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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) September 1, 1998
----------------UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
---------------------------------------Delaware
1-14387
06-1522496
Delaware
1-13663
06-1493538
---------------------------------------------------------------------------(State or Other Jurisdiction (Commission file Numbers)
(IRS Employer
of Incorporation)
Identification Nos.)
Four Greenwich Office Park, Greenwich, Connecticut
06830
---------------------------------------------------------------------------(Address of Principal Executive Offices)
(Zip Code)
Registrants' telephone number, including area code (203) 622-3131
-------------========================================================================
Item 2. Acquisition or Disposition of Assets
-----------------------------------On September 1, 1998, United Rentals, Inc. (the "Company") acquired the
equipment rental businesses of McClinch Inc. and Subsidiaries and McClinch
Equipment Services, Inc. (collectively, "McClinch"). This acquisition was
effected by United Rentals (North America), Inc., a subsidiary of the
Company, acquiring all of the outstanding stock of each of the aforementioned
companies. McClinch is an equipment rental company and operates eight rental
locations in six states: Connecticut (1), Delaware (1), Maryland (1), New
Jersey (2), New York (1) and Virginia (2). McClinch primarily leases the land
and buildings comprising its rental locations.
The aggregate consideration paid by the Company in respect of the
acquisition described above was $96.1 million. The consideration for the
acquisition was determined through arms-length negotiations between the
Company and the former owners of the business acquired. The Company funded
the aggregate consideration paid from borrowings under the Company's
revolving credit facility.
Item 7.
Financial Statements, Pro Forma Financial Information and Exhibits
-----------------------------------------------------------------(a) Financial Statements of Businesses Acquired
The following financial statements are included herein:
I. Consolidated Financial Statements of McClinch, Inc. and Subsidiaries
Report of Independent Accountants
Consolidated Balance Sheets - January 31, 1998 and April 30, 1998
(unaudited)
Consolidated Statements of Income and Retained Earnings for the Year
Ended January 31, 1998 and for the Three Months Ended April 30, 1997 and
1998(unaudited)
Consolidated Statements of Cash Flows for the Year Ended January 31, 1998
and for the Three Months Ended April 30, 1997 and 1998 (unaudited)
Notes to Consolidated Financial Statements
II. Financial Statements of McClinch Equipment Services, Inc.
Report of Independent Accountants
Balance Sheets - December 31, 1997 and June 30, 1998 (unaudited)
Statements of Income and Retained Earnings for the year ended
December 31, 1997 and for the Six Months Ended June 30, 1997 and 1998
(unaudited)
Statements of Income and Retained Earnings for the year ended December
31, 1997 and for the Six Months Ended June 30, 1997 and 1998 (unaudited)
Statements of Cash Flows for the Year Ended December 31, 1997 and for the
Six Months Ended June 30, 1997 and 1998 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
The following pro forma financial information is included herein:
I. Pro Forma Consolidated Financial Statements of United Rentals, Inc.
Introduction
Pro Forma Consolidated Balance Sheet - June 30, 1998 (unaudited)
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits
10
Share Pruchase Agreement dated July 30, 1998 among United Rentals
(North America), Inc. and the parties listed therein for all of the
outstanding shares of McClinch, Inc. (Incorpored by reference to
Exhibit 10(dd) of the Registration Statement on Form S-4 filed by
United Rentals, Inc., Registration No. 333-63171)
10.1 Share Purchase Agreement dated July 30, 1998 among United Rentals
(North America), Inc. and the parties listed therein for all of the
outstanding shares of McClinch Equipment Services, Inc. (Incorporated
by reference to Exhibit 10(ll) of the Registration Statement on Form S4 filed by United Rentals, Inc., Registration No. 333-63171).
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on this 15th day of September, 1998.
UNITED RENTALS, INC.
By:
Michael J. Nolan
------------------------------Name: Michael J. Nolan
Title: Chief Financial Officer
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on this 15th day of September, 1998.
UNITED RENTALS (NORTH AMERICA), INC.
By:
Michael J. Nolan
------------------------------Name: Michael J. Nolan
Title: Chief Financial Officer
5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of McClinch, Inc.:
We have audited the accompanying consolidated balance sheet of McClinch Inc.
and Subsidiaries as of January 31, 1998, and the related consolidated
statements of income 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 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 consolidated financial position of McClinch,
Inc. and Subsidiaries as of January 31, 1998, and the consolidated results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 25, 1998
6
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SIX MONTHS
YEAR ENDED
JANUARY 31,
1998
----------(UNAUDITED)
ENDED
JULY 31,
1998
-----------
ASSETS:
Cash and cash equivalents............................ $
754,000 $
697,000
Accounts receivable, less allowance for doubtful
accounts of $106,000 and $128,000...................
4,168,000
4,697,000
Due from related parties (Note 6)....................
293,000
755,000
Inventories..........................................
1,181,000
1,276,000
Net investment in sales-type leases (Note 3).........
32,000
12,000
Property and rental equipment, net (Note 4).......... 17,249,000
21,163,000
Other assets.........................................
217,000
230,000
----------- ----------Total assets....................................... $23,894,000 $28,830,000
=========== ===========
LIABILITIES:
Notes payable (Note 5)............................... $10,388,000 $14,083,000
Accounts payable and accrued expenses................
1,759,000
1,334,000
Income taxes payable.................................
1,000
79,000
Deferred income taxes................................
2,476,000
2,836,000
----------- ----------Total liabilities.................................. 14,624,000
18,332,000
----------- ----------Commitments (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, issued and
outstanding, 1,000 shares...........................
26,000
26,000
Retained earnings....................................
9,862,000
11,090,000
Treasury stock, at cost; 103 shares (Note 6).........
(618,000)
(618,000)
----------- ----------Total stockholders' equity.........................
9,270,000
10,498,000
----------- ----------Total liabilities and stockholders' equity......... $23,894,000 $28,830,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
7
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED
YEAR ENDED
JULY 31,
JANUARY 31, ----------------------1998
1998
1997
----------- ----------- ---------(UNAUDITED)
Revenues:
Equipment rentals and service (Note
6).................................... $18,474,000 $10,571,000 $8,306,000
Sales..................................
4,659,000
3,188,000
2,640,000
----------- ----------- ---------23,133,000
13,759,000 10,946,000
Cost of equipment rentals and service.... 11,672,000
7,154,000
5,358,000
Cost of sales............................
2,843,000
1,944,000
1,694,000
----------- ----------- ---------Gross profit.........................
8,618,000
4,661,000
3,894,000
Selling expenses.........................
1,484,000
788,000
629,000
General and administrative expenses......
3,136,000
1,324,000
1,111,000
----------- ----------- ---------3,998,000
2,549,000
2,154,000
Other income (expenses):
Interest income........................
134,000
21,000
61,000
Interest expense....................... (1,028,000)
(483,000)
(495,000)
Rental of property, net (Note 9).......
71,000
15,000
38,000
Other income...........................
44,000
1,000
1,000
----------- ----------- ---------Income before provision for income
taxes...............................
3,219,000
2,103,000
1,759,000
Provision for income taxes (Note 7)......
1,082,000
875,000
759,000
----------- ----------- ---------Net income...........................
2,137,000
1,228,000
1,000,000
Retained earnings, beginning of period...
7,793,000
9,862,000
7,793,000
Dividends paid...........................
(68,000)
------------- ----------- ---------Retained earnings, end of period..... $ 9,862,000 $11,090,000 $8,793,000
=========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
8
MCCLINCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED
JULY 31,
JANUARY 31, -----------------------1998
1998
1997
----------- ----------- ----------(UNAUDITED)
Cash flows from operating activities:
Net income
$ 2,137,000 $ 1,228,000 $ 1,000,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation.........................
3,387,000
1,977,000
1,623,000
Gain on sale of property and rental
equipment...........................
(1,313,000)
(925,000)
(663,000)
Deferred income taxes................
328,000
360,000
308,000
----------- ----------- ----------4,539,000
2,640,000
2,268,000
Changes in assets and liabilities:
Accounts receivable................
(643,000)
(529,000)
(144,000)
Due to related parties for operating expenses......................
519,000
(310,000)
(174,000)
Current income taxes receivable....
58,000
-58,000
Inventories........................
(201,000)
(95,000)
(62,000)
Other assets.......................
(165,000)
(13,000)
(22,000)
Accounts payable and accrued expenses............................
201,000
(425,000)
(123,000)
Income taxes payable...............
1,000
78,000
40,000
----------- ----------- ----------Net cash provided by operating
activities......................
4,309,000
1,346,000
1,841,000
----------- ----------- ----------Cash flows from investing activities:
Advances to related parties..........
(318,000)
(152,000)
(147,000)
Acquisition of property and rental
equipment...........................
(7,227,000) (6,581,000) (5,737,000)
Proceeds from sale of property and
rental equipment....................
2,292,000
1,615,000
1,370,000
Net investment in sales-type leases..
88,000
20,000
76,000
----------- ----------- ----------Net cash used in investing activities...........................
(5,165,000) (5,098,000) (4,438,000)
----------- ----------- ----------Cash flows from financing activities:
Repayments of notes payable..........
(8,040,000) (3,764,000) (4,383,000)
Borrowings of notes payable..........
7,145,000
7,459,000
6,600,000
Repayment of note payable to related
party...............................
(41,000)
-(41,000)
Dividends paid.......................
(68,000)
------------- ----------- ----------Net cash (used in) provided by
financing activities............
(1,004,000)
3,695,000
2,176,000
----------- ----------- ----------Net decrease in cash and cash
equivalents.....................
(1,860,000)
(57,000)
(421,000)
Cash and cash equivalents, beginning of
period................................
2,614,000
754,000
2,614,000
----------- ----------- ----------Cash and cash equivalents, end of
period.......................... $
754,000 $
697,000 $ 2,193,000
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest........................... $ 1,029,000 $
462,000 $
478,000
Income taxes, net of refunds.......
695,000
422,000
353,000
The accompanying notes are an integral part of the consolidated financial
statements.
9
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
1. BUSINESS AND ORGANIZATION
The accompanying consolidated financial statements include the accounts of
McClinch, Inc. and its wholly-owned subsidiaries McClinch Leasing Corporation,
McClinch Equipment Corporation, McClinch Crane Services, Inc. and McClinch
Aviation Corporation, (the "Company").
The Company is an exclusive dealer for JLG Industries, Inc. and Genie
Industries in the State of Connecticut, metropolitan New York, Long Island,
Westchester County and other counties in New York State. The Company is also
an exclusive dealer for Lull Corporation in various counties in the States of
Connecticut and New York. In addition, the Company has distribution agreements
with other manufacturers in Connecticut and New York. The Company's revenues
are derived principally from the rental of aerialift and material handling
equipment and the sale of new and used equipment to a diversified customer
base including contractors and other users.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated balance sheet is presented on an unclassified basis since
it more properly reflects the Company's operations as a rental equipment
company.
Basis of Consolidation:
All intercompany transactions and balances have been eliminated.
Interim Financial Statements:
The accompanying balance sheet at July 31, 1998, and the statements of
income and retained earnings and cash flows for the six month periods ended
July 31, 1998 and 1997 are unaudited and have been prepared on the same basis
as the audited financial statements included herein. In the opinion of
management, such unaudited financial statements include all adjustments
necessary to present fairly the information set forth therein, which consists
solely of normal recurring adjustments. The results of operations for such
interim periods are not necessarily indicative of results for the full year.
Revenue Recognition:
Operating Leases--Rental revenue is recognized over the lease term
(generally less than one year) as earned.
Sales-Type Leases--Sales are recorded at amounts equal to the present value
of the minimum lease payments at the inception of the lease. The unearned
interest income represents the difference between the minimum lease payments
and the present value of such payments. Such interest income is recognized
over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments, which consist principally of U.S. Treasury Notes, with
original maturities of less than 90 days. Temporary cash investments of
$144,000 as of January 31, 1998, are recorded at cost plus accrued interest
which approximates market value. The Company maintains all of its cash
balances in one institution. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000.
10
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Property and Rental Equipment:
Property and rental equipment, consisting principally of the Company's
rental fleet of aerialift and material handling equipment, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: buildings and building improvements, 30 years; rental equipment,
furniture and fixtures and computer equipment, 7 years; and vehicles, 5 years.
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial
statement carrying amounts and the tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the temporary differences
are expected to reverse.
Estimates:
The preparation of financial statements in confirmity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
3. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
JANUARY 31, JULY 31,
1998
1998
----------- -------Minimum lease payments receivable......................
Lease, Unearned interest income......................
------------Net investment in sales-type leases....................
=======
=======
$34,000
(2,000)
$13,000
(1,000)
$32,000
$12,000
Minimum lease payments as of January 31, 1998 are receivable as follows:
FISCAL YEAR
----------1999.......................................................... $29,000
2000..........................................................
5,000
11
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
4. PROPERTY AND RENTAL EQUIPMENT
Property and rental equipment consists of the following:
JANUARY 31,
1998
------------
JULY 31,
1998
------------
Rental equipment................................. $ 30,965,000 $ 34,412,000
Land.............................................
530,000
530,000
Buildings and improvements.......................
377,000
405,000
Vehicles.........................................
2,381,000
2,597,000
Furniture, fixtures and computer equipment.......
528,000
630,000
------------ -----------34,781,000
38,574,000
Less, Accumulated depreciation................. (17,532,000) (17,411,000)
------------ -----------Total........................................ $ 17,249,000 $ 21,163,000
============ ============
5. NOTES PAYABLE
Notes payable consists of the following:
JANUARY 31, JULY 31,
1998
1998
----------- ----------Note payable to a bank syndicate bearing interest at
LIBOR plus 1 3/4%.................................. $ 9,695,000 $13,449,000
Note payable to Citicorp Dealer Finance bearing
interest at 8.5%, payable in monthly installments
of $7,839 through September 2004, including
interest...........................................
477,000
450,000
First mortgage to Edith Godwin on real property
located in Bridgeport, Connecticut, bearing
interest at 9.0%, payable in monthly installments
of $3,066 through January 2002, including
interest...........................................
123,000
110,000
Notes payable to Orix Credit Alliance bearing
interest at 8.5%, payable in monthly installments
of $3,657 through May 2000, including interest.....
93,000
74,000
----------- ----------$10,388,000 $14,083,000
=========== ===========
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $22,000,000, or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The line of credit includes cross-guarantees of amounts outstanding
with affiliates which amounted to approximately $17,935,000 and $23,691,000 at
January 31, 1998 and July 31, 1998, respectively. The unused portion of the
line of credit was $12,305,000 and $8,551,000 at January 31, 1998 and July 31,
1998, respectively. The Company pays a commitment fee of 1/4% per annum on the
unused portion of the line of credit.
The outstanding balance bears interest at a fluctuating 30-day LIBOR rate
plus 1 3/4% (7.38% and 7.41% at January 31, 1998 and July 31, 1998,
respectively). The Company has the option to borrow additional funds and/or
convert all or a portion of the outstanding balance to a fluctuating interest
rate equal to the lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1
3/4%, for 90, 180 or 360 days.
12
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in at least 48 monthly installments.
Although no fixed payments are required under the revolving credit
agreement, the Company expects aggregate maturities under this agreement and
other notes payable at January 31, 1998 to approximate the following:
FISCAL YEAR
--------------------------------------------------------------1999........................................................... $2,544,000
2000........................................................... 2,554,000
2001........................................................... 2,536,000
2002........................................................... 2,530,000
2003...........................................................
78,000
Thereafter.....................................................
146,000
The lenders require, among other
(see Note 6) on a combined basis
approval prior to the issuing of
which exceed certain amounts, as
terms, that the Company and its affiliate
meet certain financial ratios and obtain
advances or loans to stockholders or officers
defined.
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement.
6. RELATED PARTY TRANSACTIONS
Due from related parties consists of the following:
JANUARY 31, JULY 31,
1998
1998
----------- -------Due (to) from affiliated companies.....................
Loans receivable from officer/stockholder..............
--------------$293,000
$755,000
========
========
$(72,000)
365,000
$227,000
528,000
The Company rents equipment from affiliates with common ownership under
informal equipment sharing agreements for ultimate rental to customers in New
York and Connecticut. In addition, the Company rents equipment to affiliates
for ultimate rental to the affiliates' customers. The net expenses incurred
(included in cost of equipment rentals and service) by the Company under these
arrangements were $744,000 for the year ended January 31, 1998 and $598,000
and $104,000 for the six months ended July 31, 1998 and 1997, respectively. In
addition, the Company provides services to affiliates in connection with their
operations. The primary expenses incurred and paid by the Company, which are
allocated or billed to the affiliates include salaries ($2,059,000, for the
year ended January 31, 1998 and $250,000 and $416,000 for the six months ended
July 31, 1998 and 1997, respectively, deducted from general and administrative
expenses and $154,000 for the year ended January 31, 1998 and $-0- and
$104,000 for the six months ended July 31, 1998 and 1997, respectively,
deducted from selling expenses), spare parts inventory, trucking services and
insurance expenses ($699,000 for the year ended January 31, 1998 and $453,000
and $408,000 for the six months ended July 31, 1998 and 1997, respectively,
included in cost of equipment rentals and service).
During fiscal year 1998, the Company purchased $243,000 ($63,000 and
$146,000 during the six months ended July 31, 1998 and 1997, respectively) of
used machinery and equipment from an affiliate for ultimate
13
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1997
IS UNAUDITED)
sale to unrelated third parties. Additionally, the Company sold used machinery
and equipment with a selling price of $980,000 ($611,000 and $776,000 during
the six months ended July 31, 1998 and 1997, respectively) to an affiliate for
ultimate sale to unrelated third parties.
These transactions are settled in the normal course of business.
Loans to officer/stockholder are due on demand and bear interest at the
applicable federal rate (5.66%) as published by the Internal Revenue Service.
Pursuant to a stockholders agreement between the Company and certain of its
stockholders, a stockholder desiring to sell its shares of common stock must
first offer them to the Company. The repurchase price is based on a formula of
one and one-half times the Company's consolidated book value at the end of the
fiscal year preceding the date on which the sale is made.
Refer to Note 9 for commitments with related parties.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
SIX MONTHS ENDED
YEAR ENDED
JULY 31,
JANUARY 31, ----------------1998
1998
1997
----------- -------- -------Current:
State and local.............................. $
Federal......................................
---------- -------- -------754,000
515,000 451,000
Deferred:
State and local..............................
Federal......................................
---------- -------- -------328,000
360,000 308,000
---------- -------- -------$1,082,000 $875,000 $759,000
========== ======== ========
232,000
522,000
57,000
271,000
$156,000 $135,000
359,000 316,000
108,000
252,000
92,000
216,000
The components of deferred tax assets and liabilities are as follows:
JANUARY 31,
1998
-----------
JULY 31,
1998
-----------
Deferred tax assets:
Accounts receivable.............................. $
37,000 $
46,000
Deferred tax liabilities:
Property and rental equipment and other.......... (2,513,000) (2,882,000)
----------- ----------$ 2,476,000 $ 2,836,000
=========== ===========
No valuation allowance has been recognized for deferred tax assets.
14
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
The income tax provision differs from the provision computed at the
statutory rate as follows:
SIX MONTHS
ENDED
YEAR ENDED
JULY 31
JANUARY 31, ------------1998
1998
1997
----------- --------Federal statutory tax rate........................
Tax effect of state taxes.........................
Reduction for changes in enacted state tax rates..
Cash surrender value of the insurance.............
Certain adjustments for prior estimates...........
----------Provision as reported...........................
