary
or any of the Shareholders, (iv) result in or require the creation or imposition
of any Lien upon or with respect to any of the property or assets of the
Company, or (v) require the consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person, except any SEC and other filings required to be
made by United and any HSR Act filings to be made by the Company or the
Shareholders.
3.7 RECORDS OF THE COMPANY. The copies of the articles of incorporation
----------------------
and bylaws of the Company and its subsidiary which were provided to United are
true, accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company and its subsidiary made
available to United for review were correct and complete in all material
respects as of the date of such review, except as described in Schedule 3.7,
------------
such minute books contain the true signatures of the persons purporting to have
signed them, and such minute books contain an accurate record of all material
corporate actions of the shareholders and directors (and any committees thereof)
of the Company and its subsidiary taken by written consent or at a meeting since
incorporation. All material corporate actions taken by the Company and its
subsidiary have been duly authorized or ratified. All accounts, books, ledgers
and official and other records of the Company and its subsidiary have been
fully, properly and accurately kept and completed in all material respects, and
there are no material inaccuracies or discrepancies of any kind contained
therein. Except as set forth on Schedule 3.7, the stock ledgers of the Company
------------
and its subsidiary, as previously made available to United, contain accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock of the Company and its subsidiary.
3.8 SUBSIDIARIES. Except as set forth in Schedule 3.8, the Company does
------------ ------------
not own, directly or indirectly, any outstanding voting securities of or other
interests in, or control, any other corporation, partnership, joint venture or
other business entity.
3.9 FINANCIAL STATEMENTS. The Shareholders have delivered to United
--------------------
true, correct and complete copies of the following financial statements of the
Company, copies of which are attached to Schedule 3.9 hereto (collectively, the
------------
"Financial Statements"): (i) the financial statements of the Company for the
twelve (12) month period ended July 31, 1997, audited by KPMG Peat Marwick
("KPMG"), and (ii) the financial statements of the Company for the eleven (11)
month period ended June 30, 1998, audited by KPMG. The balance sheet of the
Company, dated as of June 30, 1998,
6
<PAGE>
included in the Financial Statements is referred to herein as the "Current
Balance Sheet." The Financial Statements fairly present the financial position
of the Company at the balance sheet date and the results of operations for the
periods covered thereby, and have been prepared in accordance with GAAP
consistently applied throughout the periods indicated, except, in the case of
interim financial statements, for normal year-end audit adjustments and the
absence of footnotes. The books and records of the Company fully and fairly
reflect all of its transactions, properties, assets and liabilities. Except as
disclosed in the Financial Statements, there are no extraordinary or material
non-recurring items of income or expense during the periods covered by the
Financial Statements and the balance sheets included in the Financial Statements
do not reflect any writeup or revaluation increasing the book value of any
assets, except as specifically disclosed in the notes thereto. The Financial
Statements reflect all adjustments necessary for a fair presentation of the
financial information contained therein.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as disclosed
--------------------------------------------
in Schedule 3.10, since the date of the Current Balance Sheet, the Company has
-------------
not (i) issued any capital stock or other securities; (ii) made any distribution
of or with respect to its capital stock or other securities or purchased or
redeemed any of its securities; (iii) paid any bonus to or increased the rate of
compensation of any of its officers or salaried employees or amended any other
terms of employment of such persons, except for customary annual bonuses and
wage increases consistent with past practice; (iv) sold, leased or transferred
any of its properties or assets other than in the ordinary course of business
consistent with past practice; (v) made or obligated itself to make capital
expenditures out of the ordinary course of business consistent with past
practice; (vi) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (vii) incurred any
obligations or liabilities (including any indebtedness) or entered into any
transaction or series of transactions involving in excess of $20,000 in the
aggregate out of the ordinary course of business, except for this Agreement and
the transactions contemplated hereby; (viii) suffered any theft, damage,
destruction or casualty loss, not covered by insurance and for which a timely
claim was filed, in excess of $20,000 in the aggregate; (ix) suffered any
extraordinary losses (whether or not covered by insurance); (x) waived,
canceled, compromised or released any rights having a value in excess of $20,000
in the aggregate; (xi) made or adopted any change in its accounting practice or
policies; (xii) made any adjustment to its books and records other than in
respect of the conduct of its business activities in the ordinary course
consistent with past practice; (xiii) entered into any transaction with any
Affiliate other than intercompany transactions in the ordinary course of
business consistent with past practice; (xiv) entered into any employment
agreement outside of the ordinary course; (xv) terminated, amended or modified
any agreement involving an amount in excess of $20,000; (xvi) imposed any
security interest or other Lien on any of its assets other than in the ordinary
course of business consistent with past practice; (xvii) made or pledged any
charitable contribution in excess of $5,000; or (xviii) agreed to do or
authorized any of the foregoing.
3.11 LIABILITIES OF THE COMPANY. Each of the Company and its subsidiary
--------------------------
does not have any liabilities or obligations, whether accrued, absolute,
contingent or otherwise, except (a) to the extent reflected or taken into
account in the Current Balance Sheet and not heretofore paid or
7
<PAGE>
discharged, (b) liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Current Balance Sheet (none
of which relates to breach of contract, breach of warranty, tort, infringement
or violation of law, or which arose out of any action, suit, claim, governmental
investigation or arbitration proceeding), (c) normal accruals,
reclassifications, and audit adjustments which would be reflected on an audited
financial statement and which would not be material in the aggregate, and (d) as
disclosed in any Schedule to this Agreement (the liabilities and obligations
referenced in (a), (b), (c), and (d) above are hereinafter referred to as the
"Designated Liabilities").
3.12 LITIGATION. Except as described in Schedule 3.12, there is no
---------- -------------
action, suit, or other legal, arbitration or administrative proceeding or
governmental investigation pending, or, to the Knowledge of the Shareholders
and the Company, threatened, or anticipated against, by or affecting each of the
Company or its subsidiary, or any of its properties or assets, or which
questions the validity or enforceability of this Agreement or the transactions
contemplated hereby, and there is no basis for any of the foregoing. There are
no outstanding orders, decrees or stipulations issued by any court or
Governmental Authority in any proceeding to which either of the Company or its
subsidiary is or was a party which have not been complied with in full or which
continue to impose any material obligations on each of the Company or its
subsidiary.
3.13 ENVIRONMENTAL MATTERS. Except as disclosed in Schedule 3.13:
--------------------- -------------
(a) The Company (as defined in clause (g) below) is and has at all
times been in full compliance with all Environmental Laws (as defined in clause
(g) below) governing its business, operations, properties and assets, including,
without limitation: (i) all requirements relating to the Discharge (as defined
in clause (g) below) and Handling (as defined in clause (g) below) of Hazardous
Substances (as defined in clause (g) below); (ii) all requirements relating to
notice, record keeping and reporting; (iii) all requirements relating to
obtaining and maintaining Licenses (as defined in clause (g) below) for the
ownership of its properties and assets and the operation of its business as
presently conducted, including Licenses relating to the Handling and Discharge
of Hazardous Substances; and (iv) all applicable writs, orders, judgements,
injunctions, governmental communications, decrees, informational requests or
demands issued pursuant to, or arising under, any Environmental Laws.
(b) There are no (and, to the Knowledge of the Company and the
Shareholders, there is no basis for any) non-compliance orders, warning letters,
notices of violation (collectively "Notices"), claims, suits, actions,
judgments, penalties, fines, or administrative or judicial investigations or
proceedings (collectively "Proceedings") pending or, to the Knowledge of the
Company and the Shareholders, threatened against or involving the Company, or
its business, operations, properties, or assets, issued by any Governmental
Authority or third party with respect to any Environmental Laws or Licenses
issued to the Company thereunder in connection with, related to or arising out
of the ownership by the Company of its properties or assets or the operation of
its business, which have not been resolved or which would impose any obligation,
burden or
8
<PAGE>
continuing liability on United or the Surviving Corporation in the event that
the transactions contemplated by this Agreement are consummated.
(c) The Company has not Handled or Discharged in violation of any
Environmental Laws, nor has it authorized any third party to Handle or Discharge
in violation of any Environmental Laws, Hazardous Substances in violation of any
Environmental Laws to, at or upon: (i) any location other than a site lawfully
permitted to receive such Hazardous Substances; (ii) any real property currently
or previously owned or leased by the Company; or (iii) any site which, pursuant
to any Environmental Laws, (x) has been placed on the National Priorities List
or its state equivalent, or (y) the Environmental Protection Agency or the
relevant state agency or other Governmental Authority has notified the Company
that such Governmental Authority has proposed or is proposing to place on the
National Priorities List or its state equivalent.
(d) Schedule 3.13 identifies the operations and activities, and
-------------
locations thereof, which have been conducted or are being conducted by the
Company on any real property currently or previously owned or leased by the
Company where maintenance activities or operations have been conducted or are
being conducted which have involved the Handling or Discharge of Hazardous
Substances.
(e) Except as set forth on Schedule 3.13, the Company does not use,
-------------
nor has it used, any Aboveground Storage Tanks (as defined in clause (g) below)
or Underground Storage Tanks (as defined in clause (g) below), and there are not
now nor have there ever been any Underground Storage Tanks beneath any real
property currently or previously owned by the Company that are required to be
registered under applicable Environmental Laws.
(f) Schedule 3.13 identifies (i) all environmental audits, assessments
-------------
or occupational health studies undertaken by the Company or its agents or, to
the Knowledge of the Company and Shareholders, undertaken by any Governmental
Authority, or any third party, relating to or affecting the Company or any real
property currently or previously owned or leased by the Company; (ii) the
results of any ground, water, soil, air or asbestos monitoring undertaken by the
Company or its agents or, to the Knowledge of the Company and Shareholders,
undertaken by any Governmental Authority or any third party, relating to or
affecting the Company or any real property currently or previously owned or
leased by the Company which indicate the presence of Hazardous Substances at
levels requiring a notice or report to be made to a Governmental Authority or in
violation of any applicable Environmental Laws; (iii) all material written
communications between the Company and any Governmental Authority arising under
or related to Environmental Laws; and (iv) all outstanding citations issued
under OSHA, or similar state or local statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, relating to or affecting either the
Company or any real property currently or previously owned or leased by the
Company.