===
=====
=====
34
9
(3)
(2)
(4)
34%
34
9
--(1)
42%
34
9
---43%
8. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan were
$150,000 for the year ended January 31, 1998. There were no discretionary
contributions for the six months ended July 31, 1998 and 1997, respectively.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute 25% of employee's contributions not to exceed 6% of their annual
compensation up to $160,000. Participants vest in the Company's contribution
at the rate of 20% annually after becoming eligible. Matching contributions
under the plan by the Company were $27,000 for the year ended January 31, 1998
and $21,000 and $11,000 for the six months ended July 31, 1998 and 1997,
respectively.
9. COMMITMENTS
The Company has a formal employment agreement with an officer of the Company
which extends through February 1999. The agreement provides for a minimum
annual salary and a bonus based upon the Company's performance.
The Company owns land and buildings which it rents to a third party in the
form of an operating lease. Future minimum rental income from this
noncancelable operating lease as of January 31, 1998 amounted to approximately
$58,000 which is expected to be received as follows: 1999, $30,000; 2000,
$28,000.
The Company leases a building from an affiliated company under the terms of
a lease expiring on July 31, 1999. The Company guarantees the debt of the
affiliated company which was $1,681,000 and $1,635,000 at January 31, 1998 and
July 31, 1998, respectively. Additionally, the Company has commitments under
an operating lease, expiring in 2002, with Fleet Capital Corporation for an
aircraft. The lease provides the Company with certain end of term rights and
early purchase options. The following is a schedule of all future minimum
lease payments:
15
MCCLINCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1997 IS
UNAUDITED)
FISCAL YEAR
----------1999............................................................ $441,000
2000............................................................ 279,000
2001............................................................ 116,000
2002............................................................
89,000
-------$925,000
========
Total rent expense was $329,000, $165,000 and $165,000 for the year ended
January 31, 1998 and the six months ended July 31, 1998 and 1997,
respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
McClinch Equipment Services, Inc:
We have audited the accompanying balance sheet of McClinch Equipment
Services, Inc. as of December 31, 1997, and the related statements of income
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 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 McClinch Equipment
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.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 6, 1998.
17
MCCLINCH EQUIPMENT SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1997
1998
------------ ----------(UNAUDITED)
ASSETS:
Cash and cash equivalents............................ $
314,000 $
439,000
Accounts receivable, less allowance for doubtful
accounts of $75,000.................................
3,611,000
2,839,000
State income taxes receivable........................
1,000
6,000
Inventories..........................................
354,000
459,000
Net investment in sales-type leases (Note 2).........
49,000
130,000
Fixed assets, net (Note 3)........................... 18,631,000
22,859,000
Other assets.........................................
29,000
25,000
Due from related parties.............................
151,000
------------ ----------Total assets....................................... $23,140,000 $26,757,000
=========== ===========
LIABILITIES:
Notes payable (Note 4)............................... $16,200,000 $18,021,000
Accounts payable and accrued expenses................
1,237,000
1,193,000
Due to related parties...............................
-822,000
Deferred state income taxes (Note 6).................
500,000
556,000
----------- ----------Total liabilities.................................. 17,937,000
20,592,000
----------- ----------Commitments (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized, 6,000 shares;
issued and outstanding, 100 shares...................
--Additional paid-in capital............................
10,000
10,000
Retained earnings.....................................
5,193,000
6,155,000
----------- ----------Total stockholders' equity..........................
5,203,000
6,165,000
----------- ----------Total liabilities and stockholders' equity.......... $23,140,000 $26,757,000
=========== ===========
The accompanying notes are an integral part of the financial statements.
18
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED
YEAR ENDED
JUNE 30,
DECEMBER 31, ---------------------1997
1998
1997
------------ ---------- ---------(UNAUDITED)
Revenues:
Equipment rentals and service........... $12,141,000
$6,626,000 $5,036,000
Sales...................................
4,759,000
2,415,000
2,426,000
-------------------- ---------16,900,000
9,041,000
7,462,000
-------------------- ---------Cost of equipment rentals and service
(Note 5).................................
6,520,000
3,911,000
2,994,000
Cost of sales.............................
3,642,000
1,852,000
1,859,000
-------------------- ---------Gross profit..........................
6,738,000
3,278,000
2,609,000
Selling expenses (Note 5).................
1,540,000
690,000
663,000
General and administrative expenses (Note
5).......................................
2,445,000
966,000
627,000
-------------------- ---------2,753,000
1,622,000
1,319,000
Other income (expense):
Other income............................
410,000
39,000
207,000
Interest income.........................
56,000
12,000
23,000
Interest expense........................ (1,167,000)
(651,000)
(509,000)
-------------------- ---------Income before provision for state income taxes...........................
2,052,000
1,022,000
1,040,000
Provision for state income taxes:
Current.................................
7,000
4,000
2,000
Deferred................................
100,000
56,000
68,000
-------------------- ---------Net income............................
1,945,000
962,000
970,000
Retained earnings, beginning of period....
3,248,000
5,193,000
3,248,000
-------------------- ---------Retained earnings, end of period...... $ 5,193,000
$6,155,000 $4,218,000
===========
========== ==========
The accompanying notes are an integral part of the financial statements.
19
MCCLINCH EQUIPMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED
JUNE 30,
DECEMBER 31, -----------------------1997
1998
1997
------------ ----------- ----------(UNAUDITED)
Cash flows from operating activities:
Net income............................ $ 1,945,000
$
962,000 $
970,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................
3,215,000
1,987,000
1,476,000
Gain on sale of equipment...........
(180,000)
(115,000)
(76,000)
Deferred state income taxes.........
100,000
56,000
68,000
--------------------- ----------5,080,000
2,890,000
2,438,000
Changes in assets and liabilities:
Accounts receivable................. (1,460,000)
772,000
30,000
State income taxes receivable.......
1,000
(5,000)
(4,000)
Inventories.........................
(2,000)
(105,000)
60,000
Other assets........................
(9,000)
4,000
-Accounts payable and accrued
expenses...........................
449,000
(44,000)
91,000
Due to related parties..............
(243,000)
973,000
124,000
--------------------- ----------Net cash provided by operating
activities.......................
3,816,000
4,485,000
2,739,000
--------------------- ----------Cash flows from investing activities:
Acquisition of property and rental
equipment............................ (8,814,000)
(6,425,000) (5,550,000)
Net investment in sales-type leases...
26,000
(81,000)
33,000
Proceeds from the sale of equipment...
495,000
325,000
200,000
--------------------- ----------Net cash used in investing
activities....................... (8,293,000)
(6,181,000) (5,317,000)
--------------------- ----------Cash flows from financing activities:
Borrowings under line of credit.......
8,750,000
5,800,000
5,500,000
Repayments under line of credit....... (4,050,000)
(3,979,000) (2,000,000)
--------------------- ----------Net cash provided by financing
activities.......................
4,700,000
1,821,000
3,500,000
--------------------- ----------Net increase in cash and cash
equivalents......................
223,000
125,000
922,000
Cash and cash equivalents, beginning of
period.................................
91,000
314,000
91,000
--------------------- ----------Cash and cash equivalents, end of
period........................... $
314,000
$
439,000 $ 1,013,000
===========
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................. $ 1,131,000
$
648,000 $
491,000
State income taxes...................
6,000
9,000
6,000
The accompanying notes are an integral part of the financial statements.
20
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Business:
McClinch Equipment Services, Inc. (the "Company") is an exclusive dealer for
JLG Industries in New Jersey, Delaware, Maryland, Washington D.C., and
Northern Virginia. The Company also has distribution agreements with other
manufacturers in New Jersey, Delaware, Maryland, Pennsylvania, Washington,
D.C. and Virginia. Revenues are derived principally from the rental of
aerialift equipment and material handling equipment and the sale of new and
used aerialift equipment to a diversified customer base including contractors
and other users.
Basis of Presentation:
The balance sheet is presented on an unclassified basis since it more
properly reflects the Company's operations as an equipment rental company.
Interim Financial Statements:
The accompanying balance sheet at June 30, 1998, and the statements of
income and retained earnings and cash flows for the six month periods June 30,
1998 and 1997 are unaudited and have been prepared on the same basis as the
audited financial statements included herein. In the opinion of management,
such unaudited financial statements include all adjustments necessary to
present fairly the information set forth therein, which consists solely of
normal recurring adjustments. The results of operations for such interim
periods are not necessarily indicative of results for the full year.
Revenue Recognition:
a. Operating Leases. Rental revenue is recognized over the lease term
(generally less than one year) as earned.
b. Sales-Type Leases: Sales are recorded at amounts equal to the present
value of the minimum lease payments at the inception of the lease. The
unearned interest income represents the difference between the minimum lease
payments and the present value of such payments. Such interest income is
recognized over the life of the lease using the interest method.
Cash and Cash Equivalents:
Cash and cash equivalents consist primarily of cash in banks and temporary
cash investments with original maturities of less than 90 days. These balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
Inventories:
Inventories, consisting principally of aerialift equipment and related spare
parts, are recorded at the lower of first-in, first-out cost or market.
Fixed Assets:
Fixed assets, consisting principally of the Company's fleet of aerialift
equipment, primarily held for rental under operating leases, is stated at cost
and is depreciated using the straight-line method over the following estimated
useful lives: rental equipment, shop equipment, furniture and fixtures and
computer equipment, 7 years; vehicles, 5 years; and leasehold improvements,
over the remaining term of the lease.
21
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and the resulting gains or losses are included in
income.
Income Taxes:
The Company has elected to be taxed as a Small Business Corporation under
the Internal Revenue Code. Under this regulation the Company's income is
reported for federal income tax purposes by the stockholders on their
individual tax returns. Accordingly, the financial statements reflect no
provision or liability for federal income taxes.
The small business corporation election can be made in some of the states in
which the Company does business and accordingly, the financial statements only
reflect state income tax provisions for the states in which the election can
not be made.
The Company recognizes deferred tax assets and liabilities for the expected
future state tax consequences of events that have been recognized in the
Company's financial statements or state tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. A valuation allowance is
established when it is more likely than not that deferred tax assets will not
be realized.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain amounts have been reclassified between balance sheet accounts in the
current year to more properly reflect the nature of the item.
2. SALES-TYPE LEASES
The net investment in sales-type leases consists of the following:
DECEMBER 31, JUNE 30,
1997
1998
------------ -------Minimum lease payments receivable.....................
Less, Unearned interest income......................
-------------Net investment in sales-type leases...................
=======
========
$53,000
(4,000)
$145,000
(15,000)
$49,000
$130,000
All future minimum lease payments are receivable during 1998 and 1999.
22
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
3. FIXED ASSETS
Fixed assets consist of the following:
DECEMBER
31,
JUNE 30,
1997
1998
----------- ----------Land and building.................................. $
-$
242,000
Rental equipment................................... 24,854,000
30,325,000
Vehicles...........................................
1,043,000
1,246,000
Shop equipment.....................................
35,000
79,000
Office equipment...................................
28,000
31,000
Leasehold improvements.............................
-32,000
----------- ----------25,960,000
31,955,000
Less, Accumulated depreciation................... (7,329,000) (9,096,000)
----------- ----------$18,631,000 $22,859,000
=========== ===========
4. NOTES PAYABLE
The Company has available a revolving line of credit with a bank syndicate
totaling the lesser of $28,000,000 or an amount based on eligible accounts
receivable, parts inventory, new equipment inventory, vehicles and rental
equipment. The unused portion of the line of credit was $11,800,000 and
$9,979,000 at December 31, 1997 and June 30, 1998, respectively.
At December 31, 1997, the outstanding balance bears interest at fluctuating
30-day LIBOR rate plus 2 1/4% (8.2% at December 31, 1997). Effective in
January 1998, the outstanding balance bears interest at the fluctuating 30-day
LIBOR rate plus 1 3/4% (7.4% at June 30, 1998) and the Company pays a
commitment fee of 1/4% per annum on the unused portion of the line of credit.
The Company has the option to borrow additional funds and/or convert all or a
portion of the outstanding balance to a fluctuating interest rate equal to the
lender's prime rate plus 1/2% or a fixed LIBOR rate plus 1 3/4% for 90, 180 or
360 days.
The line of credit terminates on November 30, 1999 and extends automatically
every six months unless either party gives written notice to the other. Upon
termination or default, amounts outstanding under this line of credit convert
to a note which is payable in 48 monthly installments.
Although there are no fixed payments on the principal, the Company expects
the aggregate maturities of debt outstanding at December 31, 1997 to
approximate the following:
1998........................................................... $4,050,000
1999........................................................... 4,050,000
2000........................................................... 4,050,000
2001........................................................... 4,050,000
Substantially all of the assets of the Company have been pledged as
collateral under the debt agreement. In addition, an affiliate of the Company
has guaranteed this debt.
The lenders require, among other terms, that the Company and its affiliate
on a combined basis meet certain financial ratios and obtain approval prior to
issuing of advances or loans to stockholders or officers which exceed certain
amounts, as defined.
23
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
5. RELATED PARTY TRANSACTIONS
An affiliate (through common ownership) provides services to the Company in
connection with its operations. The primary expenses, which are incurred and
paid by the affiliate and allocated to the Company, include salaries
($1,750,000 for the year ended December 31, 1997 and $500,000 and $330,000 for
the six months ended June 30, 1998 and 1997, respectively, included in general
and administrative expenses) and spare parts inventory, trucking services and
insurance expenses ($850,000, for the year ended December 31, 1997, and
$430,000 and $361,000 for the six months ended June 30, 1998 and June 30,
1997, respectively, included in cost of equipment rentals and service).
The Company rents equipment to the affiliate under an informal equipment
sharing agreement for ultimate rental to the affiliate's customers in New York
and Connecticut. In addition, the Company rents equipment from the affiliate
for ultimate rental to customers in its operating areas. The net revenue
earned (included in equipment rentals and service revenues) by the Company
under these arrangements for the year ended December 31, 1997 was $178,000 and
$239,000 and $230,000 for the six months ended June 30, 1998 and 1997,
respectively.
The Company purchased used rental equipment from an affiliate for ultimate
sale to unrelated third parties amounting to $964,000 for the year ended
December 31, 1997 and $574,000 and $739,000 for the six months ended June 30,
1998 and 1997, respectively. Additionally, the Company sold used rental
equipment to the affiliate for ultimate sale to unrelated third parties. The
selling price of such equipment amounted to $239,000 for the year ended
December 31, 1997 and $78,000 and $138,000 for the six months ended June 30,
1998 and 1997, respectively.
These transactions are settled in the normal course of business.
6. INCOME TAXES
Deferred state income taxes are recorded to reflect primarily the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities, principally fixed assets and accounts receivable, and
their financial reporting amounts at each year-end and for tax operating loss
carryforwards.
The components of deferred state tax assets and liabilities are as follows:
DECEMBER 31, JUNE 30,
1997
1998
------------ --------Deferred tax assets:
Net operating loss carryforward...................
Accounts receivable...............................
Deferred tax liabilities:
Fixed assets......................................
Other.............................................
----------------$(500,000) $(556,000)
=========
=========
$
22,000
5,000
(377,000)
(150,000)
$
22,000
5,000
(433,000)
(150,000)
No valuation allowance has been recognized for deferred tax assets. The
Company has various state net operating loss carryforwards at December 31,
1997 of approximately $357,000 which expire from 2002 through 2012.
24
MCCLINCH EQUIPMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 IS
UNAUDITED)
7. PROFIT-SHARING PLAN
The Company participates in a profit sharing plan with its affiliates which
provides for a discretionary contribution to a trust fund based on the
Company's net income for the year, to be allocated to all eligible employees
based on their proportional compensation. Nonunion employees are eligible for
participation in the plan after the completion of one year of service,
provided they have also reached age 21. After becoming eligible, employees
vest at an annual rate of 20%. Discretionary contributions under the plan by
the Company were $75,000 for the year ended December 31, 1997. There were no
discretionary contributions under the plan by the Company for the six months
ended June 30, 1998 and 1997.
The plan also provides for a salary deferral plan pursuant to Section 401(k)
of the Internal Revenue Code, as amended. The plan requires the Company to
contribute an amount equal to 25% of employees' contributions not to exceed 6%
of their annual compensation up to $160,000. Participants vest in the
Company's contribution at the rate of 20% annually after becoming eligible.
Matching contributions under the plan by the Company were $12,000 for the year
ended December 31, 1997 and $9,000 for the six months ended June 30, 1998 and
1997.
8. COMMITMENTS
The Company leases buildings in Delaware, Virginia, Maryland and New Jersey
from unrelated parties in the form of operating leases which expire in 1998
and 1999. Total future minimum lease payments of $190,000 are as follows:
1998, $163,000; and 1999, $27,000. In addition, the Company leases buildings
in New Jersey and Virginia on a month-to-month basis. Total rent expense of
$243,000 was incurred for the year ended December 31, 1997 and $135,000 and
$110,000 for the six months ended June 30, 1998 and 1997, respectively.
9. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1998, United Rentals, Inc. acquired all of the outstanding
shares of common stock of the Company.
25
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited pro forma consolidated balance sheet of the
Company as of June 30, 1998 gives effect to the acquisition of McClinch Inc.
and Subsidiaries and McClinch Equipment Services, Inc. (collectively,
"McClinch") and Equipment Supply Co., and affiliates ("Equipment Supply")
completed by the Company subsequent to such date and the financing of each
such acquisition, as if all such transactions had occurred on June 30, 1998.
The accompanying unaudited pro forma consolidated statements of operations of
the Company for the year ended December 31, 1997, gives effect to the
acquisition of Access Rentals, Inc. and affiliates, BNR Equipment Ltd. and
affiliates, (the "BNR Group"), Mission Valley Rentals, Inc., Power Rental
Co., Inc. ("Power"), McClinch and Equipment Supply (the "Acquired Companies")
and the financing thereof, as if all such transactions had occurred at the
beginning of the period. The accompanying unaudited pro forma consolidated
statements of operations of the Company for the six months ended June 30,
1998, gives effect to the acquisition of Access Rentals, Inc. and affiliates,
Power, McClinch and Equipment Supply and the financing thereof, as if all
such transactions had occurred at the beginning of the period.
The pro forma consolidated financial statements are based upon
assumptions and estimates, which are subject to, change. These
not necessarily indicative of the actual results of operations
have occurred, nor are they necessarily indicative of expected
future.
certain
statements are
that might
results in the
The pro forma consolidated financial statements should be read in conjunction
with the Company's historical Consolidated Financial Statements and related
Notes.
26
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998
(UNAUDITED)
McCLINCH
UNITED
RENTALS, INC.
-------------
EQUIPMENT
McCLINCH INC.
AND SUBSIDIARIES
----------------
ASSETS
Cash and cash
equivalents
Accounts receivable, net
Inventory
Rental equipment, net
Property and equipment,
net
$
EQUIPMENT
SUPPLY CO., AND
PRO FORMA
SERVICES, INC.
AFFILIATES
ADJUSTMENTS
----------------------------------------
5,486,092
$
697,000
$
439,000
67,202,625
33,255,606
298,956,195
4,697,000
1,276,000
18,513,000
2,839,000
6,000
21,809,000
32,349,116
2,650,000
1,050,000
$
PRO FORMA
CONSOLIDATED
---------------
1,784,124
$
(2,920,124) (a)
16,528,382
4,507,505
111,617,692
4,677,360
5,267,210
220,290
Intangible assets, net
429,027,657
3,639,033
171,285,833
Prepaid expenses and
other assets
22,887,178
997,000
614,000
7,022,229
-------------------------------------------------------------------TOTAL ASSETS
============
(b)
------------
-----------
18,332,000
-----------
20,592,000
------------
112,345,782
------------
$1,268,381,003
$
62,031,458
737,866,776
43,904,453
843,802,687
--------------
(48,499,243)
--------------
Total liabilities and
stockholders' equity
$889,164,469
$28,830,000
$26,757,000
$150,366,175
$173,263,359
============
===========
===========
============
============
==============
The accompanying notes are an integral part of these pro forma Consolidated
Financial Statements.