(g) For purposes of this Section 3.13, the following terms shall have
the meanings ascribed to them below:
9
<PAGE>
"Aboveground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
-- ---
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Aboveground Storage Tanks.
"Company" means the Company and any subsidiaries.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further be
defined in any Environmental Law, into any medium including, without
limitation, ground water, surface water, soil or air.
"Environmental Laws" means all federal, state, regional or local
statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings, and changes or ordinances or judicial or administrative
interpretations thereof, or similar laws of foreign jurisdictions where the
Company conducts business, currently in existence, any of which govern (or
purport to govern) or relate to pollution, protection of the environment,
public health and safety, air emissions, water discharges, hazardous or
toxic substances, solid or hazardous waste or occupational health and
safety, as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. (S)9601, et
--
seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended by
---
the Resource Conservation and Recovery Act of 1976 and subsequent Hazardous
and Solid Waste Amendments of 1984, 42 U.S.C. (S)6901 et seq. (collectively
-- ---
"RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
(S)1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. (S)1311, et
-- ----- --
seq.; the Clean Air Act, as amended (42 U.S.C. (S)7401-7642); the Toxic
-----
Substances Control Act, as amended, 15 U.S.C. (S)2601 et seq.; the Federal
-- ---
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. (S)136-
136y ("FIFRA"); the Emergency Planning and Community Right-to-Know Act of
1986 as amended, 42 U.S.C. (S)11001, et seq. (Title III of SARA) ("EPCRA");
-- ---
and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
(S)651, et seq. ("OSHA").
-- ---
"Handle" means any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing or using, as any of such terms may further be defined in any
Environmental Law, of any Hazardous Substances or Waste.
"Hazardous Substances" shall be construed broadly to include any toxic
or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, by-
products, pesticides, asbestos containing materials, petroleum or
10
<PAGE>
petroleum products, and polychlorinated biphenyls, the presence of which
requires investigation or remediation under any Environmental Laws or which
are or become regulated, listed or controlled by, under or pursuant to any
Environmental Laws, including, without limitation, RCRA, CERCLA, the
Hazardous Materials Transportation Act, the Toxic Substances Control Act,
the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any
similar state statute, or any future amendments to, or regulations
implementing such statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, or which has been or shall be determined or
interpreted at any time by any Governmental Authority to be a hazardous or
toxic substance regulated under any other statute, law, regulation, order,
code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits, approvals and
registrations.
"Underground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
-- ---
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Underground Storage Tanks.
3.14 REAL ESTATE. Neither the Company nor its subsidiary own any parcels
-----------
of real property. Schedule 3.14 sets forth (a) a list of all leases, licenses
-------------
or similar agreements currently in effect ("Real Property Leases" ) copies of
which have previously been furnished to United, (b) the lessor and lessee
thereof and the date and term of each of such leases, (c) the legal description,
if known, including street address, of each property covered thereby (the
"Leased Premises"), and (d) a brief description (including size and function) of
the principal improvements and buildings thereon. The Real Property Leases are
in full force and effect and have not been amended, and neither the Company nor
its subsidiary, nor to the Knowledge of the Company and the Shareholders, is any
other party thereto in default or breach under any such lease. No event has
occurred which, with the passage of time or the giving of notice or both, would
cause a breach of or default by the Company or its subsidiary under any of such
leases and, to the Knowledge of the Company and the Shareholders, there is no
breach or anticipated breach by any other party to such leases. With respect to
each of the Leased Premises: each of the Company and its subsidiary has valid
leasehold interests or other rights of use and occupancy in the Leased Premises,
free and clear of any Liens on such leasehold interests created by the Company
or its subsidiary or other rights of use and occupancy, or any covenants,
easements or title defects known to or created by the Company or its subsidiary,
except as do not adversely affect the occupancy or uses of such properties; the
portions of the buildings located on the Leased Premises that are used in the
business of the Company or its subsidiary are within the property setback and
building lines of the respective property, and are in the aggregate sufficient
to satisfy the current normal business activities of the Company or its
subsidiary as conducted thereat; each of the Leased Premises (a) has access to
public roads, such access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the business of the Company or
its subsidiary as presently conducted at such parcel; and (b) is served by all
utilities in such quantity and quality as are sufficient to satisfy the current
normal business activities as currently conducted at such parcel; and neither
the Company nor its
11
<PAGE>
subsidiary has received notice of (a) any condemnation proceeding with respect
to any portion of the Leased Premises or any access thereto and, to the
Knowledge of the Company and the Shareholders, no such proceeding is
contemplated by any Governmental Authority; or (b) any special assessment which
may affect any of the Leased Premises and, to the Knowledge of the Company and
the Shareholders, no such special assessment is contemplated by any Governmental
Authority.
3.15 GOOD TITLE TO AND CONDITION OF ASSETS.
-------------------------------------
(a) Except as set forth on Schedule 3.15, each of the Company and its
-------------
subsidiary has good and marketable title to all of its Assets (as hereinafter
defined), free and clear of any Liens or restrictions on use. For purposes of
this Agreement, the term "Assets" means all of the properties and assets owned
or leased by the Company and its subsidiary, other than the Leased Premises,
whether personal or mixed, tangible or intangible, wherever located. Schedule
--------
3.15 contains a true and complete list of all Assets of the Company and its
- ----
subsidiary, setting forth a description of each such Asset, whether it is owned
or leased, and if owned, the name of the lienholder and the amount of the Lien,
and if leased, the name of the lessor and the general terms of the lease.
(b) Each of the Fixed Assets (as hereinafter defined) currently in use
or necessary for the business and operations of the Company and its subsidiary
is in operating condition, normal wear and tear and routine maintenance
excepted. For purposes of this Agreement, the term "Fixed Assets" means all
vehicles, machinery, equipment, tools, supplies, leasehold improvements,
furniture and fixtures presently owned or leased by the Company and its
subsidiary or set forth on the Current Balance Sheet (except for dispositions
following the date of the Current Balance Sheet) or acquired by the Company
since the date of the Current Balance Sheet.
3.16 COMPLIANCE WITH LAWS. Each of the Company and its subsidiary is and
--------------------
has been in compliance with all laws, regulations and orders applicable to it,
its business and operations (as conducted by it now and in the past), the Assets
and the Leased Premises and any other properties and assets (in each case owned
or used by it now or in the past). Each of the Company and its subsidiary has
not been cited, fined or otherwise notified of any asserted past or present
failure to comply with any laws, regulations or orders and no proceeding with
respect to any such violation is pending or, to the Knowledge of the Company and
the Shareholders, threatened. Each of the Company and its subsidiary is not
subject to any Contract, decree or injunction in which the Company or its
subsidiary is a party which restricts the continued operation of any business of
the Company or its subsidiary or the expansion thereof to other geographical
areas, customers and suppliers or lines of business.
3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17 sets forth the name and
---------------------------- -------------
current rate of compensation of the employees of the Company and its subsidiary.
Except as set forth on Schedule 3.17, (i) the Company is not a party to or bound
-------------
by any collective bargaining agreement or any other agreement with a labor
union; (ii) there has been no effort by any labor union during the twenty-four
(24) months prior to the date hereof to organize any employees of the Company or
its subsidiary into one or more collective bargaining units; and (iii) there is
no pending or, to the
12
<PAGE>
Knowledge of the Company and the Shareholders, threatened labor dispute, strike
or work stoppage which affects or which may affect the business of the Company
or its subsidiary or which may interfere with its continued operations. None of
the Shareholders is aware that any executive or key employee or group of key
employees has any plans to terminate his, her or their employment with the
Company or its subsidiary as a result of the Merger or otherwise.
3.18 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 3.18 sets forth each Employee Benefit Plan (as defined in
-------------
clause (d) below) of the Company. Except as set forth on Schedule 3.18, with
-------------
respect to each Employee Benefit Plan of the Company and its subsidiary, (i)
each has been administered in compliance with its terms and with all applicable
laws including, without limitation, ERISA and the Code; (ii) no actions, suits,
claims or disputes are pending or, to the Knowledge of the Company and the
Shareholders, threatened; (iii) no audits, proceedings, claims or demands are
pending with any Governmental Authority; (iv) all reports, returns and similar
documents required to be filed with any Governmental Authority or distributed to
any plan participant have been duly or timely filed or distributed; (v) no
"prohibited transaction" has occurred within the meaning of ERISA or the Code;
(vi) no such plan provides medical or dental benefits for any current or former
employees of the Company, its subsidiary or their predecessors after
termination of employment other than rights that may be provided by law; (vii)
no such plan obligates the Company or its subsidiary to pay separation,
severance, termination or similar benefits as a result of any transaction
contemplated by this Agreement or solely as a result of a "change of control"
(as defined in Section 280G of the Code); (viii) all required or discretionary
(in accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the Closing
shall have been made or properly accrued on the Current Balance Sheet or will be
properly accrued on the books and records of the Company as of the Closing; (ix)
no such plan has any unfunded liabilities which are not reflected on the Current
Balance Sheet or the books and records of the Company or its subsidiary; (x)
each of the Company and its subsidiary has complied with the notice and
continuation of coverage requirements of Section 4980B of the Code and the
regulations thereunder with respect to any group health plan within the meaning
of Code Section 5000(b)(1); and (xi) each of the Company and its subsidiary does
not participate in, or have ever participated in, or have any withdrawal
liability under ERISA with respect to, a "multiemployer plan" (as defined in
Section 3(37) of ERISA). True and accurate copies of each Employee Benefit Plan
of each of the Company and its subsidiary, together with the most recent annual
reports on Form 5500, all IRS favorable determination letters and summary plan
descriptions for such plans have been furnished to United.