27
603,952,523
31,520,407
221,762,602
Stockholders'
Equity
Common stock
341,921
1,500
(1,500)
3
(h)
Additional paid-in
Capital
409,817,333
(592,000)
10,000
363,808
218,192
6,184,147
(h)
Retained earnings
(deficit)
8,234,912
11,090,000
6,155,000
37,655,085
(54,900,085)
-----------------------------------------------------------------TOTAL STOCKHOLDERS'
EQUITY
418,394,166
10,498,000
6,165,000
38,020,393
-----------------------------------------------------
41,536,616
(d)
$889,164,469
$28,830,000
$26,757,000
$150,366,175
$173,263,359
===========
===========
============
============
==============
470,770,303
5,486,092
91,267,007
39,045,111
455,573,247
(c)
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable
$ 55,855,965
$ 1,334,000
$ 1,193,000
$ 3,648,493
Debt
389,181,344
14,083,000
18,021,000
94,818,830
$(126,922,830) (e)
348,685,432 (f)
Accrued expenses and
other liabilities
25,732,994
2,915,000
1,378,000
13,878,459
------------------------------------------------------------------TOTAL LIABILITIES
$
(g)
341,924
(g)
416,001,480
(g)
8,234,912
424,578,316
$1,268,381,003
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
UNITED
RENTALS, INC.
--------------
ACCESS
BNR GROUP
RENTALS, INC. OF COMPANIES
------------- ------------
MISSION VALLEY
RENTALS, INC.
--------------
POWER
RENTAL CO. INC.
----------------
REVENUES
Equipment
Rentals
$ 7,018,564
$42,316,423
$ 9,402,842
$7,852,751
Sales of equipment
and merchandise and
other revenue
3,614,834
9,942,738
14,612,355
764,920
-----------------------------------------------------Total revenues
Cost of revenues
Cost of equipment
rentals, excluding
depreciation
Rental equipment
depreciation
Cost of sales and
other operating
expenses
------------Total cost of
revenues
-------------
10,633,398
52,259,161
24,015,197
8,617,671
5,153,898
40,536,455
3,203,009
12,415,655
4,662,325
3,436,601
12,677,711
1,038,947
8,480,016
1,588,710
1,746,340
9,706,225
2,580,162
8,861,832
10,360,520
517,661
----------------------------------------
3,648,399
6,822,118
29,757,503
16,611,555
5,700,602
----------------------------------------
26,032,335
Gross profit
3,811,280
22,501,658
7,403,642
2,917,069
Selling, general and
administrative
expenses
3,311,669
10,439,727
5,402,206
3,062,607
Non-rental
depreciation and
amortization
262,102
1,354,639
104,486
31,695
---------------------------------------------------Operating income (loss)
Interest expense
Other (income)
expense, net
-------------
$35,382,557
237,509
454,072
10,707,292
3,700,559
1,896,950
501,428
(270,701)
(809,146)
------------------------------
Income (loss) before
provision (benefit) for
income taxes
54,138
7,815,879
14,504,120
12,146,632
1,226,484
(177,233)
433,972
1,131,004
2,344,269
(61,269)
(370,604)
-----------
1,395,522
(549,936)
(842,661)
Provision (benefit) for
income taxes
20,516
2,744,691
458,302
(72,801)
---------------------------------------------------Net income (loss)
$
===========
===========
33,622
$ 5,071,188
$
937,220
$(477,135)
===========
==========
===========
Basic earnings per
share
Diluted earnings per
share
$0.00
=====
$0.00
=====
28
$(842,661)
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
McCLINCH
EQUIPMENT
McCLINCH INC.
EQUIPMENT
SUPPLY CO. AND
AND SUBSIDIARIES
SERVICES. INC.
AFFILIATES
-----------------------------------------REVENUES
Equipment
Rentals
Sales of equipment
and merchandise and
other revenue
---------------------
TOTAL REVENUES
Cost of revenues
Cost of equipment
rentals, excluding
depreciation
Rental equipment
depreciation
Cost of sales and
other operating
expenses
-------------------
TOTAL COST OF
REVENUES
----------
----------
Gross profit
Selling, general and
Administrative
expenses
Non-rental
depreciation and
amortization
----------------Operating income
Interest expense
Other (income)
expense, net
---------
$14,159,000
8,974,000
-------------
PRO FORMA
ADJUSTMENTS
------------
$10,503,000
6,397,000
-----------
$78,141,502
$204,776,639
16,416,661
-------------
23,133,000
16,900,000
5,485,000
1,531,000
23,509,529
2,843,000
1,279,000
20,397,030
6,187,000
-----------
7,352,000
------------
11,362,048
--------------
14,515,000
----------8,618,000
4,574,000
46,000
-----------
10,162,000
-----------6,738,000
3,982,000
3,000
-----------
3,998,000
1,028,000
2,753,000
1,167,000
(249,000)
-----------
(466,000)
-----------
Income (loss) before
provision (benefit) for
income taxes
3,219,000
2,052,000
Provision (benefit) for income
taxes
------------------NET INCOME (LOSS)
==========
==========
1,082,000
----------$2,137,000
===========
----------
PRO FORMA
CONSOLIDATED
-------------
107,000
----------$1,945,000
============
65,876,406
94,558,163
$270,653,045
66,920,830
$(8,487,629)
(a)
50,869,622
55,268,607
(8,487,629)
-------------39,289,556
17,874,879
156,382,091
8,487,629
(9,459,138)
706,019
878,342
6,929,848
------------20,536,335
11,185,934
38,591,639
10,310,900
(19,809,634)
33,759,538
114,270,954
(b)
(c)
52,040,601
(d)
10,836,596
51,393,757
34,765,138
(e)
(f)
(2,858,438)
-------------
(5,085,158)
12,208,839
21,713,777
(3,639,004)
1,242,142
3,320,798
(g)
------------$10,966,697
$(6,959,802)
=============
8,902,648
$
12,811,129
Basic earnings per
share
$0.52
=====
Diluted earnings per
share
$0.48
=====
The accompanying notes are an integral part of these pro forma
consolidated financial statements.
29
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
McCLINCH
UNITED
RENTALS, INC.
--------------
ACCESS
RENTALS, INC.
--------------
POWER
McCLINCH INC
EQUIPMENT
RENTAL CO., INC.
AND SUBSIDIARIES SERVICES,INC.
------------------------------ -------------
REVENUES
Equipment
Rentals
$86,104,719
$2,312,580
$14,108,346
$8,003,000
Sales of equipment
and merchandise and
other revenue
41,246,561
841,485
3,044,141
5,756,000
----------------------------------------------TOTAL REVENUES
127,351,280
3,154,065
17,152,487
13,759,000
$5,427,000
3,614,000
9,041,000
Cost of revenues
Cost of equipment
rentals, excluding
depreciation
35,608,405
1,131,353
6,268,462
3,597,000
985,000
Rental equipment
depreciation
14,565,250
401,688
5,321,040
1,804,000
785,000
Cost of sales and
other operating
expenses
29,938,822
741,458
1,268,710
3,697,000
----------------------------------------------TOTAL COST OF
REVENUES
-----------
80,112,477
2,274,499
12,858,212
9,098,000
--------------------------------------
GROSS PROFIT
Selling, general and
administrative
expenses
Non-rental
depreciation and
amortization
-----------
879,566
4,294,275
4,661,000
3,278,000
25,101,187
835,763
5,901,982
2,087,000
1,654,000
Operating income (loss) 18,322,380
Income (loss) before
provision (benefit)
for income taxes
(74,252)
Basic earnings per
share
=====
Diluted earnings per
share
=====
EQUIPMENT
SUPPLY CO.
AND AFFILIATES
--------------
-----------
2,000
2,549,000
1,622,000
(155,031)
483,000
651,000
(37,000)
(51,000)
---------
(3,331,874)
2,103,000
1,022,000
875,000
60,000
$8,220,076
$(74,252)
$(3,331,874)
$1,228,000
=========
============
===========
==========
$962,000
----------
$0.27
$0.23
PRO FORMA
ADJUSTMENTS
-----------
REVENUES
Equipment
Rentals
Sales of equipment
and merchandise and
other revenue
25,000
1,298,331
----------
Provision (benefit) for
income taxes
5,693,143
---------------------------
NET INCOME (LOSS)
==========
(2,188,574)
(52,224)
-----------
13,913,219
580,867
------------------
147,387
(527,547)
--------
22,892
20,911
4,936,708
---------
5,763,000
47,238,803
3,815,236
---------------------
Interest expense
Other (income)
expense, net
3,993,000
PRO FORMA
CONSOLIDATED
------------
$34,381,555
8,958,359
-----------
-----------
150,337,200
63,460,546
----------
TOTAL REVENUES
43,339,914
Cost of revenues
Cost of equipment
rentals, excluding
depreciation
12,528,730
Rental equipment
depreciation
10,368,052
213,797,746
60,118,950
$(3,960,246)(a)
Cost of sales and
other operating
expenses
7,267,160
-------------------------------
TOTAL COST OF
REVENUES
----------
30,163,942
(3,960,246)
---------------------
29,284,784
46,906,150
136,309,884
GROSS PROFIT
13,175,972
3,960,246
77,487,862
Selling, general and
administrative
expenses
9,672,514
(3,424,470)(b) 41,840,069
12,093 (c)
Non-rental
depreciation and
amortization
358,520
2,779,404 (d) 7,583,919
------------------------------
Operating income (loss
3,144,938
4,593,219
28,063,874
Interest expense
4,220,244
(6,168,620)(e) 20,507,808
Other (income)
14,939,758 (f)
expense, net
(198,381)
(1,021,183)
---------------------------Income (loss) before
provision (benefit)
for income taxes
(876,925)
(4,177,919)
8,577,249
Provision (benefit) fo
income taxes
(2,637,684)
850,757 (g) 4,841,216
----------------------------
NET INCOME (LOSS)
$1,760,759
$5,028,676
==========
===========
==========
Basic earnings per
share
=====
Diluted earnings per
share
=====
$3,736,033
$0.11
$0.09
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
30
UNITED RENTALS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
1.
BACKGROUND
The Company is a large geographically diversified equipment rental
company with operations in the United States and Canada. The Company
rents a broad array of equipment to a diverse customer base that
includes construction industry participants, industrial companies,
homeowners and other individuals. The Company also sells rental
equipment, acts as a distributor for certain new equipment, and sells
related merchandise and parts.
2.
HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in the pro forma consolidated
balance sheet represent the financial position of the Company, McClinch
and Equipment Supply as of June 30, 1998.
The historical financial data presented for the year ended December 31,
1997 in the pro forma consolidated statements of operations represent
the results of operations of (i) the Company for the period from August
14, 1997 (inception) to December 31, 1997 and (ii) each of the Acquired
Companies for the year ended December 31, 1997.
The historical financial data presented in the pro forma consolidated
statements of operations for the six months ended June 30, 1998
represent the results of operations of (i) the Company, Equipment Supply
and McClinch for the six months ended June 30, 1998 and (ii) Access
Rentals,Inc. and affiliate for the period from January 1, 1998 to
January 21, 1998(date of acquisition) and (iii) Power for the period
from April 1, 1998 through June 8, 1998 (date of acquisition). BNR Group
and Mission Valley Rentals, Inc. were acquired effective
January 1, 1998.
The data in these Pro Forma consolidated financial Statements are
derived from the respective financial statements of the Company and each
of the Acquired Companies.
The historical financial statements of the BNR Group are stated in
Canadian dollars and prepared in accordance with Canadian generally
accepted accounting principles. The historical financial data for the
BNR Group presented in these pro forma onsolidated financial statements
reflect the translation of these statements into US dollars and have
been adjusted to conform to US generally accepted accounting principles.
3.
ACQUISITIONS
The aggregate consideration paid by the Company for McClinch and
Equipment Supply (the "Acquisition Consideration") was $230.9 million
and consisted of approximately $224.7 million in cash and 305,334 shares
of Common Stock.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of McClinch and Equipment
supply approximates fair value, with the exception of rental equipment
and other property and equipment, which required adjustments to reflect
fair market value. The following table presents the allocation of
purchase prices of McClinch and Equipment Supply:
31
EQUIPMENT
SUPPLY CO., AND
McCLINCH
---------------
AFFILIATES
--------------
TOTAL
------------
Purchase price
$
97,175,192
$ 133,691,684
Net assets acquired
16,663,000
38,020,393
Fair value adjustments:
Rental equipment
2,116,642
2,560,718
Property and
Equipment
(12,500)
232,790
---------------------------- ------------Intangibles recognized
$
78,408,050
$ 92,877,783
==============
=============== =============
4.
$230,866,876
54,683,393
4,677,360
220,290
$171,285,833
PRO FORMA ADJUSTMENTS
Balance sheet adjustments:
a. Records the portion of the Acquisition Consideration and debt repayment
paid from available cash on hand.
b.
Adjusts the carrying value of rental equipment to fair market value.
c. Adjusts the carrying value of property and equipment to fair market
value.
d. Records the excess of the Acquisition Consideration over the estimated
fair value of net assets acquired.
e. Records the repayment of certain indebtedness of Power and Equipment
Supply.
f. Records the portion of the Acquisition Consideration and debt repayment
funded by borrowing under the Company's credit facility.
g. Records the elimination of the stockholders' equity of McClinch and
Equipment Supply.
h. Records the portion of the Acquisition Consideration paid in the form of
Common Stock.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following
lives(subject to a salvage value ranging from 0 to 10%):
Rental equipment...............................2-10 years
Other property and equipment ..................2-15 years
b. Adjusts the compensation to former owners and executives of the Acquired
Companies to current levels of compensation.
32
c. Adjusts the lease expense for real estate utilized by the Acquired
Companies to current lease agreements.
d. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions of the Acquired Companies using an
estimated life of 40 years.
e. Eliminates interest expense related to the outstanding indebtedness of
the Acquired Companies which was repaid by the Company.
f. Records interest expense relating to the portion of the Acquisition
Consideration funded through borrowing under the Company's credit
facility using a rate per annum of 7%.
g.
5.
Records a provision for income taxes at an estimated rate of 41%.
EARNINGS PER SHARE
Earnings per share is calculated by dividing the net income by the weighted
average outstanding shares during the period. The weighted average outstanding
shares during the periods are calculated as follows:
December 31, 1997
-----------------
June 30, 1998
--------------
Basic:
Shares outstanding
Shares issued for acquisitions
--------------------------24,765,503
34,497,419
===============
=============
Dilutive:
Shares outstanding
Shares issued for acquisitions
Common stock equivalents (based on the initial public
offering price of $13.50 per share for 1997)
------------------------26,558,445
===============
33
39,619,479
=============
23,899,119
866,384
34,192,085
305,334
23,899,119
866,384
1,792,942
34,192,085
305,334
5,122,060
EXHIBIT 10
- --------------------------------------------------------------------------------
SHARE PURCHASE AGREEMENT
among
UNITED RENTALS , INC.
and
THE PARTIES LISTED ON THE SIGNATURE PAGE HERETO
___________________________________
for all of the outstanding shares of
McCLINCH, INC.
___________________________________
July 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
---1.
1.1
1.2
1.3
1.4
Sale and Purchase of Shares
Sale and Purchase of Shares
Purchase Price Adjustment
Payment of Purchase Price
Delivery of Shares
2.
Closing; Closing Date
3.
Representations and Warranties of Each Seller
3.1 Title to the Shares
3.2 Authority to Execute and Perform Agreement
[3.3 Purchase for Investment
2
2
2
7
8
8
8
8
9
10
4.
Representations and Warranties of the Sellers as
to the Company
11
4.1 Corporate Organization
11
4.2 Subsidiaries
11
4.3 Outstanding Capital Stock
12
4.4 Financial Statements
13
4.5 Liabilities; Ordinary Course
14
4.6 Contravention
15
4.7 Taxes
16
4.8 Claims and Proceedings
21
4.9 Contracts
22
4.10 Real Estate
24
4.11 Employee Benefit Plans
26
4.12 Insurance
28
4.13 Tangible Properties
29
4.14 Related Party Transactions
29
4.15 Banks
29
4.16 Permits
30
4.17 Compliance with Applicable Laws
30
4.18 Employment Agreements
31
4.19 Labor and Employment Matters
31
Page
---4.20
4.21
4.22
4.23
4.24
5.
5.1
5.2
5.3
5.4
5.5
5.6
5.7
Intangible Property
Environmental Compliance
Finders and Investment Bankers
Certain Actions
No Other Representations and Warranties
Representations and Warranties of the Buyer
Corporate Organization
Authority to Execute and Perform Agreement
Purchase for Investment
[Intentionally omitted]
Sources of Information
Finders and Investment Bankers
Litigation.
32
33
34
35
35
35
35
36
37
37
37
38
38
6.
Covenants and Agreements
6.1
Conduct of Business of the Company
6.2
Access to Information; Confidentiality
6.3
Disclosure Supplements
6.4
Expenses
6.5
Further Assurances
6.6
[Intentionally Omitted]
6.7
Transfer Taxes.
6.8
Compliance with Antitrust Laws
6.9
SOC Rebates
6.10 Non-Compete
6.11 Excluded Assets and Liabilities.
6.12 Insurance Tail
6.13 Payment of Indebtedness
6.14 Rental Ready Adjustment
6.15 No Solicitation
6.16 Publicity
38
42
44
45
45
46
46
46
47
47
51
51
51
52
55
55
38
7.
7.1
7.2
7.3
Tax and Related Matters
Taxes; Section 338(h)(10) Election
Tax Administration
Contests
56
60
65
8.
8.1
8.2
Environmental Matters.
The Phase I Investigations.
The Phase II Investigations.
67
68
56
67
Page
---8.3 Certain Procedures Relating to the Consultant's
Estimates
8.4 Review of the Estimated Costs of Remediation
8.5 The Sellers' Indemnification of Buyer
8.6 Buyer's Indemnification of the Sellers.
8.7 Exclusive Remedy
8.8 Limitation of Sellers' Duty to Indemnify
8.9 Expenses in the Ordinary Course Excluded from
Indemnification
8.10 Sellers' Right to Control Remedial Action.
8.11 Environmental Indemnification Procedure
8.12 Access to Information
8.13 Matters Involving Third Parties
69
69
70
71
72
72
72
73
73
74
74
9.
Conditions Precedent to the Obligation of the Buyer to Close
9.1
Representations and Covenants
75
9.2
HSR Act Filing
76
9.3
No Injunction or Violation of Law
76
9.4
Title Policies
76
9.5
Simultaneous Closing.
77
9.6
Resignations
77
9.7
Reports.
77
9.8
Escrow Agreement
77
9.9
Legal Opinions
77
9.10
Affidavits
78
9.11
Affiliate Contracts
78
9.12
Certificates
78
9.13
Lease of Company Headquarters
78
9.14
Employment/Consulting Agreements
78
9.15
Release of Guaranty
79
9.16
Material Adverse Effect
79
10. Conditions Precedent to the Obligation of the Sellers to Close
10.1
Representations and Covenants
79
10.2
HSR Act Filing
80
10.3
No Injunction or Violation of Law
80
[10.4 United Rentals, Inc. Warrants
80
10.5
Lease of Company Headquarters
81
10.6
Employment/Consulting Agreements
81
10.7
Simultaneous Closing
81
10.8
Reports.