(b) With respect to each Employee Benefit Plan of the Company or its
subsidiary intended to qualify under Code Section 401(a) or 403(a), (i) the
Internal Revenue Service has issued a favorable determination letter, which has
not been revoked, that any such plan is tax-qualified and exempt from federal
income tax; (ii) no reportable event (within the meaning of Section 4043 of
ERISA) has occurred; and (iii) the present value of all liabilities under any
such plan will not exceed
13
<PAGE>
the current fair market value of the assets of such plan (determined using the
actuarial assumption used for the most recent actuarial valuation for such
plan).
(c) Except as set forth in Schedule 3.18, United will not suffer any
-------------
loss, cost or liability as a result of any claim that the Company or its
subsidiary, or any entity that would be aggregated with the Company under Code
Section 414(b), (c), (m) or (0), has not complied with the provisions of
paragraphs (a) and (b) above with respect to each Employee Benefit Plan
maintained by any such entity.
(d) For purposes hereof, "Employee Benefit Plan" means any: (i)
employee pension benefit plan as defined in Section 3(2) of ERISA; (ii)
multiemployer plan as defined in Section 3(37) of ERISA; (iii) employee welfare
benefit plan as defined in Section 3(1) of ERISA; and (iv) any stock option,
bonus, stock purchase, or insurance plan and any severance or termination pay
plan or policy in which employees, spouses or dependents participate.
3.19 TAX MATTERS. Except as set forth in Schedule 3.19, all Tax Returns
----------- -------------
required to be filed prior to the date hereof with respect to each of the
Company and its subsidiary or each of their income, properties, franchises or
operations have been timely filed, each such Tax Return has been prepared in
compliance with all applicable laws and regulations, and all such Tax Returns
are true and accurate in all respects. All Taxes due and payable by or with
respect to the Company and its subsidiary have been paid or are accrued on the
Current Balance Sheet. Each of the Company and its subsidiary has withheld and
paid all Taxes to the appropriate Governmental Authority required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party. With
respect to each taxable period of the Company and its subsidiary: (i) no
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Taxes has been asserted or assessed by any taxing
authority against the Company or its subsidiary; (ii) neither the Company nor
its subsidiary has consented to extend the time in which any Taxes may be
assessed or collected by any taxing authority; (iii) neither the Company nor its
subsidiary has requested or been granted an extension of the time for filing any
Tax Return to a date later than the Closing; (iv) there is no action, suit,
taxing authority proceeding, or audit or claim for refund now in progress, or
pending or, to the Knowledge of the Company and the Shareholders, threatened
against or with respect to the Company or its subsidiary regarding Taxes; and
(v) there are no Liens for Taxes (other than for current Taxes not yet due and
payable) upon the assets of the Company or its subsidiary.
3.20 INSURANCE. Each of the Company and its subsidiary is and has been
---------
covered by valid, outstanding and enforceable policies of insurance covering its
respective properties, assets and businesses against risks of the nature
normally insured against by corporations in the same or similar lines of
business (the "Insurance Policies"). Such Insurance Policies are in full force
and effect, and all premiums due thereon have been paid. As of the Effective
Time, each of the Insurance Policies will be in full force and effect. None of
the Insurance Policies will lapse or terminate as a result of the transactions
contemplated by this Agreement. Each of the Company and its subsidiaries has
complied with the provisions of such Insurance Policies. Schedule 3.20 contains
-------------
(i) a complete and
14
<PAGE>
correct list of all Insurance Policies and all amendments and riders thereto
(copies of which have been provided to United) and (ii) a detailed description
of each pending claim under any of the Insurance Policies for an amount in
excess of $10,000 that relates to loss or damage to the properties, assets or
businesses of the Company or its subsidiary. Neither the Company nor its
subsidiary has failed to give, in a timely manner, any notice required under any
of the Insurance Policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables (as hereinafter defined) are
-----------
valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of the Company. All of the Receivables are good and
collectible receivables, and will be collected in full in accordance with the
terms of such receivables (and in any event within six (6) months following the
Closing), without setoff or counterclaims, subject to the allowance for doubtful
accounts, if any, set forth on the Current Balance Sheet as reasonably adjusted
since the date of the Current Balance Sheet in the ordinary course of business
consistent with past practice. For purposes of this Agreement, the term
"Receivables" means all receivables of the Company, including all trade account
receivables arising from the provision of services, sale of inventory, notes
receivable, and insurance proceeds receivable.
3.22 LICENSES AND PERMITS. Each of the Company and its subsidiary
--------------------
possesses all licenses and required governmental or official approvals, permits
or authorizations (collectively, the "Permits") for each of their businesses and
operations, including with respect to the operation of each of the Leased
Premises, and Schedule 3.22 contains a true and complete list of all such
-------------
Permits. All such Permits are valid and in full force and effect, each of the
Company and its subsidiary is in full compliance with the respective
requirements thereof, and no proceeding is pending or threatened to revoke or
amend any of them. None of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS;
-------------------------------------------------------------------
AFFILIATED TRANSACTIONS. The Assets and Leased Premises constitute, in the
- -----------------------
aggregate, all of the assets and properties necessary for the conduct of the
business of each of the Company and its subsidiary in the manner in which and to
the extent to which such business is currently being conducted. Except as set
forth in Schedule 3.23, (i) no current customer of the Company or its subsidiary
-------------
has threatened to terminate its business relationship with the Company or its
subsidiary for any reason; (ii) neither the Company nor its subsidiary has any
direct or indirect interest in any customer, supplier or competitor of the
Company or its subsidiary, or in any person from whom or to whom the Company or
its subsidiary leases real or personal property; and (iii) no officer, director
or shareholder of the Company or its subsidiary, nor any person related by blood
or marriage to any such person, nor any entity in which any such person owns any
beneficial interest, is a party to any Contract or transaction with the Company
or its subsidiary or has any interest in any property used by the Company or its
subsidiary.
15
<PAGE>
3.24 INTELLECTUAL PROPERTY. Except as set forth in Schedule 3.24, each of
--------------------- -------------
the Company and its subsidiary has full legal right, title and interest in and
to all trademarks, service marks, trade names, copyrights, know-how, patents,
trade secrets, proprietary computer software, data bases and compilations,
licenses (including licenses for the use of computer software programs), and
other intellectual property used in the conduct of its business (the
"Intellectual Property") and Schedule 3.24 attached hereto contains a true and
-------------
complete list of all such Intellectual Property. The business of each of the
Company and its subsidiary as presently conducted does not infringe or
misappropriate any rights held or asserted by any Person, and, to the Knowledge
of the Company and the Shareholders, no Person is infringing on the Intellectual
Property. Except as set forth in Schedule 3.24, no payments are required for
-------------
the continued use of the Intellectual Property. None of the Intellectual
Property has ever been declared invalid or unenforceable, or is the subject of
any pending or, to the Knowledge of the Company and the Shareholders, threatened
action for opposition, cancellation, declaration, infringement, or invalidity,
unenforceability or misappropriation or like claim, action or proceeding.
3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to which
--------- -------------
each of the Company or its subsidiary is a party or by which it or its
properties and assets are bound and which is material to its business, assets,
properties or prospects and (i) requires annual payments equal to or in excess
of $20,000.00 or (ii) provides annual revenues equal to or in excess of
$100,000.00 (the "Material Contracts"), true, correct and complete copies of
which have been provided to United, excluding standard customer contracts
entered into in the ordinary course of its business without material
modification from the preprinted forms used by the Company or its subsidiary in
the ordinary course of business, copies of which have been supplied to United.
Except as set forth in Schedule 3.25, neither the Company nor its subsidiary has
-------------
violated any of the terms or conditions of any Material Contract or any term or
condition which would permit termination or modification of any Material
Contract, and, to the Knowledge of the Company and the Shareholders, all of the
covenants to be performed by any other party thereto have been performed, and
there are no claims for breach or indemnification or notice of default or
termination under any Material Contract. No event has occurred which
constitutes, or after notice or the passage of time, or both, would constitute,
a default by either the Company or its subsidiary under any Material Contract,
and, to the Knowledge of the Company and the Shareholders, no such event has
occurred which constitutes or would constitute a default by any other party.
Neither the Company nor its subsidiary is subject to any liability or payment
resulting from renegotiation of amounts paid it under any Material Contract.
3.26 CUSTOMER LISTS. Schedule 3.26 is a true, correct and complete list of
-------------- -------------
all existing customers of the Company which each individually represent more
than 2% of the Company's annual revenue for the twelve month period ended June
30,1998, who have entered into valid and enforceable agreements with the Company
(collectively, the "Material Customers"). True, correct and complete copies of
such agreements have been furnished by the Company and Shareholders to United.
Other than the Material Customers listed on Schedule 3.26, no customer of the
-------------
Company as of the date of this Agreement accounts for more than two percent (2%)
of its annual revenue.
16
<PAGE>
3.27 ACCURACY OF INFORMATION FURNISHED BY THE COMPANY AND THE SHAREHOLDERS.
---------------------------------------------------------------------
No representation or warranty by the Company or the Shareholders contained in
this Agreement and the various Schedules attached hereto, and in any document or
certificate delivered by the Company or the Shareholders in connection with
Articles V and VI hereof, contains or shall contain any material untrue
- -----------------
statement of a fact or omits or shall omit any material fact necessary to make
the information contained therein not misleading. The Shareholders have
provided United with true, accurate and complete copies of all documents listed
or described in the various Schedules attached hereto.
3.28 DISCLAIMER OF OTHER REPRESENTATION AND WARRANTIES. Except as
-------------------------------------------------
expressly set forth in this Agreement and the Schedules hereto, and any document
or certificate delivered in connection herewith, the Company and the
Shareholders make no representation or warranty, express or implied, at law or
in equity, in respect to the Company or any of its respective assets, customers,
prospects, liabilities or operations, and any such other representation or
warranty is hereby expressly disclaimed.
3.29 SECURITIES DOCUMENTS. Each of the Shareholders has received a copy of
--------------------
United's prospectus dated November 3, 1998, prior to executing this Agreement.