81
10.9
Escrow Agreement
81
10.10 Legal Opinion
82
75
79
Page
---10.11
10.12
Certificate
Guaranty
82
82
11.
11.1
Survival of Representations, Warranties and Covenants
General Survival
82
12.
12.1
12.2
12.3
12.4
12.5
12.6
General Indemnification
Indemnification of the Buyer
Indemnification of the Sellers
Notice and Opportunity to Defend
Exclusive Remedies
Sellers' Representative
Nature of Payments
83
89
90
92
92
93
13.
13.1
13.2
Termination of Agreement
Termination
Survival After Termination
94
95
14.
14.1
14.2
14.3
14.4
14.5
14.6
14.7
14.8
14.9
14.10
14.11
14.12
14.13
Miscellaneous
Certain Definitions
Nature of Obligations
Notices
Entire Agreement
Waivers and Amendments; Non-Contractual Remedies
Governing Law
Binding Effect; Assignment
Usage
Counterparts
Exhibits and Schedules
Headings
Severability of Provisions
Consent to Jurisdiction
ANNEX A
ANNEX B
ANNEX C
82
83
94
96
96
101
102
103
103
104
104
104
104
105
105
105
106
Schedules
- ---------
Page
----
Schedule 1.2(b).
--------------Schedule 1.2(b)
--------------Schedule 1.2(b)
--------------Schedule 1.2(a)
--------------Schedule 1.3(a)
--------------Schedule 1.3(a)
--------------Schedule 1.3(b)
Schedule 3.2
-----------Schedule 4.1
-----------Schedule 4.2
-----------Schedule 4.2
-----------Schedule 4.3
-----------Schedule 4.3
Schedule 4.4
Schedule 4.4(b)
Schedule 4.5(a)
Schedule 4.5(b)
Schedule 4.6(a)
Schedule 4.6(b)
Schedule 4.7(h)
--------------Schedule 4.8
Schedule 4.9
Schedule 4.9
Schedule 4.10(a)
Schedule 4.10(b)
Schedule 4.11(a)
Schedule 4.11(c)
Schedule 4.11(d)
Schedule 4.11(f)
Schedule 4.12
Schedule 4.14
Schedule 4.14
Schedule 4.15
Schedule 4.15
------------Schedule 4.17
2
3
3
4
7
7
7
10
11
11
11
12
12
13
13
14
14
15
16
19
21
22
24
24
25
26
27
27
27
28
29
29
29
30
30
Schedules
- --------Schedule 4.18
Schedule 4.19(a)
Schedule 4.19(a)
---------------Schedule 4.19(b)
Schedule 4.20
Schedule 4.20
------------Schedule 4.21
Schedule 4.9
Schedule 4.18
Schedule 6.14(b)
---------------Schedule 4.10(a)
Schedule 14.1(b)
---------------Annex A
Annex B [Escrow Agreement]
Annex C [Addresses for Notices]
Page
---31
31
31
31
32
32
33
40
41
54
76
100
1
SHARE PURCHASE AGREEMENT
-----------------------SHARE PURCHASE AGREEMENT, dated as of July __, 1998, among UNITED RENTALS,
INC., a Delaware corporation (the "Buyer"), and THE PERSONS LISTED ON THE
----SIGNATURE PAGE HERETO AS SELLERS (the "Sellers"), for the purchase and sale
------of all of the issued and outstanding shares of capital stock of McCLINCH,
INC., a Connecticut corporation (the "Company").
------The Company is engaged in the business of renting, selling and servicing
aerial lifts, rough terrain forklifts, industrial forklifts, cranes, material
handling products, generators, welders, light towers and assorted
construction equipment in the Northeast and Mid-Atlantic regions of the
United States (the "Business").
-------The Sellers are the beneficial and record owners of all of the issued and
outstanding shares of capital stock of the Company (the "Shares"), consisting
-----of 897 shares of Common Stock, no par value per share.
The Sellers wish to sell the Shares to the Buyer, and the Buyer wishes to
purchase the Shares from the Sellers, upon the terms and subject to the
conditions of this Agreement.
Certain capitalized terms not otherwise defined and used in this Agreement
are defined in Section 14.1.
Accordingly, the parties agree as follows:
1.
Sale and Purchase of Shares.
1.1 Sale and Purchase of Shares. At the closing provided for in
--- --------------------------Article 2 (the "Closing"), upon the terms and subject to the conditions of
------this Agreement and in reliance upon the representations, warranties and
agreements contained herein, the Sellers shall sell to the Buyer, and the
Buyer shall purchase from the Sellers, all of the Shares for an aggregate
consideration (the "Purchase Price") equal to $56,300,000, subject to
--------------
2
adjustment as provided in Section 1.2.
accordance with Section 1.3.
1.2
---
The Purchase Price shall be paid in
Purchase Price Adjustment.
-------------------------
(a) Determination of Net Worth. As used herein, the "Net Worth" of
--- ---------------------------------the Company as of any particular date shall mean an amount equal to the
tangible net worth of the Company and its consolidated Subsidiaries determined
by subtracting total liabilities of the Company and its consolidated
Subsidiaries as at such date from the total tangible assets of the Company
and its consolidated Subsidiaries as at such date, in each case as shown on
the balance sheet of the Company as at such date; provided, however, that for
-------- ------the purposes of the Preliminary Closing Balance Sheet and Audited Closing
Balance Sheet, Net Worth shall be calculated for the period from January 31,
1997 to the Closing Date, using the depreciation methods set forth on Schedule
-------1.2(b).
-----(b) Preparation of Closing Adjusted Net Worth Schedule. As soon as
--- -------------------------------------------------practicable, the Sellers or their designee shall prepare (based on data and
financial statements supplied by the Company) on a basis consistent with the
preparation of the Balance Sheet (as defined in Section 4.4) and as
contemplated by Schedule 1.2(b), and deliver to the Buyer and Coopers &
--------------Lybrand L.L.P., a consolidated balance sheet of the Company as of the close of
business on the Closing Date (the "Preliminary Closing Balance Sheet"). The
--------------------------------Sellers shall cause the Preliminary Closing Balance Sheet to be audited by
Coopers & Lybrand L.L.P. (the "Audited Closing Balance Sheet") which firm
----------------------------shall deliver an opinion stating that the Audited Closing Balance Sheet
presents fairly, in all material respects, the financial position of the
Company and its consolidated Subsidiaries at the Closing Date in accordance
with GAAP applied on a basis consistent with the Balance Sheet. The
Preliminary Closing Balance Sheet and the Audited Closing Balance Sheet shall
(i) not include (x) the assets of the Company or any Subsidiary and the
liabilities relating thereto set forth in Schedule 1.2(b) (the "Excluded
---------------------Assets and Liabilities"), (y) any expenses, amounts or prepayment penalties
---------------------incurred in connection with the prepayment or repayment of any indebtedness of
the Company or any Subsidiary at Closing except for any
3
such prepayment penalties in excess of $37,500/1/ in the aggregate and (z) any
amount the Buyer is obligated to pay pursuant to this Agreement (other than
amounts referred to in clause (ii) below) or any amount the Sellers are
obligated to pay pursuant to Section 6.4 and (ii) include the principal amount
of and interest due on all indebtedness of the Company or any of its
Subsidiaries as of the Closing Date (whether or not such amounts are repaid by
the Buyer on such date). The Audited Closing Balance Sheet shall include a
schedule (the "Closing Adjusted Net Worth Schedule"), prepared by Coopers &
----------------------------------Lybrand L.L.P., calculating the Net Worth of the Company and its consolidated
Subsidiaries as of the close of business on the Closing Date, as adjusted in
accordance with the provisions of Schedule 1.2(a) (as so adjusted and as set
--------------forth on the Closing Adjusted Net Worth Schedule, the "Closing Adjusted Net
-------------------Worth"). The Audited Closing Balance Sheet and the Closing Adjusted Net
----Worth Schedule shall be provided by the Sellers to the Buyer promptly upon the
availability thereof and in any event within 75 days following the Closing
Date. The Buyer will (and will cause the Company to) provide the Sellers or
their designee and Coopers & Lybrand L.L.P. full access to the books, ledgers,
files, reports and operating records of the Company and the then current
employees of the Company and will fully cooperate in the Sellers' preparation
of the Preliminary Closing Balance Sheet, the Audited Closing Balance Sheet
and the Closing Adjusted Net Worth Schedule. The fees and expenses incurred in
connection with the preparation of the Preliminary Closing Balance Sheet, the
Audited Closing Balance Sheet and the Closing Adjusted Net Worth Schedule
shall be paid by the Sellers.
(c) Buyer's Review. Upon receipt of the Audited Closing Balance
--- -------------Sheet and the Closing Adjusted Net Worth Schedule, the Buyer and its
independent accountants shall have the right during the succeeding 30-day
period to examine the Audited Closing Balance Sheet, the Closing Adjusted Net
Worth Schedule and all books and records used to prepare the Balance Sheet,
the Audited Closing Balance Sheet and the Closing
- ---------/1// Note to draft: This number will change in MES and Grey Fox Agreements.
4
Adjusted Net Worth Schedule. The Sellers shall use commercially reasonable
efforts to cause Coopers & Lybrand L.L.P. to provide access to the work papers
used to prepare, audit and review the Balance Sheet, the Audited Closing
Balance Sheet and the Closing Adjusted Net Worth Schedule and supporting their
opinion referred to above, and the Sellers shall provide the Buyer with access
to the books and records used in, and employees involved with, the preparation
of the Balance Sheet, the Audited Closing Balance Sheet and the Closing
Adjusted Net Worth Schedule.
If the Buyer does not agree that the Closing Adjusted Net Worth has
been calculated on the basis set forth in Section 1.2(b), the Buyer shall so
notify the Sellers in writing (such notice, the "Disagreement Notice") on or
------------------before the last day of the 30-day period after delivery to the Buyer of the
Audited Closing Balance Sheet and Closing Adjusted Net Worth Schedule,
setting forth a specific description of the Buyer's objections and the amount
of the adjustment which the Buyer believes should be made to each item of its
objection. If the Buyer does not deliver a Disagreement Notice within such
30-day period, the Audited Closing Balance Sheet, the Closing Adjusted Net
Worth Schedule and the Closing Adjusted Net Worth shall be deemed to have
been accepted by Buyer.
(d) Dispute Resolution. In the event that the Buyer delivers a
--- -----------------Disagreement Notice in accordance with Section 1.2(c), the Sellers'
Representative and the Buyer shall attempt to resolve the objections set forth
therein within 15 days of the Sellers' receipt of such Disagreement Notice.
The objections set forth on the Disagreement Notice that are resolved by the
Buyer and the Sellers' Representative in accordance with this Section 1.2(d)
shall collectively be referred to herein as the "Resolved Objections."
------------------(e) Differences. If the Sellers' Representative and the Buyer are
--- ----------unable to resolve all the objections set forth in the Disagreement Notice
within such 15-day period, they shall jointly appoint Deloitte & Touche LLP
(the "CPA Firm") within five days of the end of such 15-day period. The CPA
-------Firm, acting as experts and not as arbitrators, shall review the objections
set forth in the Disagreement Notice which are not Resolved Objections
(collectively, the "Differences") and determine, based on the requirements set
-----------
5
forth in Section 1.2(b) and only with respect to Differences submitted to the
CPA Firm, whether and to what extent the Closing Adjusted Net Worth Schedule
requires adjustments. The fees and disbursements of the CPA Firm shall be
allocated 50% to the Buyer and 50% to the Sellers. The Sellers and the Buyer
shall (and shall cause the Company to) provide to the CPA Firm full
cooperation. The CPA Firm's resolution of the Differences shall be conclusive
and binding upon the parties. The Differences as resolved by the CPA Firm in
accordance with this Section 1.2(e) shall collectively be referred to herein
as the "CPA-Determined Differences."
-------------------------(f) Adjustment. On the fifth Business Day following the earliest to
--- ---------occur of (such fifth Business Day, the "Adjustment Payment Date") (x) the
----------------------acceptance in full by the Buyer of the Audited Closing Balance Sheet, Closing
Adjusted Net Worth and Closing Adjusted Net Worth Schedule, (y) the resolution
by the Buyer and the Sellers' Representative of all objections set forth on
the Disagreement Notice, if any, and (z) the resolution by the CPA Firm of all
Differences, as an adjustment to the Purchase Price, either (i) the Buyer
shall pay to the Sellers an amount equal to the excess, if any, of the Closing
Adjusted Net Worth (as increased or decreased, as the case may be, by the
Resolved Objections and the CPA-Determined Differences) over the Year-End
Adjusted Net Worth (as hereinafter defined) or (ii) the Sellers shall pay to
the Buyer an amount equal to the excess (the "Overpayment Amount"), if any, of
-----------------the Year-End Adjusted Net Worth over the Closing Adjusted Net Worth (as
increased or decreased, as the case may be, by the Resolved Objections and the
CPA-Determined Differences). In either case, such amount shall be payable on
the Adjustment Payment Date, with interest, based upon a year of 360 days for
the actual number of days elapsed, accrued from the Closing Date until, but
not including, the Adjustment Payment Date at the Reference Rate. Such
payment shall be made by wire transfer of immediately available funds to a
bank account or accounts designated by the Sellers or the Buyer, as the case
may be. "Year-end Adjusted Net Worth" shall mean $8,815,000.
---------------------------
6
1.3 Payment of Purchase Price. At the Closing,
--- ------------------------shall be paid by the Buyer as follows:
the Purchase Price
(a) the Buyer shall deliver to each Seller cash by wire transfer of
immediately available funds to the account or accounts designated by each
Seller on Schedule 1.3(a) hereto, each such Seller's respective pro rata
--------------portion (the "Pro Rata Portion"), as specified on Schedule 1.3(a), of an
-----------------------------amount equal to the Purchase Price minus the Escrow Amount.
(b) the Buyer shall deliver to the escrow agent to be selected by
the Sellers' Representative and the Buyer prior to the Closing (the "Escrow
-----Agent") cash, by wire transfer of immediately available funds to the account
----of such Escrow Agent designated on Schedule 1.3(b), in an amount equal to
--------------$2,815,000 (the "Escrow Amount"), which shall be held by the Escrow Agent and
------------applied as set forth herein and in the escrow agreement among the Buyer, the
Sellers' Representative and the Escrow Agent (the "Escrow Agreement") in the
---------------form of Annex B hereto.
1.4 Delivery of Shares. At the Closing, the Sellers shall deliver
--- -----------------to the Buyer share certificates constituting all of the Shares, free and clear
of all Liens, duly endorsed in blank or accompanied by stock powers duly
executed in blank, in proper form for transfer.
2. Closing; Closing Date. The Closing of the sale and purchase of
-- --------------------the Shares contemplated hereby shall take place at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York, on
the date which is the later to occur of August 27, 1998 and the third Business
Day after all of the conditions to the Closing set forth in Sections 9.2, 9.7,
10.2 and 10.10 have been satisfied or waived by the party entitled to waive the
same or on such other date as the Buyer and the Sellers' Representative may
mutually agree (such date being the "Scheduled Closing"). The time and date
----------------upon which the Closing occurs is herein called the "Closing Date."
-----------3. Representations and Warranties of Each Seller. The Sellers,
-- --------------------------------------------jointly and severally (subject to Section 14.2), represent and warrant to the
Buyer as follows:
7
3.1 Title to the Shares. Each Seller owns the Shares set forth
--- ------------------opposite such Seller's name on Annex A beneficially and of record, and, upon
------delivery of and payment for such Shares at the Closing as herein provided,
such Seller will convey to the Buyer good and valid title thereto, free and
clear of any Lien other than any restrictions imposed by any state or federal
securities laws.
3.2 Authority to Execute and Perform Agreement. Each Seller has
--- -----------------------------------------full legal right and power and all authority and approvals required to enter
into, execute and deliver as applicable, this Agreement, and each other
agreement, document, or instrument or certificate contemplated by this
Agreement to be executed by such Seller in connection with the consummation of
the transactions contemplated by this Agreement (together with this Agreement,
the "Seller Documents"), and to consummate the transactions contemplated
---------------hereby and thereby. This Agreement has been duly executed and delivered by
such Seller and, assuming due execution and delivery hereof by the other
parties hereto, this Agreement constitutes a legal, valid and binding
obligation of such Seller enforceable against such Seller in accordance with
its terms except: (a) as rights to indemnity hereunder may be limited by
federal or state securities laws or the public policies embodied therein; (b)
as such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally; and (c) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought. The
execution and delivery by such Seller of this Agreement and each of the other
Seller Documents, the consummation of the transactions contemplated hereby and
thereby and the performance by such Seller of this Agreement and each of the
other Seller Documents in accordance with its terms and conditions will not
(i) require such Seller to obtain any consent, approval, authorization or
action of, or make any filing with or give any notice to, any Governmental
Entity or any other Person, (ii) violate or conflict with the declaration of
trust or related documents of such Seller or, except as set forth in Schedule
-------3.2, violate, conflict with or result in the breach of any of the terms and
--conditions of, result
8
in a modification of the effect of, otherwise cause the termination of or give
any other contracting party the right to terminate, or constitute (or with
notice or lapse of time or both constitute) a default under, any material
agreement, contract, indenture, lease, license, mortgage, plan, arrangement,
commitment or other instrument or obligation (collectively, "Contracts")
--------to which such Seller is a party or by or to which such Seller is or such
Seller's Shares are or may be bound or subject, or (iii) violate Applicable
Law or an Order (as hereafter defined) of any Governmental Entity applicable
to such Seller or to such Seller's Shares.
3.3 Purchase for Investment. /2/ Each of Terrance J. McClinch,
--- ----------------------Ernest Pierson and Robert Russo (a "Warrantholder") are acquiring the URI
------------Warrants (as defined in Article 10) for their own account for investment and
not for resale or distribution. Each Warrantholder acknowledges that the sale
of the URI Warrants (as hereafter defined) has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
-------------state securities laws and that such URI Warrants and the shares of Buyer
Common Stock (as defined in Article 10) issuable upon the exercise thereof may
only be sold or otherwise disposed of under an effective registration
statement under the Securities Act or under an exemption therefrom. Each
Warrantholder has no contract, undertaking, agreement or arrangement with any
Person or entity to sell, hypothecate, pledge, donate, or otherwise transfer
(with or without consideration) to such Person any of the URI Warrants or such
shares, and each Warrantholder has no present plans or intention to enter into
any such contract, undertaking, agreement, or arrangement. Each Warrantholder
is an "accredited investor" as defined in Regulation D of the Securities Act.
4. Representations and Warranties of the Sellers as to the Company.
-- --------------------------------------------------------------The Sellers jointly and severally (subject to Section 14.2) represent and
warrant to the Buyer as follows:
- ---------/2// To appear in MES Agreement only.
- ---
9
4.1 Corporate Organization. The Company and each of its
--- ---------------------Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and lawful authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company
and each of its Subsidiaries is duly qualified or otherwise authorized as a
foreign corporation to transact business and is in good standing in each
jurisdiction listed on Schedule 4.1 hereto, which jurisdictions are the only
-----------jurisdictions where the failure to so qualify or be authorized would have a
Material Adverse Effect. The Sellers have heretofore delivered or made
available to the Buyer true and complete copies of the Articles of
Incorporation and By-Laws of the Company and each of its Subsidiaries as in
effect on the date hereof.