3.30 BANK ACCOUNTS; BUSINESS LOCATIONS. Schedule 3.30 sets forth all
--------------------------------- -------------
accounts of each of the Company and its subsidiary with any bank, broker or
other depository institution, and the names of all persons authorized to
withdraw funds from each such account. As of the date hereof, each of the
Company and its subsidiary has no office or place of business other than as
identified on Schedule 3.14 and the Company's principal places of business and
-------------
chief executive offices are indicated on Schedule 3.14, and, except for
-------------
equipment leased to customers in the ordinary course of business, all locations
where the equipment, inventory, chattel paper and books and records of each of
the Company and its subsidiaries are located as of the date hereof are fully
identified on Schedules 3.14.
--------------
3.31 NAMES; PRIOR ACQUISITIONS. All names under which each of the Company
-------------------------
and its subsidiary does business as of the date hereof are specified on Schedule
--------
3.31. Except as set forth on Schedule 3.31, neither the Company nor its
- ---- -------------
subsidiary has changed its name or used any assumed or fictitious name, or been
the surviving entity in a merger, acquired any business or changed its principal
place of business or chief executive office, within the past three (3) years.
3.32 NO COMMISSIONS. Neither the Company nor the Shareholders has incurred
--------------
any obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
17
<PAGE>
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
--------------------------------------
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The Company
-----------------------------------------------------
covenants and agrees that, between the date of this Agreement and the Effective
Time, the business of each of the Company and its subsidiary shall be conducted
only in, and each of the Company and its subsidiary shall not take any action
except in, the ordinary course of business consistent with past practice. Each
of the Company and its subsidiary shall use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
current officers, employees and consultants, and to preserve its present
relationships with customers, suppliers and other persons with which it has
significant business relations. By way of amplification and not limitation,
except as described in Schedule 4.1 or except as contemplated by this Agreement,
------------
each of the Company and its subsidiary shall not, between the date of this
Agreement and the Effective Time, directly or indirectly, do or propose or agree
to do any of the following without the prior written consent of United: (a)
amend or otherwise change its articles of incorporation or bylaws or equivalent
organizational documents; (b) issue or authorize the issuance of, any shares of
its capital stock of any class, or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock or other
ownership interest; (c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock; (d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e) acquire (including, without limitation, for cash, or shares of stock,
property or services, by merger, consolidation or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof; (f) incur any additional Indebtedness other
than in the ordinary course of business consistent with past practices; (g) make
any loans or advances to any person or entity or guarantee the Indebtedness of
any person or entity, except in the ordinary course of business consistent with
past practice; (h) sell, dispose of or encumber any of its assets; (i) enter
into, modify or terminate, any Material Contract, other than in the ordinary
course of business consistent with past practice; (j) pay any bonus to or
increase the compensation or benefits payable or to become payable to its
employees, independent contractors or consultants; (k) pay, discharge or satisfy
any existing claims, liabilities or obligations other than in the ordinary
course of business consistent with past practice; (l) increase or decrease
prices charged to its customers, except for previously announced price changes
and other price changes made in the ordinary course of business consistent with
past practice, or (m) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any other action which would make any representation
or warranty in Article III untrue or incorrect.
-----------
18
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS. Each party shall
---------------------------------------------
execute and deliver such additional instruments and other documents and shall
take such further actions as may be necessary or appropriate to effectuate,
carry out and comply with all of the terms of this Agreement and the
transactions contemplated hereby. The Shareholders shall cause the Company to
comply with all of the respective covenants of the Company under this Agreement.
At the Closing, the Company and the Shareholders covenant and agree to deliver
to United the certificates, opinions and other documents required to be
delivered to United pursuant to Article VI; provided, that the Company and the
--------
Shareholders shall use their best efforts to deliver all third party consents
required pursuant to the terms of this Agreement, and United covenants and
agrees to deliver to the Company and the Shareholders the certificates and other
documents required to be delivered to the Company and the Shareholders pursuant
to Article VII.
5.2 COOPERATION. Each of the parties agrees to cooperate with the other
-----------
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of Nasdaq (or any exchange on which the
United Common Stock may be listed) in connection with the transactions
contemplated by this Agreement and to use their respective best efforts to agree
jointly on a reasonable and lawful method to overcome any objections by any
Governmental Authority to any such transactions.
5.3 HSR ACT AND OTHER ACTIONS. Each of the parties hereto shall (i) make
-------------------------
promptly, and in no event later than five (5) business days following the date
hereof, its respective filings, if any, and thereafter make any other required
submissions, under the HSR Act, with respect to the transactions contemplated
hereby, and (ii) use its reasonable best efforts to take all appropriate
actions, and do, or cause to be done, all things necessary, proper or advisable
under any applicable laws, regulations and Contracts to consummate and make
effective the transactions contemplated herein, including, without limitation,
obtaining all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to Contracts
with the Company as are necessary for the consummation of the transactions
contemplated hereby. Each of parties shall make on a prompt and timely basis all
governmental or regulatory notifications and filings required to be made by it
for the consummation of the transactions contemplated hereby. The parties also
agree to use reasonable best efforts to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby and to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby.
5.4 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
---------------------
the Company shall (and shall cause its directors, officers, employees, auditors,
counsel and agents to) afford
19
<PAGE>
United and United's officers, employees, auditors, counsel and agents reasonable
access at all reasonable times to its properties, offices, and other facilities
and to its officers and to all books and records, and shall furnish such persons
with all financial, operating and other data and information as may be
requested. No information provided to or obtained by United shall affect any
representation or warranty in this Agreement.
5.5 NOTIFICATION OF CERTAIN MATTERS. The Shareholders shall give prompt
-------------------------------
notice to United of the occurrence or non-occurrence of any event which would
likely cause any representation or warranty contained herein to be untrue or
inaccurate, or any covenant, condition, or agreement contained herein not to be
complied with or satisfied.
5.6 TAX TREATMENT. United, the Company and the Shareholders will use
-------------
their respective reasonable best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code and do not
presently intend to take any action after the Merger is effected in order to
cause the Merger to lose its tax-free status. Notwithstanding the foregoing, in
no event shall any party have any liability to any other party hereunder if the
Merger fails for any reason to qualify as a tax free reorganization under
Section 368(a) of the Code. All parties hereto agree to file the Plan of Merger
with its respective federal income tax returns for the year in which the Merger
is effective to the extent required by law, and to comply with the reporting
requirements of Treasury Regulation 1.368-3.
5.7 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
--------------------------
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the other
parties, except that United may make such public disclosure which it believes in
good faith to be required by law or by the terms of any listing agreement with
or requirements of a securities exchange.
5.8 NO OTHER DISCUSSIONS. The Company, the Shareholders, and their
--------------------
respective Affiliates, employees, agents and representatives will not (i)
initiate, encourage the initiation by others of discussions or negotiations with
third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale of
stock or otherwise) or (ii) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions. The
Shareholders will immediately notify United if any third party attempts to
initiate any solicitation, discussion or negotiation with respect to any of the
foregoing transactions.
5.9 RESTRICTIVE COVENANTS. In order to assure that United will realize
---------------------
the benefits of the Merger, each of the Shareholders agrees with United that he
will not:
20
<PAGE>
(a) for a period of five (5) years following the Effective Time,
directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor, lender or
security holder of any company or business, engage in any business activity in
the business of automobile transport (the "Business") in any State in the United
States (the "Restricted Territory"); provided, however, that, the beneficial
ownership of less than five percent (5%) of the shares of stock of any
corporation having a class of equity securities actively traded on a national
securities exchange or over-the-counter market shall not be deemed, in and of
itself, to violate the prohibitions of this Section;
(b) for a period of five (5) years following the Effective Time,
directly or indirectly (i) induce any Person which is a customer of United, its
subsidiaries, successors or assigns (the "United Companies") to patronize any
business directly or indirectly in competition with the Business in the
Restricted Territory; (ii) canvass, solicit or accept from any Person which is a
customer of the United Companies, any such competitive business in the
Restricted Territory; or (iii) request or advise any Person which has a business
relationship with the United Companies in the Restricted Territory to withdraw,
curtail or cancel any such Person's business with such entity;
(c) for a period of five (5) years following the Effective Time,
directly or indirectly employ, or knowingly permit any company or business
directly or indirectly controlled by him, to employ, any person who was employed
by the United Companies at or within the prior six (6) months, or in any manner
seek to induce any such person to leave his or her employment;
(d) at any time following the Effective Time, directly or indirectly,
in any way utilize, disclose, copy, reproduce or retain in his possession the
Company's proprietary rights or records, including, but not limited to, any of
its customer lists; and
(e) except as otherwise required by law, and then only upon 10 days
prior written notice to United, from and after the date of this Agreement in any
way or to any Person, denigrate or derogate any of the United Affiliates, or any
person who was at any time an officer or director of any of the United
Affiliates, or services or procedures of or rendered by any of the United
Affiliates, regardless of whether such denigrating or derogatory statements are
true and regardless of whether the acts or omissions or purported acts or
omissions on which such statements are based occurred before or after the date
hereof.
The Shareholders agree and acknowledge that the restrictions contained in this
Section are reasonable in scope and duration and are necessary to protect the
United Companies after the Effective Time. The parties agree and acknowledge
that the breach of this Section will cause irreparable damage to the United
Companies and upon breach of any provision of this Section, the United Companies
shall be entitled to injunctive relief, specific performance or other equitable
relief; provided, however, that, this shall in no way limit any other remedies
which the United Companies may have (including, without limitation, the right to
seek monetary damages). United and the Shareholders hereby agree that United
may assign, without limitation, the foregoing restrictive covenants to any
successor to United's auto transport business.
21
<PAGE>
5.10 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. United shall be
-------------------------------------------------
entitled to have conducted prior to the Closing a due diligence review of the
assets, properties, books and records of the Company and an environmental
assessment of the Leased Premises (hereinafter referred to as "Environmental
Assessment"). The Environmental Assessment may include, but not be limited to,
a physical examination of the Leased Premises, and any structures, facilities,
or equipment located thereon, soil samples, ground and surface water samples,
storage tank testing, review of pertinent records, documents, and Licenses of
the Company. The Shareholders shall provide United or its designated agents or
consultants with reasonable access to such property which United, its agents or
consultants require to conduct the Environmental Assessment.