4.2 Subsidiaries.
Each of the Company's Subsidiaries is listed on
--- -----------Schedule 4.2. Except as set forth on Schedule 4.2, the Company does not,
----------------------directly or indirectly, own or have the option or obligation to acquire or
have the power to vote the shares of any capital stock or other ownership
interest or ordinary voting power to elect the majority of directors of any
corporation or other entity or other Person or body performing a similar
function of any such entity, as the case may be. The Company owns all the
outstanding shares of capital stock of each Subsidiary free and clear of all
Liens, and all of such shares have been duly authorized for issuance and
validly issued and are fully paid and non-assessable and have not been issued
in violation of the preemptive or similar rights of any Person.
4.3 Outstanding Capital Stock. The Company is authorized to issue
--- ------------------------a total of 5,000 shares of Common Stock. All of the outstanding shares of
Common Stock, which constitute all of the Shares, were duly authorized for
issuance and are validly issued, fully paid and nonassessable and not issued
in violation of the preemptive or similar rights of any Person. The Company
has not issued and does not have outstanding any shares of preferred stock or
any other class of capital stock other than the Shares. Except as set forth
in Schedule 4.3 hereto, there are no outstanding rights, subscriptions,
-----------warrants, calls,
10
unsatisfied preemptive rights, options or other agreements of any kind to
purchase or otherwise to receive from the Company or any of its Subsidiaries
any of the outstanding, authorized but unissued or unauthorized capital stock
or any other security of the Company or any of its Subsidiaries, and there is
no outstanding security of any kind of the Company or any of its Subsidiaries
convertible into or exercisable for the purchase of any such capital stock or
other security of the Company or any of its Subsidiaries. Except as set forth
on Schedule 4.3 (which agreements will terminate upon Closing), none of the
-----------Sellers nor the Company nor any of its Subsidiaries is a party to any voting
trust or other voting agreement with respect to any of the Shares or to any
agreement relating to the issuance, sale, redemption, transfer, registration
or other disposition of the capital stock of the Company or any of its
Subsidiaries.
4.4 Financial Statements. The consolidated balance sheets of the
--- -------------------Company and its Subsidiaries as at January 31, 1997 and January 31, 1998/3/
and the related statements of earnings and stockholders' equity and statements
of cash flows for the years then ended, including the footnotes thereto, which
are attached hereto as Schedule 4.4, and the consolidated balance sheet of the
-----------Company and its Subsidiaries as at April 30, 1998 and the related statements
of earnings and stockholders' equity and statements of cash flows for the
three-month period then ended, which are attached hereto as Schedule 4.4(b)
--------------(the "Interim Financials") have been prepared in accordance with GAAP,
-----------------consistently applied, and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as at such dates and the consolidated results of operations and
changes in cash flows of the Company and its consolidated Subsidiaries for
such respective periods, in each case in accordance with GAAP consistently
applied for the periods covered thereby and, in the case of the Interim
Financials, consistent with the Company's past practices for its preparation
of its unaudited financial statements (and subject to normal year-end audit
adjustments). (The foregoing financial statements of the
- ---------/3// Note to draft: Dates to change for MES and Grey fox Agreements.
- ---
11
Company and its consolidated Subsidiaries as at January 31, 1998 and for the
year then ended are sometimes herein called the "Annual Financials." The
----------------balance sheet included in the Annual Financials is sometimes herein called the
"Balance Sheet" and January 31, 1998 is sometimes herein called the "Balance
------------Sheet Date.")
----4.5 Liabilities; Ordinary Course.
--- ---------------------------(a) Except as set forth on Schedule 4.5(a), the Company and its
--------------Subsidiaries have not incurred any indebtedness, liability or obligation
(whether or not accrued, fixed, due, contingent or known) ("Liabilities") of a
----------kind required by GAAP to be set forth on the Balance Sheet which was not fully
reflected in, reserved against, or otherwise described in the Balance Sheet
except those Liabilities incurred in the ordinary course of business since the
Balance Sheet Date; and
(b) Between the Balance Sheet Date and the date hereof, there has
been no material adverse change in the properties, business, results of
operations or financial condition of the Company and its Subsidiaries taken as
a whole, without regard, however, to changes in general economic conditions.
Except as expressly contemplated by this Agreement or as set forth on Schedule
-------4.5(b), since the Balance Sheet Date, the Business has been conducted in the
-----ordinary course and neither the Company nor any of its Subsidiaries have (i)
declared or paid any dividends or made any other non-cash distributions on the
Shares or redeemed, purchased or otherwise acquired any shares of Common
Stock, (ii)(A) increased the rate or terms of compensation payable or to
become payable to its directors, officers or employees except in the ordinary
course of business consistent with past practice and that in the aggregate
does not result in a material increase of the compensation or benefits expense
of the Company, (B) paid or agreed to pay any pension, retirement allowance or
other employee benefit not provided for by any Benefit Plan or Employment
Agreement (as hereafter defined) set forth in the Schedules hereto or (C)
announced an intention or committed itself to any additional pension, profitsharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, continuation
pay, termination pay, retirement or other
12
employee benefit plan, agreement or arrangement, or increased the rate or
terms of any Benefit Plan, (iii) made any change in its accounting or tax
reporting methods or in the manner of keeping its books and records or changed
its current practices with respect to sales, receivables, payables or accrued
or deferred expenses, or (iv) amended, terminated or renewed any lease of the
Properties.
4.6 Contravention. Except as set forth on Schedule 4.6(a),
--- --------------------------neither the execution and delivery of this Agreement or the other Seller
Documents nor the consummation of the transactions contemplated hereby or
thereby will (i) conflict with or result in any breach of any provision of the
Articles of Incorporation or By-Laws of the Company or any of its
Subsidiaries, (ii) require any consent, approval or notice under or result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration or increase the obligations or decrease the
rights) under, any terms, conditions or provisions of any Contract, (iii)
violate Applicable Law or the terms of any Permit or Order with respect to the
Company or any of its Subsidiaries or (iv) result in the creation of any Lien
upon the properties or assets of the Company or any of its Subsidiaries,
except, in the case of clause (ii), (iii) and (iv), for such violations,
Liens, breaches or defaults as would not, individually or in the aggregate,
result in a Material Adverse Effect. Except as set forth on Schedule 4.6(b),
--------------other than any filing required under the HSR Act, neither the Company nor any
Subsidiary is required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any Governmental Entity in order
for the parties to consummate the transactions contemplated by this Agreement,
except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material Adverse Effect.
4.7
---
Taxes.
-----
(a) The Company and each of its Subsidiaries have paid all Taxes
required to be paid by them through the date of this Agreement, and will pay
all Taxes required to be paid by them on or before the Closing Date (which
will not include a
13
requirement to pay any Taxes shown as an accrual (other than the portion of
such deferred tax reserve that relates to timing differences between book and
tax accounting) (such amounts being defined collectively herein as the
"Closing Balance Sheet Tax Reserve" on the Audited Closing Balance Sheet and
--------------------------------reflected in the Audited Closing Adjusted Net Worth (as increased or
decreased, as the case may be, by the Resolved Objections and the CPA Determined Differences) but not yet due on the Closing Date).
(b) The Company and its Subsidiaries have timely filed or timely
filed extensions for all reports, declarations, information statements and
returns relating to the Taxes ("Tax Returns") required to be filed by or on
----------behalf of each of the Company and its Subsidiaries with the appropriate taxing
authority through the date of this Agreement and all such Tax Returns are
true, complete and correct in all material respects, and will prepare and
timely file, in a manner consistent with prior years and applicable laws and
regulations, all Tax Returns required to be filed by them on or before the
Closing Date which Tax Returns will be true, correct and complete in all
material respects. No penalties or other charges are or will become due with
respect to the late filing of any Tax Return or payment of any Tax of the
Company or any Subsidiary required to be filed or paid on or before the
Closing Date.
(c) All deficiencies asserted or assessments made as a result of any
examinations by the IRS or any other taxing authority of the Tax Returns of or
covering or including the Company and each of its Subsidiaries have been fully
paid. There are no audits or investigations by any taxing authority in
progress, nor has any Seller, the Company or any of its Subsidiaries received
any notice from any taxing authority that it intends to conduct such an audit
or investigation. No issue has been raised in writing by a federal, state,
local or foreign taxing authority in any current or prior examination which,
by application of the same or similar principles, could reasonably be expected
to result in a proposed material deficiency for any subsequent taxable period.
None of the Company or any of its Subsidiaries is subject to any private
letter ruling of the IRS or comparable rulings of other taxing authorities.
No extension of time is in force with respect to any date
14
on which any Tax Return was or is to be filed and no waiver or agreement is in
force for the extension of time for the assessment or payment of any Tax. To
the Knowledge of the Sellers, there is no unassessed deficiency proposed or
threatened against the Company or any Subsidiary.
(d) None of the Sellers, the Company or any of its Subsidiaries has
(i) agreed to or is required to make any adjustments under Section 481(a) of
the Code or any similar provision of state, local or foreign law by reason of
a change in accounting method or otherwise or has any knowledge that the IRS
has proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of the
Company or any of its Subsidiaries, (ii) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law with respect
to the Company or any of its Subsidiaries, or (iii) any power of attorney with
respect to any Tax matter currently in force.
(e) The Company and its Subsidiaries have complied with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and have withheld or collected from each payment made to employees or
otherwise in connection with services rendered the amount of all Taxes
required to be withheld or collected therefrom, and the Company and its
Subsidiaries has paid all such Taxes when due to the proper Tax receiving
officials.
(f) [Except in connection with the Election (as hereinafter
defined,)] except as set forth in Schedule 4.7(f), none of the Company or any
--------------of its Subsidiaries has any material elections in effect for federal, state,
local or foreign income tax purposes and the Sellers will not permit or cause
the Company or any of its Subsidiaries to make any additional federal tax
elections under the Code with respect to the Company or any of its
Subsidiaries for any tax period ending after the Closing Date.
15
(g) Neither the Company nor any of its Subsidiaries has at any time
consented under Section 341(f)(1) of the Code to have the provisions of
Section 341(f)(2) of the Code apply to any sale of its stock.
(h) Except as set forth on Schedule 4.7(h), neither the Company nor
--------------any of its Subsidiaries has ever been, nor will be through the Closing Date, a
member of a consolidated, unitary, combined or affiliated group of
corporations for any Tax purpose.
[(i) The Company has properly elected under Section 1362(a) of the
Code, and except as set forth on Schedule 4.7(i), under each analogous or
--------------similar provision of state or local law in each jurisdiction where the
Company is required to file income Tax Returns, to be treated as an S
Corporation for its taxable period beginning with the taxable year ended
[FIRST YEAR OF S CORP]] and will continue to qualify as an S Corporation for
all federal, state and local income tax purposes at all times through its
taxable year ending on the day before the Closing Date and, accordingly, has
and will have no liability for federal income taxes with respect to any
taxable period beginning with its first taxable year and through its taxable
year ending on the Closing Date, including as a result of the Election.]
(i) The Buyer has received complete copies of (i) all federal,
state, local and foreign income or franchise Tax Returns of the Company and
each of its Subsidiaries relating to the last three taxable periods of the
Company and each of its Subsidiaries and (ii) any audit report issued within
the last three years (or otherwise with respect to any audit or investigation
in progress) relating to Taxes due from or with respect to the Company and
each of its Subsidiaries, their respective income, assets or operations. With
respect to all income and franchise Tax Returns filed by or on behalf of the
Company and each of its Subsidiaries for the taxable years ended on the
respective dates set forth on Schedule 4.7(j), either (x) such Tax Returns
--------------have been examined by and settled with the relevant taxing authority, or (y)
the applicable statute of limitations with respect to the taxable years
covered by such Tax Returns has expired.
16
(j) Schedule 4.7(k) lists all material types of Taxes paid and
--- --------------material types of Tax Returns filed by or on behalf of the Company and each of
its Subsidiaries. To the Knowledge of the Sellers, no claim has been made by
a taxing authority in a jurisdiction where the Company or any of its
Subsidiaries does not file Tax Returns such that it is or may be subject to
taxation by that jurisdiction.
(k) No property owned by the Company or any of its Subsidiaries is
(i) property required to be treated as being owned by another Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately prior to the enactment of the Tax Reform
Act of 1986, (ii) constitutes "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code or (iii) is "tax-exempt bond financed property"
within the meaning of Section 168(g) of the Code.
(l) There are no Liens for or as a result of any unpaid Taxes on the
assets of the Company or any of its Subsidiaries except for Liens for current
Taxes not yet due.
(m) No Seller is a foreign person with the meaning of Section 1445
of the Code.
(n) None of the Company or any of its Subsidiaries are parties to
any tax sharing or similar Contract or arrangement (whether or not written).
(o) There is no Contract, plan or arrangement involving the Company
or any of its Subsidiaries and covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by the Buyer, the Company or any of its Subsidiaries or their
respective Affiliates by reason of Section 280G of the Code.
(p) None of the Company or any of its Subsidiaries has any elections
in effect for federal income tax purposes under Section 168 of the Code or any
analogous or similar provision of state, local or foreign law.
17
4.8 Claims and Proceedings. Except as set forth on Schedule 4.8,
--- --------------------------------there are (i) no suits, claims, actions or proceedings pending or, to the
Knowledge of Sellers, threatened, and (ii) to the Knowledge of Sellers, no
investigations are pending or threatened, in each case, against or relating to
the Company or any of its Subsidiaries or any material portion of their
respective properties or assets before any court or Governmental Entity, (x)
which if adversely determined, would result in a liability of the Company or
any of its Subsidiaries in excess of $100,000, with respect to any one such
matter, or $500,000, in the case of all such matters, or (y) which would (if
successful) require specific performance or an injunction by the Company, any
of its Subsidiaries or any of their respective directors, officers, employees,
shareholders, or Affiliates; and (iii) to the Knowledge of the Sellers no
event has occurred which is likely to result in any such action, proceeding or
investigation which would have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is engaged in any legal action to recover monies
due it or for damages sustained (other than ordinary course collections). No
material portion of the Company's or its Subsidiaries' properties or assets is
subject to any specific order, judgment, injunction or decree (collectively,
"Orders") of any court or Governmental Entity of which the Company, any of its
------Subsidiaries, or any Seller was notified that would result in a Material
Adverse Effect. All matters listed on Schedule 4.8, whether litigation has
-----------been instituted or not, have been reported by the Company to its insurance
carriers for coverage and such carriers have not indicated that they will deny
coverage in respect thereof.
4.9 Contracts. Schedule 4.9 sets forth, as of the date hereof, a
--- -------------------list of all of the following Contracts to which the Company or any of its
Subsidiaries is a party or by which it or any material portion of their
respective properties or assets are bound or subject (together with the
agreements specifically identified in this Agreement or in the other Schedules
hereto, the "Scheduled Contracts"):
-------------------
18
(a) contracts and other agreements with any labor union, collective
bargaining unit or association representing any employee of the Company or any
of its Subsidiaries;
(b) agreements for acquisitions or dispositions (by merger, purchase
or sale of stock or otherwise) of material assets entered into in the last two
years or pursuant to which the Company has ongoing obligations (other than
acquisitions or dispositions of assets in the ordinary course) with a value in
excess of $200,000 (other than the exercise of the option to purchase the
property at Egg Harbor Township at a price no greater than $350,000, and on
terms reasonably acceptable to the Sellers and the Buyer);
(c) contracts and other agreements relating to indebtedness of the
Company or such Subsidiary, guarantees of the indebtedness of any other Person
or the deferred purchase price of property where such deferred purchase price
is in excess of $200,000;
(d) all partnership, joint venture or other similar Contracts,
arrangements or agreements;
(e) any lease, license or other Contract pursuant to which any
person has the right to occupy or use any of the Owned Real Property or any
portion of the premises that are the subject of the Leases;
(f) each agreement that restricts or purports to restrict the right
of the Company or any Subsidiary of the Company to engage in any business
anywhere in the world or to compete with any Person with respect to any
business anywhere in the world;
(g) all license, sale, dealer, distribution, commission, marketing,
agent, franchise, technical assistance or similar agreements, other than
commission arrangements with employees of the Company or any of its
Subsidiaries, relating to or providing for the marketing or sale of the
products or services of or by the Company or any Subsidiary of the Company;
and
19
(h) any other material contract whether or not made in the ordinary
course of business which provides for or would reasonably be expected to
provide for the payment by the Company or any Subsidiary of the Company after
the date of this Agreement of more than $200,000 per annum.
Except as disclosed on Schedule 4.9, each Scheduled Contract is a
-----------legal, valid and binding obligation of the Company or of its Subsidiary, as
the case may be, and, to the Knowledge of Sellers, each other party thereto,
enforceable against each such party thereto in accordance with its material
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and subject to general principles of equity, and none of the
Company, any Subsidiary of the Company nor, to the Knowledge of Sellers, any
other party thereto, is (or with notice or lapse of time or both would be) in
default thereunder, except where such default would not have a Material
Adverse Effect. As of the date of this Agreement, the Company has not
received notice to the effect that any party to a Scheduled Contract intends
to terminate or not renew the same at its next renewal date. Complete and
correct copies of each Scheduled Contract have been previously delivered to
Buyer.
4.10
----
Real Estate.
-----------
(a) The Company and its Subsidiaries are the owners of fee title to
all of the real property listed on Schedule 4.10(a) and all buildings,
---------------structures and other improvements located thereon other than any real property
included in the Excluded Assets and Liabilities (the "Owned Real Property")
------------------and 185 Thorpe Street Corporation owns the real property and the improvements
located thereon known as 185 Thorpe Street, Fairfield, CT (the "Thorpe
-----Property").
-------(b) The Company and its Subsidiaries are the lessee of certain real
property (together with the Owned Real Property, the "Properties") pursuant to
---------the leases listed on Schedule 4.10(b) (the "Leases"). The Company and its
--------------------Subsidiaries have a valid, enforceable and binding leasehold interest in the
real property subject to each of the Leases. The Sellers have heretofore
delivered to, or have caused the Company to deliver
20
to, the Buyer true, correct and complete copies of the Leases (including any
modifications, amendments and supplements). Except as set forth in Schedule
-------4.10(b) with respect to the Leases, there exists no default or circumstance
------which with notice or lapse of time or both would constitute a default by the
Company or any of its Subsidiaries or, to the Knowledge of Sellers, any
default or threatened default by any third party thereunder. The Properties
(together with the properties of MES and Grey Fox) constitute all interests in
real property currently used or currently held for use in connection with the
Business of the Company and its Subsidiaries and which are necessary for the
continued operation of the Business as currently conducted. All of the
Properties, buildings, fixtures and improvements thereon owned or leased by
the Company and its Subsidiaries are in condition and repair (subject to the
normal wear and tear) sufficient to operate the Business, with sufficient
access to roads and utilities to operate the Business as presently conducted.
With respect to the Owned Real Property, the Company has all material
certificates of occupancy. Except for the option to purchase the Egg Harbor
Township property, neither the Company nor any Subsidiary owns or holds, or is
obligated under or a party to, any option, right of first refusal or other
contractual right to purchase, acquire, sell, assign or dispose of any real
estate or any portion thereof or interest therein.
(c) Except as set forth on Schedule 4.10(c), none of the Owned Real
Properties are subject to a Lien, other than Permitted Liens and other than
any other Lien that does not materially interfere with the operation of the
Owned Real Property as presently operated. No condemnation or eminent domain
proceeding is pending or, to the Knowledge of Sellers, threatened which would
preclude or impair in any material respect the use of any Owned Real Property
or the Thorpe Property or, to the Knowledge of the Sellers, any property
subject to the Leases, for the uses for which it is currently being used.
4.11
----
Employee Benefit Plans.
----------------------
(a) Schedule 4.11(a) lists all Benefit Plans of the Company and its
--- ---------------Subsidiaries. With respect to each such Benefit Plan, the Sellers heretofore
have delivered, or have caused the Company heretofore to have made available
to the Buyer true,
21
correct and complete copies of (i) all plan texts and agreements and related
trust agreements or annuity contracts, (ii) all summary plan descriptions and
material employee communications, (iii) the most recent annual report
(including all schedules thereto); or (iv) if the plan is intended to qualify
under Code section 401(a) or 403(a), the most recent determination letter
received from the IRS;
(b) Each Benefit Plan conforms in all material respects to, and its
administration is in compliance in all material respects with, all Applicable
Laws and regulations. Each Benefit Plan intended to be qualified under Code
section 401(a) has been determined to be so qualified by the IRS and each
trust established in connection with any Benefit Plan that is intended to be
exempt from federal income taxation under Code section 501(a) has been
determined to be so exempt by the IRS and no event has occurred and no
condition or circumstance has existed to adversely affect the qualified status
of any Benefit Plan;
(c) Except as set forth on Schedule 4.11(c) or as contemplated by
---------------this Agreement, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee to severance
pay, unemployment compensation or any similar payment or (ii) accelerate the
time of payment or vesting, or increase the amount of any compensation or
benefits due to, any current or former employee;
(d) Except as set forth on Schedule 4.11(d), no Benefit Plan is a
---------------"multiple employer plan" or a "multiemployer plan" within the meaning of the
---------------------------------------Code or ERISA and no Benefit Plan is subject to Title IV of ERISA;
(e) No "reportable event" as defined in Section 4043 of ERISA has
---------------occurred with respect to any Benefit Plan and no accumulated funding
deficiency, whether or not waived, exists with respect to any Benefit Plan;
and, to the Knowledge of Sellers, there is no risk of termination of any
Benefit Plan by the PBGC under Section 4042 of ERISA and no event has occurred
which has or is likely to subject the Company or any of its Subsidiaries to
liability under Section 4062 of ERISA;
22
(f) Except as set forth on Schedule 4.11(f), each Benefit Plan can
---------------be amended or terminated at any time, without the consent of any other party
and without liability other than for benefits accrued as of the date of such
amendment or termination;
(g) Neither the Company nor any of its Subsidiaries is obligated to
provide life insurance or health care benefits of any kind to its retired or
former officers, directors or employees pursuant to any Benefit Plan,
including any "group health plan" as such term is defined in Code section
----------------5000(b)(1), or pursuant to any agreement or understanding, except as may be
required under Part 6 of Title I of ERISA and at the sole expense of the
participant or the participant's beneficiary;
(h) Except as disclosed in Schedule 4.11(h), none of the assets of
---------------any Benefit Plan is stock of the Company or any of its Affiliates, or property
leased to or jointly owned by the Company or any of its Affiliates;
(i) All contributions or other payments required to have been made
by the Company and its Subsidiaries to or under any Benefit Plan by Applicable
Law or by the terms of such Benefit Plan have been timely and properly made;
and
(j) There are no pending or, to the Knowledge of the Sellers,
threatened actions, claims or proceedings against or relating to any Benefit
Plan other than routine claims by persons entitled to benefits thereunder.
4.12 Insurance. Schedule 4.12 sets forth a list of all material
---- --------------------policies or binders of fire, liability, product liability, worker's
compensation, casualty, vehicular and other insurance held by or on behalf of
the Company or any of its Subsidiaries. Each such policy and binder is valid
and binding in accordance with its terms, is in full force and effect, and
neither the Company nor any of its Subsidiaries is in default with respect to
any provision contained in any such policy or binder nor has the Company or
any of its Subsidiaries failed to give any notice or present any claim under
any such policy or binder in due and timely fashion except to the extent such
default or failure would not have a Material Adverse Effect.
23
4.13 Tangible Properties. Each of the Company and its Subsidiaries
---- ------------------has good and marketable title to, or leases with respect to, all of its owned
or leased tangible personal property which is necessary for the conduct of its
business in the ordinary course consistent with past practices and is
reflected in the Balance Sheet, except as indicated in the notes thereto, and
no such personal property is subject to any Lien (except for Liens reflected
in the Balance Sheet and Permitted Liens). Such tangible personal property
has been maintained by the Company or its Subsidiary, as the case may be, in a
manner consistent with past practices.
4.14 Related Party Transactions. Except as set forth on Schedule
---- --------------------------------4.14, neither the Sellers nor any of their respective Affiliates (other than
---MES and Grey Fox) has borrowed any moneys from the Company or any of its
Subsidiaries which has not been repaid or has outstanding any indebtedness or
other similar obligations to the Company or any of its Subsidiaries. Except
as set forth in Schedule 4.14, none of the Sellers is, or owns any direct or
------------indirect interest of any kind in (other than any interest of less than 5% in
any Person subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended), or controls or is a director, officer, employee or
partner of, or consultant to, or lender to or borrower from or has the right
to participate in the profits of, any Person which is, (A) a competitor,
supplier, customer, landlord, tenant, creditor or debtor of the Company or any
of its Subsidiaries, or (B) a party to any Contract with the Company or any of
its Subsidiaries.
4.15 Banks. Schedule 4.15 contains a complete and correct list of
---- ----------------the names and locations of all banks in which the Company or any of its
Subsidiaries has accounts or safe deposit boxes and the names of all persons
authorized to draw thereon or to have access thereto. Except as set forth on
Schedule 4.15, no Person holds a power of attorney to act on behalf of the
------------Company or any of its Subsidiaries.
4.16 Permits. The Company and its Subsidiaries and 185 Thorpe
---- ------Street Corporation (solely with respect to the Thorpe Property) have all
material approvals, authorizations, certificates, consents, licenses,
exemptions, orders and permits or other
24
similar authorizations of all Governmental Entities (the "Permits") necessary
------for the operation of the Business in the manner currently operated, and each
such Permit is valid and in full force and effect in all material respects and
there are no proceedings pending or, to the Knowledge of the Sellers,
threatened to revoke or cancel the same; provided, that nothing in this
-------Section 4.16 shall be or be deemed to be a representation or warranty
concerning Environmental Laws or Permits with respect to environmental
matters.
4.17 Compliance with Applicable Laws. Except as set forth on
---- ------------------------------Schedule 4.17, the Company, each of its Subsidiaries and 185 Thorpe Street
------------Corporation (solely with respect to the Thorpe Property) has complied and is
in compliance with Applicable Law with respect to the Company and each of its
Subsidiaries and the conduct of their business and the use of their
properties, except in the case where failure to comply or be in compliance
would not have a Material Adverse Effect; provided, that nothing in this
-------Section 4.17 shall be or be deemed to be a representation or warranty
concerning Environmental Laws or Permits with respect to environmental
matters.
4.18 Employment Agreements. Except as set forth on Schedule 4.18,
---- --------------------------------there are no employment, consulting, severance pay, continuation pay,
termination pay or indemnification agreements or other similar agreements
(collectively, the "Employment Agreements") between the Company or any of its
--------------------Subsidiaries and any current or former shareholder, officer, director or
employee or any consultant or agent of the Company or any of its Subsidiaries
that are currently in effect. True and complete copies of the Employment
Agreements have been delivered to Buyer.
4.19
----
Labor and Employment Matters.
----------------------------
(a) Except as set forth on Schedule 4.19(a), no collective
---------------bargaining agreement existed or exists that is binding on the Company or any
of its Subsidiaries, and to the Knowledge of Sellers, no petition has been
filed or proceedings instituted by an employee or group of employees with any
labor relations board seeking recognition of a bargaining representative.
Schedule 4.19(a), to the Knowledge of Sellers,
----------------
25
describes any organizational effort currently being made or threatened by or
on behalf of any labor union to organize any employees of the Company or any
of its Subsidiaries; and
(b) Except as set forth on Schedule 4.19(b), (i) there is no labor
---------------strike, dispute, slow down or stoppage pending or, to the Knowledge of
Sellers, threatened, against or directly affecting the Company or any of its
Subsidiaries, (ii) no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is pending, and to the Knowledge of
the Sellers, no claims therefor exist, and (iii) neither the Company nor any
of its Subsidiaries has received any notice of any labor or civil rights
dispute, controversy or grievance or any other unfair labor practice
proceeding or breach of contract claim or action with respect to claims of, or
obligations to, any employee or group of employees of the Company or any of
its Subsidiaries. The Company and its Subsidiaries are in material compliance
with all laws, regulations and orders relating to the employment of labor,
including all such laws, regulations and orders relating to wages, hours,
WARN, collective bargaining, discrimination, civil rights, safety and health,
workers' compensation and the collection and payment of withholding and/or
social security taxes and any similar tax except for immaterial noncompliance. There has been no "mass layoff" or "plant closing" as defined by
WARN with respect to the Company and its Subsidiaries within the six (6)
months prior to the Closing Date.
4.20 Intangible Property. Other than generally available, "off---- --------------------the-shelf" items containing intellectual property, Schedule 4.20 contains a
--------------------complete and correct list of each patent, trademark, trade name, service mark
and copyright owned or used by Company and its Subsidiaries as well as all
registrations thereof and pending applications therefor, and each license or
other agreement relating thereto. Except as set forth on Schedule 4.20, each
------------of the foregoing is owned by the Company or its Subsidiaries free and clear of
all Liens and, to the Knowledge of the Sellers, is not the subject of any
ownership challenge. Neither the Company nor any Subsidiary has received any
written notice that any of the foregoing is invalid or conflicts with the
asserted rights of others.
26
4.21 Environmental Compliance. Except as set forth on Schedule
---- ------------------------------4.21 hereto:
---(a) the operations and facilities (as defined by CERCLA) of the
Company and each of its Subsidiaries have been for the past three years, and
are in, material compliance with all applicable Environmental Laws and all
Permits issued pursuant to Environmental Laws;
(b) the Company and each of its Subsidiaries have obtained and
currently maintains all material Permits required under all applicable
Environmental Laws necessary to operate its business;
(c) neither the Company nor its Subsidiaries is the subject of any
outstanding proceeding, written claim, written order or Contract with any
Governmental Entity or Person with respect to (i) Environmental Law, (ii)
Remedial Action or (iii) any Release or threatened Release of a Hazardous
Material and, to the knowledge of the Sellers, no such proceedings, claims,
orders or contracts are threatened;
(d) neither the Company nor any of its Subsidiaries has received any
written communication or, to the Knowledge of the Sellers, any other
communication, alleging either or both that the Company or any of its
Subsidiaries, or any of their respective Properties or facilities may be in
violation of (i) any Environmental Law or (ii) any Permit issued pursuant to
any Environmental Law, or that the Company or any of its Subsidiaries may have
any liability under any Environmental Law;
(e) to the Knowledge of the Sellers, there are no investigations by
any Governmental Entity under or pursuant to Environmental Laws of the
business, operations, Properties or former properties of the Company or any of
its Subsidiaries pending or threatened;
(f) there is not now located at any of the Properties of the Company
or any of its Subsidiaries any underground storage tanks for which the Company
or the Subsidiaries has responsibility ("UST") nor, to the Knowledge of the
--Sellers, any
27
asbestos-containing material in a condition necessitating abatement, nor
equipment containing polychlorinated biphenyls necessitating immediate removal
or remediation;
(g) the Sellers have provided to the Buyer all environmentally
related Phase I and Phase II reports or other material environmental reports
that have been performed and provided to the Company or any of its
Subsidiaries with respect to the Properties or former properties, assets or
current operations of the Company or any of its Subsidiaries and that are in
the Company's or any of its Subsidiaries' possession, custody or control; and
(h) as of the Closing Date, to the Knowledge of Sellers, there are
no conditions requiring Remedial Action on the Properties resulting from
Releases of Hazardous Materials prior to the Closing, other than conditions
disclosed to the Phase I or Phase II Consultants. To the knowledge of Sellers,
there are no conditions on the formerly owned, operated or leased properties
of the Company or any Subsidiary requiring Remedial Action for which the
Company may be responsible, other than conditions described in the
environmental reports provided by the Sellers to the Buyer.
4.22 Finders and Investment Bankers. Except for Brown Brothers
---- -----------------------------Harriman & Co. ("Brown Brothers"), no broker, finder, agent or similar
-------------intermediary has acted on behalf of the Company in connection with this
Agreement, and that, except for the fees and expenses of Brown Brothers, there
are no brokerage commissions, finders' fees or similar fees or commissions
payable in connection therewith based on any agreement, arrangement or
understanding with the Company or any action taken by the Company or any
Subsidiary of the Company. The Sellers have provided the Buyer a true and
complete copy of the engagement letter with Brown Brothers.
4.23 Certain Actions. None of the Company, any of its Subsidiaries
---- --------------nor any Person acting at the direction or on behalf of the Company or any of
its Subsidiaries has serviced, maintained, modified, altered or refurbished
any product sold, rented or distributed prior to the Closing Date by the
Company, any of its Subsidiaries or any of their
28
respective predecessors in a wanton, malicious, wilfully improper or
criminally negligent manner.
4.24 No Other Representations and Warranties. Except for the
---- --------------------------------------representations and warranties contained in Articles 3 and 4, the Sellers make
no other express or implied representations or warranties concerning the
Shares, the Company, any Subsidiary or asset of the Company or any Seller or
any of the transactions contemplated hereby.
5. Representations and Warranties of the Buyer. The Buyer represents
-- ------------------------------------------and warrants to the Sellers as follows:
5.1 Corporate Organization. The Buyer is a corporation duly
--- ---------------------organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being and as
heretofore conducted.
5.2 Authority to Execute and Perform Agreement. The Buyer has the
--- -----------------------------------------full legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement and each other agreement, document,
or instrument or certificate contemplated by this Agreement to be executed by
Buyer in connection with the consummation of the transactions contemplated by
this Agreement (collectively the "Buyer Documents"), and to consummate the
--------------transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by the Buyer and, assuming due execution and delivery
hereof by the other parties hereto, this Agreement will be valid and binding
obligation of the Buyer enforceable against the Buyer in accordance with its
terms except: (a) as rights to indemnity hereunder may be limited by federal
or state securities laws or the public policies embodied therein; (b) as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally; and (c) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought. The
execution and delivery by the
29
Buyer of this Agreement and the other Buyer Documents, the consummation of the
transactions contemplated hereby and thereby and the performance by the Buyer
of this Agreement and the other Buyer Documents in accordance with their
respective terms and conditions will not (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-Laws of the
Buyer; (ii) require the Buyer to obtain any consent, approval, authorization
or action of, or make any filing with or give any notice to, any Governmental
Entity or any other Person other than any filings required under the HSR Act
and applicable securities laws except for the consent of the lenders under the
Buyer's credit agreement, which the Buyer has obtained; (iii) violate,
conflict with or result in the breach of any of the terms and conditions of,
result in a material modification of the effect of, otherwise cause the
termination of or give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both constitute) a default
under, any Contract to which the Buyer is a party or by or to which the Buyer
or any of its properties is or may be bound or subject; or (iv) violate
Applicable Law or Order of any Governmental Entity applicable to the Buyer.
5.3 Purchase for Investment. The Buyer is purchasing the Shares
--- ----------------------for its own account for investment and not for resale or distribution. The
Buyer acknowledges that the sale of the Shares has not been registered under
the Securities Act, or any applicable state securities laws and that such
Shares may only be sold or otherwise disposed of under an effective
registration statement under the Securities Act or under an exemption
therefrom. Except with respect to the Buyer's credit agreement, the Buyer has
no contract, undertaking, agreement or arrangement with any Person or entity
to sell, hypothecate, pledge, donate, or otherwise transfer (with or without
consideration) to any such Person any of the Shares, and the Buyer has no
present plans or intention to enter into any such contract, undertaking,
agreement, or arrangement.
5.4
[Intentionally omitted].
5.5 Sources of Information. The Buyer acknowledges that it has
--- ---------------------conducted its own investigation of the business and affairs of the Company and
its
30
Subsidiaries. The Buyer has been afforded the opportunity: (i) to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company and its Subsidiaries concerning the Company and
its Subsidiaries; and (ii) to obtain such additional information that the
Company and its Subsidiaries possess or can acquire without unreasonable
effort or expense that is reasonably necessary to verify the accuracy and
completeness of the information previously furnished to it by the Company and
its Subsidiaries; provided that no investigation by the Buyer shall affect the
-------representations and warranties of the Sellers.
5.6 Finders and Investment Bankers. No broker, finder, agent or
--- -----------------------------similar intermediary has acted on behalf of the Buyer in connection with this
Agreement, and there are no brokerage commissions, finders' fees or similar
fees or commissions payable in connection therewith based on any agreement,
arrangement or understanding with the Buyer or any action taken by the Buyer.
5.7 Litigation. There are no legal proceedings pending or, to the
--- ---------Knowledge of the Buyer, threatened that are reasonably likely to prohibit or
restrain the ability of the Buyer to enter into this Agreement or any other
Buyer Document or consummate the transactions contemplated hereby or thereby.
6.
--
Covenants and Agreements.
------------------------
6.1 Conduct of Business of the Company. Except as contemplated by
--- ---------------------------------this Agreement, during the period commencing on the date hereof and ending at
the Closing Date, the Sellers shall cause the Company and its Subsidiaries to
conduct their respective operations in accordance with their ordinary course
of business consistent with past practice. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing Date, neither the Company nor any of its Subsidiaries
will, without the prior written consent of the Buyer (which may not be
unreasonably withheld or delayed):
(a) amend or propose to amend its Articles of Incorporation or ByLaws or merge or consolidate with or into any other Person;
31
(b) authorize for issuance, issue, sell, pledge, deliver or agree or
commit to issue, sell, pledge or deliver (whether through the issuance or
granting of any options, warrants, calls, subscriptions, stock appreciation
rights or other rights or agreements) any capital stock of any class or any
securities convertible into or exchangeable for shares of capital stock of any
class of the Company or such Subsidiary, as the case may be (except for the
issuance of securities of Subsidiaries issued to the Company or another
Subsidiary);
(c) split, combine or reclassify any shares of Common Stock;
(d) enter into any agreements, commitments or contracts that are
material to the Company and the Subsidiaries, taken as a whole, other than in
the ordinary course of business consistent with past practice, or otherwise
make any material change in (i) any existing agreement, commitment or
arrangement that is material to the Company and its Subsidiaries, taken as a
whole or (ii) the conduct of the Business;
(e) except for the exercise of the option regarding the property at
Egg Harbor Township, purchase or otherwise acquire assets from any Person
other than in the ordinary course of business;
(f) sell, assign, lease, license, transfer or otherwise dispose of,
or mortgage, pledge or encumber (other than with Permitted Liens), any Owned
Real Property or any of its assets, or amend, terminate or renew any of the
Leases;
(g) amend or modify in any material respect or terminate any
Contract entered into by the Company after the date hereof which, if in
existence on the date hereof, would be required to be set forth in Schedule
-------4.9 as a Scheduled Contract (each, a "Subsequent Material Contract");
-----------------------------(h) enter into or commit or propose to enter into any Subsequent
Material Contract, except as necessary to permit the Company or its
Subsidiaries or the Sellers to carry out any of their respective covenants and
other obligations under this Agreement or any other Seller Document;
32
(i) except in the ordinary course of business, waive, cancel or take
any other action materially impairing any of its rights;
(j) make or commit to make any capital expenditure, or group of
related capital expenditures other than (A) the purchases of Equipment and
vehicles having an aggregate purchase price of no more than $7,000,000;
provided that the funds used to purchase such Equipment or vehicles is
-------obtained from the Company's or its Subsidiaries' working capital, existing
revolving credit agreement or other indebtedness that may be prepaid without
penalty, or (B) other capital expenditures or group of related capital
expenditures of no more than $2,000,000 in the aggregate;
(k) create, incur, assume or guarantee any indebtedness for borrowed
money (except (i) in the ordinary course of business or (ii) to make the
purchases and other capital expenditures permitted under Section 6.1(j));
(l) (i) increase the rate or terms of compensation payable or to
become payable to its directors, officers or employees except with respect to
employees other than officers in the ordinary course of business consistent
with past custom and practice, (ii) announce an intention to or pay or agree
to pay any pension, retirement allowance or other employee benefit not
provided for by any Benefit Plan or Employment Agreement set forth in the
Schedules hereto, (iii) announce an intention to or commit itself to any
additional pension, profit sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, group insurance,
severance pay, continuation pay, termination pay, retirement or other employee
benefit plan, agreement or arrangement, or increase the rate or terms of any
Benefit Plan, (iv) enter into any employment agreement with or for the benefit
of any Person, or (v) increase the rate of compensation under or otherwise
change the terms of any Employment Agreement set forth in Schedule 4.18;
------------(m) except as set forth on Schedule 6.1(m), make any change in its
--------------accounting or tax reporting methods or in the manner of keeping its books and
records or
33
any change in its current practices with respect to inventory, sales,
receivables, payables or accrued expenses;
(n) declare or pay any dividend or make any distribution in respect
of Common Stock or, directly or indirectly, redeem, purchase or otherwise
acquire any of its Common Stock or make any other payments of any kind to the
holders of any of its Common Stock in respect thereof, or enter into any
commitment agreement to do any of the foregoing; provided, however, that the
-------- ------Subsidiaries may declare and pay dividends to the Company of another
Subsidiary and the Company may distribute the Excluded Assets and Liabilities
pursuant to Section 6.11;
(o) enter into or commit or propose to enter into any agreements,
commitments or contracts with an Affiliate of the Company or any Seller other
than MES and Grey Fox; or
(p) agree, commit or arrange to do any of the foregoing.