5.11 TRADING IN UNITED COMMON STOCK. From the date of this Agreement until
------------------------------
the Effective Date, the Company and Shareholders (and any Affiliates thereof)
shall not directly or indirectly purchase or sell (including short sales) any
shares of United Common Stock in any transactions affected on the Nasdaq, or
otherwise.
5.12 CERTAIN TAX MATTERS. The parties agree that after the Effective Time,
-------------------
United shall prepare, or cause to be prepared, and file, or cause to be filed,
all Tax Returns (including any amendments to previously filed Tax Returns) for
the Company for any period ending on or before the Effective Time. After the
Effective Time, the Shareholders shall provide United with such information and
records as may be reasonably requested by United in connection with the
preparation of any Tax Return or any audit or other proceeding relating to the
Company.
5.13 SHAREHOLDER VOTE. Each of the Shareholders, in executing this
----------------
Agreement, consents as a shareholder of the Company to the Merger and the
transactions contemplated hereby, and waives notice of any meeting in connection
therewith and hereby releases and waives all rights with respect to the
transactions contemplated hereby under any agreements relating to the sale,
purchase or voting of any capital stock of the Company.
5.14 RESIGNATION. The Shareholders shall resign from their respective
-----------
positions as directors, officers and/or employees of the Company at the
Effective Time.
5.15 PAYOFF AND ESTOPPEL LETTERS. Prior to the Closing, the Company shall
---------------------------
request and deliver to United payoff and estoppel letters from such holders of
any Indebtedness of the Company, which letters shall contain payoff amounts, per
diem interest, wire transfer instructions and an agreement to deliver to United,
upon full payment of any such Indebtedness, UCC-3 termination statements,
satisfactions of mortgage or other appropriate releases and any original
promissory notes or other evidences of indebtedness marked canceled.
5.16 COMPANY COMMON STOCK; STOCK POWERS; RELEASES. At the Closing, each of
--------------------------------------------
the Shareholders covenants and agrees to deliver to United: (i) all certificates
evidencing shares of capital stock of the Company held by them; (ii) ten stock
powers executed in blank, with medallion signature guarantees, for use in
connection with the Held Back Shares, and (iii) a release in such form as is
reasonably satisfactory to United releasing all claims of any nature against the
Company,
22
<PAGE>
if any, and any claims arising out of the Merger and the transactions
contemplated by this Agreement, provided that such releases shall not cover any
rights of the Shareholders against United under this Agreement.
5.17 WORKING CAPITAL. The Company and the Shareholders covenant and agree
---------------
that the Working Capital (as hereinafter defined) of the Company as of the
Effective Date shall be no less than $1,000,000.00 (the "Minimum Working
Capital"). The Company and the Shareholders hereby acknowledge and agree that
if the actual Working Capital of the Company as of the Effective Date is less
than the Minimum Working Capital, then United shall be given and allowed an
offset to the Purchase Price ("Working Capital Purchase Price Offset") equal to
the difference between the Minimum Working Capital and the actual Working
Capital of the Company as of the Effective Date. The Working Capital Purchase
Price Offset, if any, shall be determined in accordance with Section 5.19 hereof
------------
and shall be deemed to be Indemnifiable Damages (as defined in Section 9.1
-----------
hereof), and United may set off against the Held Back Shares in the manner
described in Article IX or take any other action or exercise any other remedy
----------
available to it by appropriate legal proceedings to recover such amount. For
purposes of this Section, "Working Capital" shall mean the amount, if any, by
which the aggregate of the Current Assets of the Company exceeds the aggregate
of the Current Liabilities of the Company; "Current Assets" shall mean the
current assets of the Company determined in accordance with GAAP, including the
---------
cash surrender value of any life insurance policy on the life of any officer of
the Company owned by the Company as of the Effective Date; and "Current
Liabilities" shall mean the current liabilities of the Company determined in
accordance with GAAP, excluding (i) any and all amounts outstanding under any
---------
line of credit of the Company; and (ii) the current portion of long term
Indebtedness.
5.18 INDEBTEDNESS. Schedule 5.18 is a true, correct and complete list of
------------ -------------
all Indebtedness of the Company, including payoff amounts, per diem interest and
any prepayment penalties or premiums. The Company and the Shareholders covenant
and agree that the Indebtedness of the Company as of the Effective Date shall
not be greater than $6,000,000.00 (the "Maximum Indebtedness"). The Company and
Shareholders hereby acknowledge and agree that if the Indebtedness of the
Company as of the Effective Date is greater than the Maximum Indebtedness, then
United shall be given and allowed an offset to the Purchase Price (the
"Indebtedness Purchase Price Offset") equal to the difference between the actual
Indebtedness of the Company as of the Effective Date and the Maximum
Indebtedness. The Indebtedness Purchase Price Offset shall be deemed to be
Indemnifiable Damages (as defined in Section 9.1 hereof), and United may set off
-----------
against the Held Back Shares in the manner described in Article IX or take any
----------
other action or exercise any other remedy available to it by appropriate legal
proceedings to recover such amount; provided, however, such difference has not
--------
already been reflected as a reduction of the Merger Consideration under Section
-------
1.3 hereof. Such determination shall be made within sixty (60) days following
- ----------
the Effective Date.
5.19 WORKING CAPITAL DETERMINATION. Within sixty (60) days following the
------------------------------
Effective Date, the United Companies shall prepare and provide to the
Shareholders a notice ("Working Capital Notice") containing a schedule
reflecting the Working Capital of the Company as of the
23
<PAGE>
Effective Date ("Working Capital Computation"). If within thirty (30) days
following the date of the Working Capital Notice, the Shareholders do not
provide the United Companies with its written objection to the Working Capital
Computation and a schedule containing the Shareholders' calculation of the
Working Capital of the Company as of the Effective Date ("Objection Notice"),
then the Working Capital Computation shall be final, conclusive and used for
purposes of determining the Working Capital of the Company as of the Effective
Date and any Working Capital Purchase Price Offset. If the Objection Notice is
timely provided in the form required, and United and the Shareholders are unable
to agree in writing upon the Working Capital of the Company as of the Effective
Date within thirty (30) days following such Objection Notice, then the issues in
dispute will be submitted to a mutually agreed upon "big five" certified public
accounting firm (the"Independent Accountant") for the final resolution within
thirty (30) days. Each party will furnish to the Independent Accountant such
documents and information relating to the disputed issues as the Independent
Accountant may request and are available to that party, and will be afforded the
opportunity to present to the Independent Accountant any material information
relating to the determination and to discuss the determination with the
Independent Accountant. The determination by the Independent Accountant, as set
forth in a written notice delivered to the parties, will be binding and
conclusive on the parties and shall be used for purposes of determining the
Working Capital of the Company as of the Effective Date and any Working Capital
Purchase Price Offset. United and the Shareholders (combined) will each bear 50%
of the fees of the Independent Accountant for such determination.
5.20 EMPLOYMENT AGREEMENTS. At Closing, Michael A. Wysocki and Patrick M.
---------------------
Riley shall each enter into an Employment Agreement with United Merger Sub upon
such terms and conditions, and in substantially the form attached hereto as
Exhibits B and C.
- ---------- -
5.21 FUNDING OF BENEFIT OBLIGATIONS. Prior to the Effective Date, the
------------------------------
Company shall fund any 401K matching contributions to be made by Translesco,
Inc., an Illinois corporation ("Translesco"), through December 31, 1998 for the
benefit of the employees of Translesco.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE UNITED COMPANIES
-----------------------------------------------------
The obligations of the United Companies to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part in writing by
the United Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
--------------------------------------------------------------
OBLIGATIONS. The representations and warranties of the Company and the
- -----------
Shareholders contained in this Agreement shall be true and correct at and as of
the Effective Time with the same force and effect as though made at and as of
that time except (i) for changes specifically permitted by or disclosed
24
<PAGE>
on any schedule to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date. The Company and the Shareholders shall have
performed and complied with all of their respective obligations required by this
Agreement to be performed or complied with at or prior to the Effective Time.
The Company and the Shareholders shall have delivered to the United Companies a
certificate, dated as of the Effective Date, duly signed (in the case of the
Company, by its President), certifying that such representations and warranties
are true and correct and that all such obligations have been complied with and
performed.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the
-----------------------------------------------------
date hereof and the Effective Time, (i) there shall have been no Material
Adverse Change to the Company, (ii) there shall have been no adverse federal,
state or local legislative or regulatory change affecting in any material
respect the services, products or business of the Company, and (iii) none of the
properties and assets of the Company shall have been damaged by fire, flood,
casualty, act of God or the public enemy or other cause (regardless of insurance
coverage for such damage) which damages may have a Material Adverse Effect
thereon, and there shall have been delivered to the United Companies a
certificate to that effect, dated the Effective Date and signed by or on behalf
of the Company and the Shareholders.
6.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered to the
---------------------
United Companies (i) copies of the articles of incorporation and bylaws of the
Company as in effect immediately prior to the Effective Time, (ii) copies of
resolutions adopted by the Board of Directors and Shareholders of the Company
authorizing the transactions contemplated by this Agreement, and (iii) a
certificate of good standing of the Company issued by the Secretary of State of
the State of Illinois as of a date not more than ten (10) days prior to the
Effective Date, certified in the case of subsections (i) and (ii) of this
Section as of the Effective Date by the Secretary of the Company as being true,
correct and complete.
6.4 OPINION OF COUNSEL. The United Companies shall have received an
------------------
opinion dated as of the Effective Date from counsel for the Company and the
Shareholders, in form and substance acceptable to the United Companies, to the
effect that:
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois;
(ii) The Company has obtained all necessary corporate authorizations
from its Board of Directors and the Shareholders to effect the Merger; and
(iii) This Agreement is a valid and binding obligation of the Company
and the Shareholders, and enforceable against the Company and the
Shareholders in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or general
equitable principles.