6.2
---
Access to Information; Confidentiality.
--------------------------------------
(a) Between the date of this Agreement and the Closing Date, the
Sellers shall cause the Company and its Subsidiaries to afford the Buyer and
its authorized representatives (including its accountants, financial advisors
and legal counsel) reasonable access during normal business hours to all of
the properties, personnel, Contracts, books and records of the Company and its
Subsidiaries and shall promptly deliver or make available to the Buyer
information concerning the business, properties, assets and personnel of the
Company and its Subsidiaries as the Buyer may from time to time reasonably
request;
(b) The Buyer shall hold, and shall cause its authorized
representatives (including its accountants, financial advisors and legal
counsel) to hold, all material subject to the Confidentiality Agreement dated
February 12, 1998, between the Company and the Buyer (the "Confidentiality
--------------Agreement") in confidence in accordance with the terms of the Confidentiality
--------Agreement and, in the event of the termination of this
34
Agreement for any reason, the Buyer promptly shall return or destroy all such
material in accordance with the terms of the Confidentiality Agreement;
(c) After the Closing, the Sellers and their respective Affiliates
will and will cause their respective representatives to treat any data and
information related to the Company and/or its Subsidiaries and the Business
confidentially and with commercially reasonable care and discretion, and will
not disclose any such information to third parties; provided, however, that
-------- ------the foregoing shall not apply to (i) information in the public domain or that
becomes public through disclosure by a party other than Sellers or any of
their respective Affiliates or any of their respective representatives, so
long as such other party is not in breach of a confidentiality obligation to
the Buyer and (ii) information that may be required to be disclosed by
Applicable Law.
(d) In the event that either a Seller or the Buyer, as the case may
be, is required, by subpoena or other legal process, in any action or
proceeding to disclose any such confidential information or material referred
to in this Section, such party will give the other party prompt notice of such
request so that such other party may seek an appropriate protective order or
other confidential treatment of such information and will cooperate with such
other party in obtaining such treatment; and
(e) Each of the parties acknowledges and agrees that in the event of
any breach of Section 6.2, money damages would not be an adequate remedy to
the Buyer, on the one hand, or the Sellers, on the other, for such breach and,
even if money damages were adequate, it would be impossible to ascertain or
measure with any degree of accuracy the damages sustained by the Buyer, on the
one hand, or the Sellers, on the other, therefrom. Accordingly, if there
should be a breach or threatened breach by any Person of any provision of
Section 6.2, the Buyer, on the one hand, or the Sellers, on the other, shall
be entitled, without showing or providing actual damage sustained by the
Buyer, on the one hand, or the Sellers on the other, to an injunction
restraining such Person from any breach. Nothing in this Section 6.2(d) shall
limit or otherwise affect the remedies that the Buyer, the Company or the
Sellers may otherwise have under Applicable Law.
35
6.3 Disclosure Supplements. Prior to the Closing, the Sellers may
--- ---------------------supplement or amend the schedules referred to in this Agreement with respect
to (i) any matter not existing on the date hereof which, if existing or
occurring at or prior to the date hereof, would have been required to be set
forth or described in a schedule or (ii) any matter arising after the date
hereof which is necessary to correct any information in a schedule or in any
representation and warranty of the Sellers which has been rendered inaccurate
thereby; provided that any such supplement or amendment shall not waive, limit
-------or otherwise affect the condition to Closing set forth in Section 9.1, which
shall be based on the representations and warranties, covenants and agreements
made as of the date of this Agreement, but only the representations,
warranties, covenants and agreements made by the Sellers as amended or
supplemented pursuant to this Section 6.3 shall be the basis for any
indemnification pursuant to Article 7, 8 or 12.
6.4 Expenses. Except as otherwise expressly set forth in this
--- -------Agreement, the parties to this Agreement shall bear their respective expenses
incurred in connection with the preparation, negotiation, execution and
performance of this Agreement and the contemplated transactions, including all
fees and expenses of agents, representatives, counsel and accountants,
provided, however, that the Buyer shall pay the first $400,000 of the fee owed
-------- ------to Brown Brothers by the Sellers and the Sellers shall pay all amounts of such
fee to Brown Brothers in excess of $400,000.
6.5 Further Assurances. Each of the parties shall execute such
--- -----------------certificates, bills of sale, agreements and other documents and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the contemplated transactions. Each such party shall
use its commercially reasonable efforts to fulfill or obtain the fulfillment
of the conditions to the Closing set forth in Articles 9 and 10. Between the
date of this Agreement and the Closing Date, each of the parties hereto shall
promptly notify the other parties in writing (a) if such party becomes aware
of any fact or condition that causes or would be reasonably likely to cause or
constitute a Material Adverse Effect or a breach of any of the representations
and warranties of such party set
36
forth herein and (b) of the occurrence of any breach of any covenant in this
Agreement or of the occurrence of any event that may make the satisfaction of
the conditions to Closing set forth herein impossible or unlikely.
6.6 Cooperation Regarding Landlords. [The Sellers agree that they
--- ------------------------------will cause the officers of the Company to reasonably cooperate with the Buyer
in obtaining consents and estoppel certificates from the landlords under the
Leases; provided, that the foregoing shall not require the Sellers or the
-------Company to pay any amounts to any Person; and; provided further, that the
-------- ------Buyer acknowledges that the receipt of such consents or estoppel certificates
is not a condition precedent to the consummation of the transactions
contemplated hereby.]
6.7 Transfer Taxes. All sales, use, stamp, documentary, filing,
--- -------------recording, transfer or similar fees or Taxes and governmental charges as
levied by any taxing authority or other Governmental Entity as a result of the
transfer of the Shares pursuant to this Agreement [(other than those arising
out of the Election (as defined in Section 7.1(a)(i) below))] shall be borne
50% by the Buyer and 50% by the Sellers. /4/
[6.8 Compliance with Antitrust Laws. Each of the parties hereto
-----------------------------shall file an appropriate Notification and Report Form concerning the
transactions contemplated herein as promptly as practicable following the
date hereof. Each of the Buyer and each Seller shall cooperate (including by
way of furnishing to the other such documents and information as may
reasonably be required) in making filings under the HSR Act and shall use its
commercially reasonable best efforts to take, or cause to be taken, all
actions necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using its commercially reasonable best efforts (including, without
limitation, the Buyer agrees that it will dispose of or hold separate any
part of its or the Company's assets or business and agree not to operate in
any geographic area or line of business provided that Buyer shall
- ---------/4// Note to draft:
- ---
Bracketed language for S Corporations only.
37
not be required to (or be required to agree to) dispose of or hold separate
any material part of the Combined Business or agree to any material
restrictions on the Combined Business. Combined Business shall mean the
business and operations of the Buyer and its subsidiaries in the Relevant
Territory and the Company, MES and Grey Fox and their respective
subsidiaries, taken as a whole. Relevant Territory shall mean the States of
Connecticut, Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania,
Maryland, Delaware, Virginia, North Carolina and Washington, D.C. in order to
consummate or make effective as promptly as practicable the transactions
contemplated by this Agreement to resolve such objections, if any, as the
Antitrust Division of the Department of Justice or the Federal Trade
Commission or state antitrust enforcement or other Governmental Entity
(collectively, the "Regulatory Agencies") may assert under the federal or
------------------state antitrust laws with respect to the transactions contemplated hereby.
In the event an action is instituted by any Person challenging the
transactions contemplated hereby as violative of the antitrust laws, each of
the Buyer and each Seller shall cooperate with the other parties hereto and
use its commercially reasonable best efforts to resist or resolve such
action.]
6.9 SOC Rebates. From and after the Closing Date, the Buyer shall
--- ----------use its best efforts to collect all supplier-of-choice rebates owed to the
Company or any Subsidiary of the Company relating to equipment expenditures
made prior to the Closing and pass-through rebates for equipment purchased by
Hertz Equipment Rental Corp. during the period from and including August, 1,
1997 through and including July 31, 1998 (the "SOC Rebates"). All monies
----------collected on account of the SOC Rebates shall be held by the Buyer for the
Sellers' account. The Buyer shall pay or cause to be paid to the Sellers'
Representative, on behalf of the Sellers, on the first Business Day of each
month all monies so received during the prior month.
6.10 Non-Compete. For a period commencing on the Closing Date and
---- ----------terminating [three (3) years thereafter in the case of Ernest Pierson and
Robert Russo] /5/ and five (5) years thereafter in
- ---------/5// To be in MES Agreement only.
- ---
38
the case of each of the [other] Sellers (the "Restricted Period"), the Sellers
----------------(i) shall not (except, (x) in the case of Terrance McClinch, in his capacity
as a consultant to the Buyer in accordance with his consulting agreement with
the Buyer to be entered into as of the Closing Date and (y) in the case of
Ernest Pierson and Robert Russo, in their capacity as employees of the Company
or another Subsidiary of the Buyer), and shall cause their respective
Affiliates not to, in each case, without the express prior written consent of
Buyer (which consent may be withheld by Buyer in its sole and absolute
discretion) for his, her, or its or their, as the case may be, own account or
jointly with any other Person, directly or indirectly, own, manage, operate,
join, control, finance, invest in, bid for, advise (or advise others with
respect to) or otherwise participate in, or be connected with, or become or
act as a partner, manager, member, director, officer, employee, consultant,
representative, agent or landlord of (other than pursuant to the lease of 185
Thorpe Street contemplated hereby), any business, individual, partnership,
firm, corporation (other than Buyer), limited liability company, association
or other entity which is in competition with, or is otherwise engaged anywhere
in the United States of America and the Provinces of Ontario and Quebec,
-----------------Canada, in the Restricted Business (as hereafter defined); provided, however,
-------- ------that a Seller may own, directly or indirectly, solely as an investment, (x)
the URI Warrants and Buyer Common Stock issued upon the exercise thereof (and
any stock dividends or other securities issued to holders thereof) and (y)
securities of any business traded on any national securities exchange or
NASDAQ, provided such Seller is not a controlling person of, or a member of a
group which controls or seeks to control, such business and further provided
that such Seller and its Affiliates do not, in the aggregate, directly or
indirectly, own 2% or more of any class of securities of such business ; and
(ii) shall not, and shall cause their respective Affiliates not to, directly
or indirectly, for his, her, or its or their own account or jointly with
another, or for or on behalf of any Person, as principal, agent or otherwise,
(A) solicit or induce or in any manner attempt to solicit or induce any Person
employed by Company or any of its Subsidiaries to leave such position or (B)
interfere with, disrupt or attempt to disrupt any relationship, contractual or
otherwise, between the Company or any of its Subsidiaries and any of the
customers, clients or suppliers of the Company or any of such
39
Subsidiaries; provided that notwithstanding the foregoing the Sellers and
-------their Affiliates may take any action whatsoever (including without limitation
legal action) against (x) any customer in connection with any Reimbursable
Trade Account Receivable with respect to which the Sellers have an obligation
to indemnify under Section 12.1(b) or (y) any supplier, manufacturer or any
other Person relating to, resulting from or in connection with any claims for
indemnification by the Buyer or a Buyer Indemnitee against the Sellers under
Article 7, 8 or 12 of this Agreement.
In addition, the Sellers shall not, and shall cause their
respective Affiliates not to, to any Person denigrate or derogate the Buyer
or any of its subsidiaries (including the Company), or any product or service
or procedure of any such company whether or not such denigrating or
derogatory statements shall be true or are based on acts or omissions which
occurred or are learned by a Seller prior to the date hereof or otherwise. A
statement shall be deemed denigrating or derogatory to any Person only if it
(i) materially adversely affects the esteem in which such Person is held by
investors, lenders or licensing, rating, or regulatory entities and (ii) is
not privileged in law.
The Sellers acknowledge that irreparable harm would be suffered by
the parties relying on the Sellers' covenants and undertakings set forth
herein in the event that any of the provisions of this Section were not
performed fully by the Sellers in accordance with the terms specified herein,
and that monetary damages are an inadequate remedy for breach of this Section
because of the difficulty of ascertaining and quantifying the amount of
damages that will be suffered by the parties relying hereon in the event that
the undertakings and provisions contained in this Section were breached or
violated. Accordingly, each Seller agrees that Buyer shall be entitled to an
injunction or injunctions to restrain, enjoin and prevent breaches or
threatened breaches of the covenants, undertakings and provisions herein and
to enforce specifically the provisions hereof in any court of the United
States or any state having jurisdiction over the matter, it being understood
that any such remedies shall be in addition to, and not in lieu of, any other
rights and remedies available at law or in equity. The Sellers further
acknowledge and agree that
40
the covenants contained in this Section shall not be deemed exclusive of any
common law or other rights of Buyer in connection with the matters covered
hereby.
The provisions of this Section are severable, and the invalidity of
any provision shall not affect the validity of any other provision. It is
the intention of the parties that this Section be enforced to the fullest
extent permitted and, therefore, in the event that any provision of this
Section or the application thereof is held to be unenforceable in any
jurisdiction because of the duration or scope thereof, the parties hereto
agree that the court or panel of arbitrators making such determination shall
have the power to reduce the duration and scope of such provision to the
extent necessary to make it enforceable, and that this Section in its reduced
form shall be valid and enforceable to the full extent permitted by law, but
no such reduction shall affect the enforceability of the express terms hereof
in any other jurisdiction.
6.11 Excluded Assets and Liabilities. Prior to the Closing Date,
---- ------------------------------the Company shall transfer all right, title and interest to, and all
responsibility in respect of, the Excluded Assets and Liabilities to the
Sellers or their respective designees. The Sellers hereby agree to indemnify
the Buyer Indemnitees from and against all Losses and Liabilities attributable
to the Excluded Assets and Liabilities.
6.12 Insurance Tail. The Buyer shall purchase and cause to be
---- -------------maintained in effect at Closing and for a period of two years after the
Closing Date, for the benefit of the Company and its Subsidiaries, liability
insurance policies having at least the same coverage as, deductible amounts no
greater than, and which contain terms and conditions that are not less
advantageous to the Company and its Subsidiaries than, the liability insurance
policies maintained by the Company and its Subsidiaries as of the Closing
Date; provided that the Buyer's obligation under this Section with respect to
-------an employee practice liability insurance policy is only to the extent that the
maximum premium therefore does not exceed $20,000 per annum.
6.13 Payment of Indebtedness. [At Closing, the Buyer shall pay all
---- ----------------------principal and interest owing with respect to the Stonington mortgage and
Sellers shall
41
arrange to have the lenders with respect thereto deliver a "pay
off letter" and UCC-3 Termination Statements with respect thereto at Closing.]
/6/ At Closing, the Buyer may, at its option, repay any other indebtedness of
the Company or any of its Subsidiaries. If the Buyer notifies the Sellers at
least 10 Business Days prior to the Closing Date that it will repay any such
indebtedness at Closing, the Sellers shall arrange to have the lenders with
respect to such indebtedness deliver pay-off letters and UCC-3 Termination
Statements at the closing with respect to such indebtedness. If the Buyer
elects to repay any indebtedness of the Company or its Subsidiaries at
Closing, neither the Sellers nor the Company or any of its Subsidiaries shall
have any liability or obligation with respect thereto (it being understood
that any prepayment penalties resulting therefrom in excess of $37,500 shall
be included as a liability of the Company in the Preliminary Closing Balance
Sheet, the Audited Closing Balance Sheet and the Closing Adjusted Net Worth
Schedule pursuant to Section 1.2) ./7/ The Buyer agrees to pay the first
$37,500 of any such prepayment penalties.
6.14 Rental Ready Adjustment. Sellers will deliver a Rental Asset
---- ----------------------Listing to the Buyer at Closing ("Rental Asset Listing") which shall set forth
-------------------as of the Closing Date (i) the asset description, make, model and original
cost, accumulated depreciation and net book value of all rental equipment
inventory held for rent to customers of the Company and its Subsidiaries (the
"Equipment") as of the Closing Date. The Sellers shall, subject to Sections
--------12.1(c) (other than Section 12.1(c)(i)), 12.4 and 14.2, indemnify the Buyer
for (x) each item of Equipment listed on the Rental Asset Listing which is not
Rental Ready and (y) each item of Equipment which is listed on the Rental
Asset Listing and which is missing, in the amount calculated as described
below (the "Rental Ready Adjustment"). Within 15 days following the Closing
----------------------Date, the Buyer shall complete a physical inventory of each item of Equipment
on the Rental Asset Listing, including by visiting renters' locations as
necessary to inspect such Equipment, and the indemnification provided in this
Section 6.14 shall be based on the Rental Ready Adjustment resulting from
- ---------/6// Note to draft: To be in GFE Agreement only.
- --/7// Note to draft: Number will change in MES and GFE.
- ---
42
the findings of such physical inventory (the "Post Closing Rental Ready
------------------------Adjustment"). The Sellers' Representative or its designee shall have the
right to observe and consult with the Buyer during the physical inventory.