25
<PAGE>
6.5 CONSENTS. The Company shall have received consents to the
--------
transactions contemplated hereby and/or waivers of rights to terminate or modify
any material rights or obligations of the Company from any Person from whom such
consent or waiver is required under any Contract. In addition, the Company
shall have received prior to the Closing, the written acknowledgment and assent,
in form acceptable to United, to the continued effectiveness following the
Merger of all agreements (whether written or oral) between the Company and the
parties set forth on Schedule 6.5, regardless of whether such consent is
------------
required for such continued effectiveness.
6.6 SECURITIES LAWS. United shall have received all necessary consents
---------------
and otherwise complied with any state or federal securities laws applicable to
the issuance of the United Shares, in connection with the transactions
contemplated hereby.
6.7 NO ADVERSE LITIGATION. There shall not be pending or threatened any
---------------------
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Merger or any other transaction contemplated hereby, and which, in the
judgment of United, makes it inadvisable to proceed with the Merger and other
transactions contemplated hereby.
6.8 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall
----------------------
have expired or been terminated.
6.9 DUE DILIGENCE REVIEW. United shall be satisfied with the results of
--------------------
its due diligence review and Environmental Assessment pursuant to Section 5.10
hereof.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDERS
--------------------------------
The obligations of the Company and the Shareholders to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part in
writing by the Company and the Shareholders:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
--------------------------------------------------------------
OBLIGATIONS. The representations and warranties of the United Companies
- -----------
contained in this Agreement shall be true and correct at and as of the Effective
Time with the same force and effect as though made at and as of that time except
(i) for changes specifically permitted by or disclosed pursuant to this
Agreement, and (ii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. The United Companies shall have performed and complied with all of their
obligations required by this Agreement to be performed
26
<PAGE>
or complied with at or prior to the Effective Time. The United Companies shall
have delivered to the Company and the Shareholders a certificate, dated as of
the Effective Date, and signed by an officer, certifying that such
representations and warranties are true and correct and that all such
obligations have been complied with and performed.
7.2 UNITED SHARES AND CASH CONSIDERATION. At the Closing, United shall
------------------------------------
have issued all of the United Shares and shall have delivered to the
Shareholders (i) certificates representing the United Shares issued to them
hereunder, other than the Held Back Shares, (ii) copies of stock certificates
representing the Held Back Shares issued to them, and (iii) the cash
consideration pursuant to Section 1.3.
7.3 NO ORDER OR INJUNCTION. No court of competent jurisdiction or other
----------------------
governmental body shall have issued or entered any order or injunction
restraining or prohibiting the transactions contemplated hereby, which remains
in effect at the time of the Closing.
7.4 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period shall
----------------------
have expired or been terminated.
7.5 OPINION OF COUNSEL. The Company and the Shareholders shall have
------------------
received an opinion dated as of the Effective Date from counsel for the United
Companies, in form and substance acceptable to the Company and the Shareholders,
to the effect that:
(i) Each of the United Companies is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware;
(ii) Each of the United Companies has obtained all necessary corporate
authorizations from its Board of Directors and Shareholders to effect the
Merger; and
(iii) This Agreement is a valid and binding obligation of the United
Companies and enforceable against the United Companies in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally or general equitable principles.
7.6 CORPORATE CERTIFICATE. The United Companies shall have delivered to
---------------------
the Company and the Shareholders (i) copies of resolutions adopted by the Board
of Directors of the United Companies authorizing the transactions contemplated
by this Agreement, and (ii) a certificate of good standing of the United
Companies issued by the Secretary of State of the State of Delaware as of a date
not more than ten (10) days prior to the Effective Date, certified in the case
of subsections (i) and (ii) of this Section as of the Effective Date by the
Secretary of the United Companies as being true, correct and complete.
27
<PAGE>
ARTICLE VII
SECURITIES LAW MATTERS
----------------------
The Shareholders agree as follows with respect to the sale or other
disposition after the Effective Time of the United Shares:
8.1 DISPOSITION OF SHARES. In addition to the restrictions set forth in
---------------------
Section 5.11, the Shareholders represent, warrant and covenant that the shares
- ------------
of United Common Stock being acquired by each of them thereunder are being
acquired and will be acquired for each of their own accounts and will not be
sold or otherwise disposed of, except (a) pursuant to an exemption from the
registration requirements under the Securities Act, (b) in accordance with Rule
145(d) under the Securities Act, or (c) pursuant to an effective registration
statement filed by United with the SEC under the Securities Act.
8.2 LEGEND. The certificates representing the United Shares shall bear
------
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, (B) IN
ACCORDANCE WITH RULE 145(D) UNDER THE ACT, OR (C) IN ACCORDANCE WITH
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
United may, unless a registration statement is in effect covering such shares or
unless the Shareholders comply with Rule 145(d), place stop transfer orders with
its transfer agent with respect to such certificates in accordance with federal
securities laws.
28
<PAGE>
ARTICLE IX
INDEMNIFICATION
---------------
9.1 AGREEMENT BY THE COMPANY AND THE SHAREHOLDERS TO INDEMNIFY. The
----------------------------------------------------------
Company and each of the Shareholders, jointly and severally, agree to indemnify
and hold the United Companies harmless from and against the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses) incurred or
suffered by the United Companies (after deduction for any insurance
reimbursement or other third party recoveries received by such party as a result
thereof, and after applying any reserves or accruals specifically established as
of the Effective Date for any potential indemnifiable matters listed below in
this Section 9.1, provided such reserves or accruals are included in current
liabilities for the purpose of determining Minimum Working Capital under
Sections 5.17 and 5.19 hereof) arising out of or resulting from (i) any breach
of a representation or warranty made by the Company and the Shareholders in or
pursuant to this Agreement, (ii) any breach of the covenants or agreements made
by the Company or any of the Shareholders in or pursuant to this Agreement,
(iii) any inaccuracy in any certificate delivered by the Company or any of the
Shareholders pursuant to this Agreement, (iv) any Excluded Liability, (v) the
matters described in item 3 of Schedule 3.13, (vi) the matters described in
-------------
items 2 and 3 on Schedule 3.19, (vii) any state income or sales Taxes due and
-------------
payable by or with respect to the Company and its subsidiary, (viii) the matters
described on Schedule 3.20 relating to claims owed by the Company to General
-------------
Motors or (ix) the matters described on Schedule 3.12 (collectively,
-------------
"Indemnifiable Damages"); provided, that the parties agree that the Company's
obligation to indemnify the United Companies shall terminate at the Effective
Time. Notwithstanding the foregoing, the aggregate amount of Indemnifiable
Damages to which the United Companies shall be entitled shall not exceed the
Merger Consideration (the "Indemnification Cap"), and the United Companies
shall be entitled to Indemnifiable Damages only to the extent that the aggregate
of all Indemnifiable Damages exceeds $281,250.00 (the "Indemnification
Threshold"); provided, however, that the Indemnification Threshold shall not
-----------------
apply with respect to, and the United Companies shall be entitled to the full
amount of any Indemnifiable Damages resulting from (i) any breach of the
representations and warranties set forth in Section 3.21 hereof, (ii) any matter
described in subsections (v), (vi), (vii), (viii) and (ix) above, and (iii) any
breach of the agreements set forth in Sections 5.17 and 5.18 hereof.
9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
-----------------------------------------------------------------
Each of the representations, warranties, covenants and agreements made by the
Shareholders in this Agreement or pursuant hereto shall survive for a period of
two (2) years after the Closing of the transactions contemplated hereby, except
that (i) the representations and warranties contained in Sections 3.13 and 3.19
(and the Shareholders' obligation to indemnify the United Companies pursuant to
Section 9.1 hereof with respect to any breach of the terms of either of such
Sections) shall survive for a period of three (3) years after the Closing, (ii)
the Shareholders' obligation to indemnify the United Companies pursuant to
Section 9.1 (v) hereof shall survive for a period of three (3) years after the
Closing and (iii) the covenants and agreements of the Shareholders contained in
Sections 5.9, 9.1(vi), 9.1(vii), 9.1(viii) and 9.1(ix) shall survive after such
two (2) year period (collectively, the "Surviving Representations and
Covenants"). No claim for the recovery of Indemnifiable Damages arising out of
a breach of any representation, warranty, covenant, agreement
29
<PAGE>
or certificate (other than the Surviving Representations and Covenants) may be
asserted by the United Companies against the Shareholders after such
representations, warranties, covenants and agreements shall thus expire,
provided, however, that claims for Indemnifiable Damages first asserted within
- -------- -------
the applicable period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by any party by investigation,
each party shall have the right to fully rely on the representations,
warranties, covenants and agreements of the other parties contained in this
Agreement or in any other documents or papers delivered in connection herewith.
Each representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement. Each of the representations and warranties made by the
Company shall expire at the Effective Time. Each of the representations and
warranties made by the United Companies shall expire one year from the Effective
Date; provided, that the representations and warranties set forth in Section 2.4
--------
hereof shall expire two (2) years from the Effective Date.
9.3 SECURITY FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As
---------------------------------------------------------
security for the agreement by the Shareholders to protect, defend, indemnify and
hold the United Companies harmless as described in this Article at the Closing,
the Shareholders do hereby grant a first priority security interest in, and
pledge and instruct the United Companies to set aside and hold, certificates
representing the Held Back Shares issued pursuant to this Agreement. The United
Companies may set off against the Held Back Shares any Indemnifiable Damages for
which the Shareholders may be responsible pursuant to this Agreement, subject,
however, to the following terms and conditions:
(a) The United Companies shall give written notice to the Shareholders
of any claim for Indemnifiable Damages or any other damages hereunder, which
notice shall set forth (i) the amount of Indemnifiable Damages or other loss,
damage, cost or expense which the United Companies claim to have sustained by
reason thereof, and (ii) the basis of such claim (the "Claim Notice");
(b) The Shareholders shall notify the United Companies in writing of
an intention to dispute any claim within ten (10) business days from the date of
any Claim Notice (the "Notice of Contest Period"). If the Shareholders fail to
provide the United Companies such written notice within the Notice of Contest
Period or if any such dispute is not resolved within thirty (30) days after
expiration of the Notice of Contest Period, then the United Companies may take
any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages;
(c) Any set off against the Held Back Shares shall be effected on (i)
the date on which a court of competent jurisdiction issues a final non-
appealable judgment or award or (ii) the date on which the parties enter into a
mutually satisfactory settlement agreement (the "Final Resolution"), and such
set off shall be charged proportionally against the Held Back Shares;
(d) Notwithstanding anything to the contrary set forth in this
Article, the Shareholders shall have the right to pay any Indemnifiable Damages
- -------
in cash (by wire transfer of
30
<PAGE>
immediately available funds) within thirty (30) days of a Final Resolution,
whereupon the United Companies shall promptly release to the Shareholders such
amount of the Held Back Shares, valued in accordance with Section 9.3(e), equal
--------------
to such cash payment; provided, that if the Shareholders fail to pay any
--------
Indemnifiable Damages in cash within such thirty day period, the parties agree
that any Indemnifiable Damages shall be satisfied first out of any Held Back
Shares, if any, held by the United Companies; and
(e) For purposes of this Article, the shares of United Common Stock
shall be valued at the Average Closing Price.
9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with respect
-----------------------------------------------
to shares transferred pursuant to the foregoing right of setoff (and in the case
of such shares, until the same are transferred), all Held Back Shares shall be
deemed to be owned by the Shareholders and the Shareholders shall be entitled to
vote the same; provided, however, that, there shall also be deposited with the
-------- -------
United Companies subject to the terms of this Article, all shares of United
Common Stock issued to the Shareholders as a result of any stock dividend or
stock split. All cash issuable to the Shareholders as a result of any cash
dividend, with respect to the Held Back Shares, shall be payable to and become
the sole property of the Shareholders. All stock issued with respect to Held
Back Shares shall be distributed to the Shareholders together with such Held
Back Shares.
9.5 DELIVERY OF HELD BACK SHARES. The United Companies agree to deliver
----------------------------
to the Shareholders no later than five (5) business days after the first
anniversary of the Effective Date any Held Back Shares then held by them unless
there then remains unresolved any claim for Indemnifiable Damages hereunder as
to which notice has been given, in which event United shall continue to hold in
accordance with the provisions of this Article, an amount of Held Back Shares
reasonably determined by United to satisfy any such unresolved claim and shall
return the balance of the Held Back Shares to the Shareholders. Any Held Back
Shares remaining on deposit after such claim shall have been satisfied shall be
returned to the Shareholders promptly after the time of satisfaction.
9.6 NO BAR; WAIVER. If the Held Back Shares are insufficient to set off
--------------
any claim for Indemnifiable Damages made hereunder (or have been delivered to
the Shareholders prior to the making or resolution of such claim), then the
United Companies may take any action or exercise any remedy available to it by
appropriate legal proceedings to collect the Indemnifiable Damages. The
Shareholders hereby waive any rights to contribution or any similar rights they
may have against the Company as a result of their agreement to indemnify the
United Companies under this Article IX or otherwise.
----------
9.7 AGREEMENT BY UNITED COMPANIES TO INDEMNIFY. The United Companies,
------------------------------------------
jointly and severally, agree to protect, defend, indemnify and hold the Company
and Shareholders harmless from and against the aggregate of all expenses,
losses, costs, deficiencies, liabilities and damages (including, without
limitation, reasonable related counsel and paralegal fees and expenses) incurred
or suffered by the Company and Shareholders (after deduction for any insurance
reimbursement or
31
<PAGE>
other third party recoveries received by such party as a result thereof) arising
out of or resulting from (i) any breach of a representation or warranty made by
the United Companies in this Agreement hereto; (ii) any breach of the covenants
or agreements made by the Untied Companies in this Agreement hereto; and (iii)
any inaccuracy in any certificate delivered by the United Companies pursuant to
this Agreement; provided, that the parties agree that the United Companies
obligation (i) to indemnify the Company shall terminate at the Effective Time;
and (ii) to indemnify the Shareholders shall terminate one (1) year after the
Closing of the transactions contemplated hereby, except that the obligations of
the United Companies to indemnify the Company and the Shareholder with respect
to any breach of Section 2.4 of its Agreement shall terminate two (2) years
after the Closing of the transactions contemplated hereby; provided, however,
--------
that claims for damages first asserted within the applicable period shall not
thereafter be barred.
9.8 REMEDIES EXCLUSIVE. The rights of the parties hereto to seek
------------------
indemnification under this Article IX shall be the sole remedy of the parties
for any claim arising out of this Agreement, except for all equitable rights and
remedies to seek specific performance or to enjoin violations of covenants for
which money damages may be an inadequate remedy, and for remedies as a result of
a claim of fraud (including any violation of federal and state securities laws,
rules and regulations).
9.9 THIRD PARTY CLAIMS.
------------------
(a) If any third party shall notify the United Companies with respect
to any matter which may give rise to a claim for indemnification against the
Shareholders under this Article IX, then the United Companies shall promptly
----------
notify the Shareholders thereof in writing; provided, however, that no delay on
-------- -------
the part of the United Companies in notifying the Shareholders shall relieve the
Shareholders from any obligation hereunder unless (and then solely to the
extent) the Shareholders thereby are prejudiced.
(b) The Shareholders will have the right to defend the United
Companies against any non-Governmental Authority third party claim (a "Third
Party Claim") with counsel of its choice reasonably satisfactory to the United
Companies so long as and to the extent that (i) the Shareholders notify the
United Companies in writing within ten (10) days after the United Companies has
given notice of the Third Party Claim that the Shareholders will indemnify the
United Companies, to the extent provided in this Agreement, from and against any
Indemnifiable Damages the United Companies may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim; (ii)
the Third Party Claim seeks the recovery of solely money damages and does not
seek an injunction, specific performance, a declaration of rights or other
equitable relief; (iii) settlement of, or an adverse judgment with respect to,
the Third Party Claim is not, in the good faith judgment of United Companies,
likely to establish a precedential custom of practice adverse to the continuing
business interests of the United Companies; and (iv) the Shareholders conduct
the defense of the Third Party Claim actively and diligently.
(c) So long as the Shareholders are conducting the defense of the
Third Party Claim in accordance with (b) above, (i) the United Companies may
retain separate counsel at its sole
32
<PAGE>
cost and expense and participate in (but not control without the Shareholders'
consent) the defense of the Third Party Claim; (ii) the United Companies will
not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Shareholders (not to be unreasonably withheld); (iii) the Shareholders will not
consent to the entry of any judgment or enter into any settlement which (a) does
not include as an unconditional term thereof the providing to the United
Companies by the third party of a release of all liability in respect of such
Third Party Claim or (b) provides for any injunctive or other equitable relief
against the United Companies (or any of its subsidiaries or any of their
respective directors, officers or employees) or loss of rights of the United
Companies (or any of its subsidiaries or any of their respective directors,
officers or employees).
(d) In the event that any of the conditions in (b) above is or becomes
unsatisfied, however, (i) the United Companies may defend against the Third
Party Claim in any manner it reasonably may deem appropriate and consent to the
entry of judgment or enter into settlement with respect to such Third Party
Claim; (ii) the Shareholders will reimburse the United Companies promptly and
periodically for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses); and (iii) the Shareholders will remain
responsible for any Indemnifiable Damages the United Companies may suffer
resulting from, arising out of, relating to or caused by the Third Party Claim
to the fullest extent provided in this Article IX.
----------
(e) With respect to any third party action which relates solely to an
audit or other proceeding by any Governmental Authority of any Tax Return of the
Company for any period ending on or prior to the Effective Date, the United
Companies hereby agree to (i) notify the Shareholders of the commencement of
such action, provided, however, that the omission to so notify the Shareholders
-----------------
will not relieve them from any liability which they may have hereunder unless
the Shareholders have been materially prejudiced thereby, (ii) provide the
Shareholders with all material information that they request relating to the
handling of such action, and (iii) confer with the Shareholders with respect to
the defense of such claim.
ARTICLE X
DEFINITIONS
-----------
10.1 DEFINED TERMS. As used herein, the following terms shall have the
-------------
following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and treasury
regulations promulgated thereunder.
33
<PAGE>
"Contract" means any agreement, contract, lease, note, mortgage, indenture,
loan agreement, franchise agreement, covenant, employment agreement, license,
instrument, purchase and sales order, commitment, undertaking, obligation,
whether written or oral, express or implied.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Liability" shall mean (i) any obligations and liabilities of the
Company or its subsidiary, absolute or contingent, known or unknown, other than
Designated Liabilities, and (ii) any liability or obligation of the Company or
its subsidiary to the Shareholders or the Shareholders to any party claiming to
have a right to acquire any shares of capital stock or other securities
convertible into or exchangeable for any shares of capital stock of the Company.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" of any entity means all obligations of such entity (i) which
in accordance with GAAP should be classified upon a balance sheet as
indebtedness, including the current portion of any Indebtedness and any and all
amounts outstanding under any line of credit of such entity; (ii) for borrowed
money or purchase money financing which has been incurred in connection with the
acquisition of property, assets or services; (iii) secured by any Lien or other
charge upon property or assets owned by such entity, even though such entity has
not assumed or become liable for the payment of such obligations; (iv) created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such entity, whether or not the rights and
remedies of the lender or lessor under such agreement in the event of default
are limited to repossession or sale of the property; (v) for remaining payments
under any capitalized leases (as defined under GAAP), non-competition
agreements, severance agreements, or any other agreements made outside the
ordinary course of business; (vi) for all guaranties, endorsements (other than
for collection or deposit in the ordinary course of business), and all other
34
<PAGE>
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person, or otherwise to assure a creditor against loss;
or (vii) current liabilities in respect of unfunded vested benefits under plans
covered by ERISA, and excluding any item included in the calculation of Working
Capital pursuant to Section 5.17 and deferred income taxes.
"Knowledge" means knowledge of the directors, officers and Shareholders of
the Company.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, but not limited to, any conditional sale or other
title retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
comparable law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or effect), in the
condition (financial or otherwise), properties, assets, liabilities, rights,
obligations, operations, business or prospects which change (or effect)
individually or in the aggregate, is materially adverse to such condition,
properties, assets, liabilities, rights, obligations, operations, business or
prospects.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, estate, trust, unincorporated association, joint venture,
Governmental Authority or other entity, of whatever nature.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information statement required
to be filed in connection with or with respect to any Taxes, including any
amendments to previously filed Tax Returns; and
"Taxes" means all taxes, fees or other assessments, including, but not
limited to, income, excise, property, sales, franchise, intangible, withholding,
social security and unemployment taxes imposed by any federal, state, local or
foreign governmental agency, and any interest or penalties related thereto.
10.2 OTHER DEFINITIONAL PROVISIONS. All terms defined in this Agreement
-----------------------------
shall have the defined meanings when used in any certificates, reports or other
documents made or delivered pursuant hereto or thereto, unless the context
otherwise requires. Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa. All matters of an accounting
35
<PAGE>
nature in connection with this Agreement and the transactions contemplated
hereby shall be determined in accordance with GAAP applied on a basis consistent
with prior periods, where applicable. As used herein, the neuter gender shall
also denote the masculine and feminine, and the masculine gender shall also
denote the neuter and feminine, where the context so permits.
ARTICLE XI
TERMINATION
-----------
11.1 TERMINATION. This Agreement may be terminated at any time prior to the
-----------
Effective Time: (a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or (b) by United in the event of a material
breach by the Company or any of the Shareholders of any provision of this
Agreement; or (c) by the Company in the event of a material breach by United of
any provision of this Agreement; or (d) by either United or the Company if the
Closing shall not have occurred by January 31, 1998.
11.2 EFFECT OF TERMINATION. Except for the provisions of Section 5.7 and
--------------------- -----------
Article IX hereof, which shall survive any termination of this Agreement, in the
- ----------
event of termination of this Agreement pursuant to Section 11.1, this Agreement
shall forthwith become void and of no further force and effect and the parties
shall be released from any and all obligations hereunder; provided, however,
that nothing herein shall relieve any party from liability for the breach of any
of its representations, warranties, covenants or agreements set forth in this
Agreement prior to such termination.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 NOTICES. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission if such transmission is confirmed by
delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall designate
in writing to the other party):
(i) IF TO THE UNITED COMPANIES TO:
United Road Services, Inc.
7 Piedmont Center, Suite 500
36
<PAGE>
3525 Piedmont Road
Atlanta, GA 30305
Attn: Mr. Robb Adams, Vice President
Telecopy: (404) 364-1878
WITH A COPY TO EACH OF:
Akerman, Senterfitt & Eidson, P.A.
1 Southeast Third Avenue, 27th Floor
Miami, FL 33131
Attn: Marc L. Druckman, Esq.
Telecopy: (305) 374-5095
AND
McDermott, Will & Emery
600 13th Street, N.W.
Washington, D.C. 20005-3096
Attn: Karen A. Dewis, Esq.
Telecopy: (202) 756-8087
(ii) IF TO THE COMPANY AND/OR THE SHAREHOLDERS TO:
_____________________________
_____________________________
_____________________________
Attn: ________________________
Telecopy: ____________________
WITH A COPY TO:
Kerr, Russell and Weber, PLC
500 Woodward Avenue, Suite 2500
Detroit, MI 48226
Attn: George J. Christopoulos, Esq.
Telecopy: (313) 961-0388
Notice shall be deemed given on the date sent if sent by facsimile
transmission and on the date delivered (or the date of refusal of delivery) if
sent by overnight delivery or certified or registered mail.
37
<PAGE>
12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
----------------
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter except
with respect to certain Additional Agreements dated as of the date hereof by and
among the parties hereto. The parties agree that prior drafts of this Agreement
shall not be deemed to provide any evidence as to the meaning of any provision
hereof or the intent of the parties with respect thereto. The Exhibits and
Schedules constitute a part hereof as though set forth in full above.
12.3 EXPENSES. Except as otherwise provided herein, the parties shall pay
--------
their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby. The
Shareholders shall pay all legal, accounting, tax consulting, financial advisory
and other fees and expenses (other than fees and expenses owed to KPMG),
including any transfer fees, government filing fees and the cost of title
insurance and surveys, incurred by the Company in connection with the
transactions contemplated by this Agreement.
12.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
-----------------
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts.
12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
After the Closing, the rights of this Agreement may be assigned by United to any
successor; provided, that the restrictive covenants set forth in Section 5.9
-------- -----------
hereof shall not be expanded by any such assignment. Except as expressly
provided herein, the rights and obligations of this Agreement may not be
assigned by the Company, or any Shareholders without the prior written consent
of United.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument. A telecopy signature of any party shall
be considered to have the same binding legal effect as an original signature.
12.7 INTERPRETATION. When a reference is made in this Agreement to an
--------------
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless
38
<PAGE>
otherwise indicated. The headings contained herein and on the schedules are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or the schedules. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Time shall be of the essence in this
Agreement.
12.8 CONSTRUCTION. The parties agree and acknowledge that they have
------------
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumptions or burdens of proof shall arise favoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. If any party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty, or covenant.
12.9 GOVERNING LAW; SEVERABILITY. This Agreement shall be construed in
---------------------------
accordance with and governed for all purposes by the laws of the State of New
York applicable to contracts executed and to be wholly performed within such
State. If any word, phrase, sentence, clause, section, subsection or provision
of this Agreement as applied to any party or to any circumstance is adjudged by
a court to be invalid or unenforceable, the same will in no way affect any other
circumstance or the validity or enforceability of any other word, phrase,
sentence, clause, section, subsection or provision of this Agreement. If any
provision of this Agreement, or any part thereof, is held to be unenforceable
because of the duration of such provision or the area covered thereby, the
parties agree that the court making such determination shall have the power to
reduce the duration and/or area of such provision, and/or to delete specific
words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced.
12.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents and
-------------------------
warrants to all other parties hereto that (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advice of counsel before executing this
Agreement; (d) said party has acted voluntarily and of its own free will in
executing this Agreement; (e) said party is not acting under duress, whether
economic or physical, in executing this Agreement; and (f) this Agreement is the
result of arm's length negotiations conducted by and among the parties and their
respective counsel.
39
<PAGE>
[Signatures On Following Page]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
UNITED ROAD SERVICES, INC., a Delaware corporation
By:
----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
URS TRANSPORT, INC., a Delaware corporation
By:
----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
MPG TRANSCO, LTD., an Illinois corporation
By:
----------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-------------------------------------------
MICHAEL A. WYSOCKI, individually
-------------------------------------------
PATRICK M. RILEY, individually
-------------------------------------------
GARY R. SIENKIEWICZ, individually
41
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Plan of Merger and Reorganization
Exhibit B Employment Agreement-Michael A. Wysocki
Exhibit C Employment Agreement-Patrick M. Riley
Schedule 3.1 Fictitious Names
Schedule 3.4 Capitalization
Schedule 3.5 Shareholders
Schedule 3.6 No Violation
Schedule 3.7 Records of the Company
Schedule 3.8 Subsidiaries
Schedule 3.9 Financial Statements
Schedule 3.10 Changes Since the Current Balance Sheet Date
Schedule 3.12 Litigation
Schedule 3.13 Environmental Matters
Schedule 3.14 Leased Premises
Schedule 3.15 Permitted Liens; Assets
Schedule 3.17 Employees
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Tax Matters
Schedule 3.20 Insurance Matters
Schedule 3.22 Permits
42
<PAGE>
Schedule 3.23 Affiliated Transactions
Schedule 3.24 Intellectual Property
Schedule 3.25 Material Contracts
Schedule 3.26 Material Customers
Schedule 3.30 Bank Accounts
Schedule 3.31 Names
Schedule 4.1 Conduct of Business Pending the Merger
Schedule 5.18 Indebtedness
Schedule 6.5 Consents
43
<PAGE>
Exhibit 21.1
UNITED ROAD SERVICES, INC
SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
1. Fast Towing, Inc. Arizona
2. Arri Brothers, Inc. d/b/a A&A California
Towing*
California
3. Auto Service Center California
4. Bill & Wags, Inc.* Delaware
5. URS Midwest, Inc. Delaware
6. URS Northeast, Inc. Delaware
7. URS of Tennessee, Inc. Delaware
8. URS Southeast, Inc. Delaware
9. URS Southwest, Inc. Delaware
10. URS Transport, Inc. Delaware
11. URS West, Inc. Illinois
12. North Shore Recycling, Inc. Illinois
13. Environmental Auto Removal, Inc. Illinois
Illinois
14. E&R Towing and Garage, Inc. Illinois
15. Northshore Towing, Inc. Nevada
16. Evanston Reliable Maintenance, Inc. Nevada
Texas
17. City Towing, Inc. d/b/a Quality Texas
Towing
Washington
18. Ken Lehman Enterprises, Inc.
19. El Paso Towing, Inc.
20. Garry's Wrecker Service, Inc.
21. Rouse's Body Shop, Inc.
* a wholly-owned subsidiary of URS West, Inc.
<PAGE>
EXHIBIT 24.2
The Stockholders and Board of Directors
United Road Services, Inc.:
We consent to the use of our reports on United Road Services, Inc.,
Northland Auto Transporters, Inc. and Northland Fleet Leasing, Inc., Falcon
Towing and Auto Delivery, Inc., Smith-Christensen Enterprises, Inc. and
subsidiary, Caron Auto Works, Inc. and Caron Auto Brokers, Inc., Absolute
Towing and Transporting, Inc., ASC Transportation Services and subsidiary, MPG
Transco, Ltd., Pilot Transport, Inc., E&R Towing & Garage, Inc. and
subsidiaries, Environmental Auto Removal, Inc., Neil's Used Truck & Car Sales,
Incorporated, 5-L Corporation and ADP Transport, Inc., Car Transporters
Corporation, Schroeder Auto Carriers, Inc., Keystone Towing, Inc., Fast
Towing, Inc., and Alert Auto Transport, Inc., included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Albany, New York
January 4, 1999