The amount of any indemnification payment required under this Section shall
equal (I) the lesser of (x) the repair cost and (y) the replacement cost for
each item of Equipment that is not Rental Ready and (II) the fair market value
(as determined by the Buyer and the Sellers' Representative) for each item of
Equipment that is missing; provided, that the Buyer shall be entitled to
-------indemnification pursuant to this Section 6.14 only when and if the aggregate
fair market value (determined as aforesaid) of all such missing Equipment plus
the repair/replacement costs of all such non Rental Ready Equipment, exceeds
$150,000, /8/ and then only to the extent of such excess, and any
indemnification obligation shall be subject to Sections 12.1(c) (other than
Section 12.1(c)(i)), 12.4 and 14.2. The amount of any such indemnification
shall be paid to the Buyer out of the Escrow Amount, and the Buyer and the
Sellers' Representative shall give instructions to the Escrow Agent to pay, an
amount equal to such adjustment within five Business Days of completion of the
determination of the Rental Ready Adjustment; provided that if such Post
-------Closing Rental Ready Adjustment exceeds the Escrow Amount, the Sellers shall
pay to the Buyer on such date the excess of the Post Closing Rental Ready
Adjustment over the Escrow Amount. For purposes of this Agreement, an item of
Equipment is "Rental Ready" if (i) no maintenance or repairs (other than
-----------routine maintenance) costing more than the greater of (x) $750 per item and
(y) 3.5% of the original cost of such item of Equipment, are required with
respect to such item to bring such item into condition for rental. The repair
cost with respect to any item of Equipment shall be determined based upon the
cost of a similar repair most recently performed by the Company or any
Subsidiary of the Company to the same or similar item of Equipment. The
parties agree that the items of Equipment listed in Schedule 6.14(b) shall not
---------------give rise to a Rental Ready Adjustment. Any disputes as to the physical
count, fair market value or whether any
- ---------/8// Note to draft: Basket will be different in MES and GFE.
- ---
43
item of Equipment is Rental Ready will, if possible, be resolved while the
physical inventory of such Equipment is being taken. Any disputes not so
resolved within 15 days shall be resolved by an independent third party
mutually acceptable to Buyer and the Sellers' Representative or, if Buyer and
the Sellers' Representative cannot agree on the designation of such
independent third party within five Business Days, by the CPA Firm, whose
determination shall be final, binding and conclusive on the parties hereto.
Unless otherwise agreed to by the Buyer and the Sellers' Representative in
writing, operating leases entered into by the Company or any of its
Subsidiaries shall not cause an adjustment to the Purchase Price pursuant to
an Rental Ready Adjustment.
6.15 No Solicitation. The Sellers will not, and will not cause or
---- --------------permit the Company or any of its directors, officers, employees,
representatives or agents (collectively, "Agents") to, directly or indirectly,
-----(i) discuss, negotiate, undertake, authorize, recommend, propose or enter
into, any transaction involving a merger, consolidation, business combination,
purchase or disposition of any capital stock or other equity interest in, or
any material amount of the assets of, the Company, other than the transactions
contemplated by this Agreement (an "Acquisition Transaction"), (ii)
----------------------facilitate, encourage, solicit, participate in or initiate discussions,
negotiations or submissions of proposals or offers in respect of an
Acquisition Transaction, (iii) furnish or cause to be furnished, to any
Person, any information concerning the business, operations, properties or
assets of the Company in connection with an Acquisition Transaction, or (iv)
otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to do or seek any of
the foregoing. The Sellers will inform the Buyer in writing immediately
following the receipt any Seller, the Company or any Agent of any proposal or
inquiry in respect of any Acquisition Transaction.
6.16 Publicity. None of the Buyer, the Sellers, the Company or the
---- --------Agents shall issue any press release or public announcement concerning this
Agreement or the transactions contemplated hereby without obtaining the prior
written approval of the other parties hereto, which approval will not be
unreasonably withheld or delayed; provided,
--------
44
however, that the Buyer may make such disclosure as the Buyer deems is
------required by Applicable Law or by the applicable rules of any stock exchange on
which any securities of the Buyer are listed. The Sellers acknowledge and
agree that the Buyer may disclose information concerning this Agreement to the
extent required by law in any filing with the Securities and Exchange
Commission or in any offering memorandum relating to a financing of the Buyer;
provided that the Buyer shall give the Sellers' Representative an opportunity
-------to review such disclosure (and an opportunity to comment thereon) to the
extent reasonably possible.
7.
--
Tax and Related Matters.
-----------------------
7.11
----
Taxes; Section 338(h)(10) Election. /9/
----------------------------------
(a) (i) At the election of the Buyer, the Buyer and the Sellers
shall file an election under Section 338(h)(10) of the Code and under any
comparable provisions of state, local, or foreign law with respect to the
purchase of the Shares (the "Election"). No later than 60 days after the
-------Closing Date the Buyer shall notify the Sellers whether the Buyer will make
the Election. If the Election is made, the Election Tax Cost (as determined
hereunder) shall be paid as additional Purchase Price by the Buyer to the
Sellers and the Buyer and Sellers shall report, in connection with the
determination of Taxes, the transactions contemplated by this Agreement in a
manner consistent with the Election, the computation of the Election Tax Cost,
the Modified Aggregate Deemed Sales Price (as defined below) and the Deemed
Sales Price Allocation (as defined below). The Sellers and the Buyer shall
take no action which is inconsistent with the Election or its validity under
the Code and the applicable Treasury Regulations.
(ii) On the Closing Date, the Sellers shall execute and
deliver to Buyer five copies of Internal Revenue Service Form 8023
provided by the Buyer and any similar forms under applicable state,
local and foreign law (the "Election Forms").
- ---------/9// Sections 7.1 and 7.2 necessary only in the purchase agreements for
- --McClinch Equipment Services, Inc. and Grey Fox Equipment, Inc. (i.e., the S
corporations).
45
(iii) As soon as practicable after the Closing Date, but in
no event later than 60 days after the Closing Date, the Buyer shall
deliver to the Sellers a written notice of its intention to file the
Election, together with the Buyer's calculation of (A) the Modified
Aggregate Deemed Sales Price, (B) the allocation thereof among the
assets of the Company in accordance with the principles of Treasury
Regulations (S) 1.338(h)(10)-1(f)(1)(ii) (the "Deemed Sales Price
Allocation") and (C) the Election Tax Cost. The term "Modified
Aggregate Deemed Sales Price" shall mean an amount resulting from the
Election, determined pursuant to Treasury Regulation (S) 1.338(h)(10)1(f) without regard to items described in Treasury Regulation (S)
1.338(h)(10)-1(f)(4) (provided that the Sellers may take such items into
account in filing Tax Returns.) The term "Election Tax Cost" shall
mean, with respect to each Seller, (A) the excess, if any, of (x) the
net ordinary income and capital gain recognized by such Seller as a
consequence of the Election multiplied by a tax rate of 44% for ordinary
income and 24% for capital gain, as the case may be, over (y) the net
long-term capital gain that would have been recognized by such Seller on
the sale of his Shares if the Election had not been made multiplied by
24%, divided by (B) the excess of 100 percent over the applicable
percentage described in clause (x).
(iv) The Buyer shall be responsible for the preparation and
filing of all forms and documents required in connection with the
Election. The Buyer shall provide the Sellers with copies of (A) any
necessary corrections, amendments, or supplements to Form 8023, (B) all
attachments required to be filed therewith pursuant to applicable
Treasury Regulations, and (C) any comparable forms and attachments with
respect to any applicable state, foreign, or local elections included as
part of the Election. The Sellers shall execute and deliver to the
Buyer within five (5) days of receipt by the Sellers such documents or
forms as are required properly to complete the Election.
46
(v) The Sellers and the Buyer shall cooperate fully with each
other and make available to each other such Tax data and other
information as may be reasonably required by the Sellers or the Buyer in
order for the Buyer to (A) timely file the Election and any other
required statements or schedules (or any amendments or supplements
thereto), (B) compute the Modified Aggregate Deemed Sale Price and the
Deemed Sale Price Allocation and (C) compute the Election Tax Cost.
(b) Payment Mechanism. If the Buyer makes the Election pursuant to
--- ----------------Section 7.1(a), the Buyer shall pay to the Sellers the amount of the Election
Tax Cost by March __, 1999. The Buyer's determination of the Election Tax
Cost shall be final and binding upon the parties to this Agreement unless
within thirty (30) days after receipt by the Sellers of the Buyer's
computation of the Election Tax Cost the Sellers shall have delivered to the
Buyer a notice (an "ETC Disagreement Notice") setting forth specific
----------------------objections to the amount or calculations of the Election Tax Cost. If any ETC
Disagreement Notice is delivered by the Sellers to the Buyer in a timely
manner indicating objections to the amount of the Election Tax Cost, then
during a period of ten (10) Business Days following delivery by the Sellers of
such ETC Disagreement Notice, the Buyer and the Sellers shall attempt to
resolve, in writing, any differences they have with respect to any matter
specified in the ETC Disagreement Notice and to agree on the amounts of the
calculations made in determining the Election Tax Cost. If at the end of such
10-Business Day period, the Buyer and the Sellers have failed to reach written
agreement with respect to any of such matters, then either of the Buyer or the
Sellers may submit a demand for resolution as to matters as to which they have
failed to reach written agreement to the CPA Firm (in such capacity, the "ETC
--Accountant"). The ETC Accountant shall on or prior to the date that is thirty
---------(30) days after any information reasonably requested by the ETC Accountant to
be provided shall have been received by the ETC Accountant, deliver to the
Buyer and the Sellers, a statement stating that the calculations made in
determining the Election Tax Cost are correct or setting forth its resolution
of any specific items of
47
disagreement and a calculation of any unpaid Election Tax Cost based upon such
resolution. The Buyer shall pay any such unpaid Election Tax Cost to the
affected Sellers within five (5) Business Days after receipt of the ETC
Accountant's statement. All fees and expenses payable to the ETC Accountant
incurred in connection with such disagreement shall be borne 50% by the Buyer
and 50% by the Sellers and all other expenses incurred in connection therewith
shall be borne by the party incurring such expenses.
7.2
---
Tax Administration.
------------------
(a) (i) The Sellers shall prepare or cause to be prepared and shall
timely file or cause to be timely filed all Tax Returns required to be filed
by or on behalf of the Company and any of its Subsidiaries any of their
respective operations and assets on or before the Closing Date (taking into
account applicable extensions of time) and shall cause to be paid any Taxes
shown to be due thereon. Such Tax Returns shall be prepared in a manner
consistent with prior practice and in accordance with applicable law. The
Sellers shall also prepare or cause to be prepared for the Company, in a
manner consistent with prior practice and in accordance with applicable law
all Tax Returns required to be filed or with respect to the Company which
relate to taxable periods (or portions thereof) ending on or prior to the
Closing Date ("Pre-Closing Date Tax Returns") and shall remit or cause to be
---------------------------remitted to the Buyer any and all Taxes due, to the extent such Taxes have not
been provided for in the Closing Balance Sheet Tax Reserve, with respect to
such Pre-Closing Date Tax Returns. The Sellers shall deliver or cause to be
delivered all such Pre-Closing Date Tax Returns to the Buyer not less than 20
Business Days prior to the due date therefor. The Buyer shall review and
comment upon such Tax Returns, and upon the Buyer's approval thereof, the
Buyer shall cause the Company to file such Pre-Closing Date Tax Returns.
Expenses relating to the preparation of the Tax Returns described in the
preceding sentences shall be borne 50% by the Buyer and 50% by the Sellers;
provided, however, that the amount of expense incurred by the Buyer in
-------- ------connection with the preparation of such Tax Returns for each of the Company,
MES and Grey Fox shall not exceed, in the aggregate, $10,000. Except as
otherwise provided herein, the Buyer shall
48
be responsible for preparing and filing or causing to be prepared and filed
all Tax Returns required to be filed by or on behalf of the Company and any of
its operations and/or assets after the Closing Date (taking into account
applicable extensions of time) and shall, subject to this Section 7.2(a)(i)
and Section 7.2(a)(ii) hereof, pay or cause to be paid any Taxes shown to be
due thereon.
(ii) With respect to any Tax Return required to be filed by
the Buyer for a taxable period of the Company or any of its Subsidiaries
beginning on or before and ending on or after the Closing Date, the
Buyer shall provide the Sellers with a statement setting forth the
amount of Tax shown on such Tax Return for which the Sellers are
responsible pursuant to Section 7.2(b)(i) hereof or that are allocable
to the Sellers pursuant to Section 7.2(b)(iii) hereof (as the case may
be) (the "Statement") at least thirty (30) Business Days prior to the
--------due date for filing of such Tax Return (including extensions). Not
later than 5 business days before the due date (including extensions)
for payment of Taxes with respect to such a Tax Return the Sellers shall
pay to Buyer an equal amount to the Taxes shown on the Statement as
being the responsibility of the Sellers pursuant to Section 7.2(b)(i)
hereof or allocable to the Sellers pursuant to Section 7.2(b)(iii)
hereof (as the case may be). No payment pursuant to this Section
7.2(a)(ii) shall excuse the Sellers from their indemnification
obligations pursuant to Section 7.2(b) hereof should the amount of Taxes
as ultimately determined (on audit or otherwise), for the periods
covered by such Tax Returns and which are the responsibility of Sellers,
exceed the amount of the Sellers' payment under this Section 7.2(a)(ii).
(iii) The Sellers may not file any amended Tax Returns or
refund claims in respect of any taxable period of the Company or any of
its Subsidiaries ending on or prior to the Closing Date without the
prior written consent of the Buyer which shall not be unreasonably
withheld.
(iv) The parties shall cooperate fully with and make
available to one another in a timely fashion such Tax data and other
information as
49
may be reasonably required for the preparation by the Buyer or the
Sellers, as applicable, of any Tax Returns required to be prepared and
filed hereunder. The Sellers and the Buyer shall make available to the
other, as reasonably requested, all information, records or documents in
their possession relating to Tax liabilities of the Company or any of
its Subsidiaries for all taxable periods of the Company or any of its
Subsidiaries, as the case may be, ending on, prior to or including the
Closing Date and shall preserve all such information, records and
documents until the expiration of any applicable Tax statute of
limitations or extensions thereof; provided, however, that if a
-------- ------proceeding has been instituted for which the information, records or
documents is required prior to the expiration of the applicable statute
of limitations, such information, records or documents shall be retained
until there is a final determination with respect to such proceeding.
(b) (i) The Sellers will, jointly and severally, be liable for, and
will hold the Buyer and the Company and their respective directors, officers,
affiliates, successors and permitted assigns (each a "Buyer Indemnified
----------------Person") harmless from and against any and all Losses resulting from, arising
out of or based upon (A) any and all Taxes for which the Company or any of its
Subsidiaries may be liable for all taxable periods ending on or before the
Closing Date (the "Pre-Closing Period") and to the extent provided in clause
-----------------(iii) below, all taxable periods that include, and end after the Closing Date
in each case to the extent that such Taxes exceed, in the aggregate, the
Closing Balance Sheet Tax Reserve and (B) any inaccuracy in or breach of any
representation or warranty set forth in Section 4.7 of this Agreement;
provided, however, that if an audit adjustment for a Pre-Closing Period (x)
-------- ------gives rise to an indemnity obligation under this Section 7.3(b)(i) and (y) is
reasonably expected to reduce the taxable income of the Company or any of its
Subsidiaries for a taxable year or period beginning after the Closing Date
(such estimated reduction in taxable income is referred to herein as a "Post----Closing Tax Benefit"), then the amount required to be indemnified by the
------------------Sellers pursuant to this Section 7.3(b)(i) shall be reduced by the "net
present value" of such Post-Closing Tax Benefit. The "net present
50
value" of a Post-Closing Tax Benefit shall be determined by using a discount
rate equal to [6]%. For purposes of making this determination, the parties
shall assume that a Post-Closing Tax Benefit shall be realized by the Company
or relevant Subsidiary at the time the relevant Tax Return is required to be
filed for the taxable year or period in which such Post-Closing Tax Benefit is
reasonably expected to be available and that the Company or relevant
Subsidiary is subject to Federal income tax, and any applicable state and
local taxes, at the maximum rates provided by law for such taxable year or
period.
(ii) The Buyer will indemnify and hold harmless the Sellers,
any trustee of any Seller in his or her individual capacity as trustee
and any beneficiary or trustee of any Seller in his or her capacity and
their respective successors from and against any and all Losses
resulting from, arising out of or based upon all Taxes for which the
Company may be liable for all taxable periods or portions thereof
beginning after the Closing Date.
(iii) For purposes of the foregoing, if a taxable period
begins before and ends after the Closing Date (the "Interim Period"),
-------------Taxes for the portion of such taxable period ending on the Closing Date
will be determined by an interim closing the books of the Company or its
relevant Subsidiary and determining the amount of relevant Taxes that
would have been due had such taxable period ended on the Closing Date,
without regard to any events occurring after the Closing Date. Any
Taxes for such taxable period in excess of the foregoing amount will be
deemed to be attributable to the portion of such taxable period
occurring after the Closing Date. To the extent any Taxes are not
susceptible to such allocation, such Taxes shall be allocated by
apportionment on the basis of elapsed days.
7.3
---
Contests.
--------
(a) After the Closing Date, the Buyer shall promptly notify the
Sellers in writing of any written notice of a proposed assessment or claim in
an audit or administrative or judicial proceeding involving the Company or any
of its Subsidiaries
51
which, if determined adversely to the Company or relevant Subsidiary, would be
grounds for indemnification under this Article 7; provided, however, that a
-------- ------failure to give such notice will not affect a Buyer Indemnified Person's right
to indemnification hereunder except to the extent, if any, that, but for such
failure, the Sellers could have avoided the Tax liability in question.
(b) [Except as provided in Section 7.3(c) below,] in the case of an
audit or administrative or judicial proceeding that relates to any Pre-Closing
Period, the Sellers shall have the right at their own expense to control the
conduct of such audit or proceeding; provided that within 30 days after the
-------Sellers have received the written notice from the Buyer that is required under
Section 7.3(a) above, and prior to taking any action with respect to such
audit or administrative or judicial proceeding, the Sellers acknowledge in
writing their joint liability under Section 7.3(b)(i) of this Agreement to
hold any Buyer Indemnified Person harmless against the full amount of any
adjustment which may be made as a result of such audit or proceeding that
relates to the Pre-Closing Period (to the extent such amount exceeds the
Closing Balance Sheet Tax Reserve after giving effect to all prior and
concurrent payments made pursuant to Section 7.3(b)(i) of this Agreement to
any Buyer Indemnified Person); provided, further, that the Sellers may not
-------- ------agree to a settlement or compromise to any such audit or proceeding that may
reasonably be expected to have an adverse effect on the tax liability of the
Company for a taxable period after the Closing Date without the prior written
consent of the Buyer which consent shall not be unreasonably withheld;
provided, further, that if the Buyer does not consent to such settlement or
-------- ------compromise, the Sellers' liability to indemnify the Buyer as a result of such
audit or proceeding shall be limited to the amount that the Sellers would have
paid had the Buyer consented to such settlement or compromise. The Buyer also
may participate in any such audit or proceeding at its own expense and, if the
Sellers do not assume the defense of any such audit or proceeding, the Buyer
may defend the same at its own expense in such manner as it may deem
appropriate, including, but not limited to, settling such audit or proceeding,
52
without any effect to any Buyer Indemnified Person's right to indemnification
under this Article 7.
[(c) Notwithstanding subsection (a) above, any contest and/or
settlement of any issue raised in an official inquiry, examination or
proceeding that relates to the validity or effect of the Election will be
conducted by the Buyer and the Company.] /10/
(d) In the case of an audit or administrative or judicial
proceeding that relates to the Interim Period, the Buyer shall have the right
at its own expense to control the conduct of such audit or proceeding;
provided that the Buyer may not agree to a settlement or compromise in any
-------such audit or proceeding without the prior written consent of the Seller's
Representative (as defined in Section 12.5 below), which consent shall not be
unreasonably withheld. The Sellers also may participate in any such audit or
proceeding at their own expense and, if the Buyer does not assume the defense
of any such audit or proceeding, the Sellers may defend the same at its own
expense in such manner as it may deem appropriate, including, but not limited
to, settling such audit or proceeding, without any effect to the Sellers'
right to indemnification under this Article 7.
8.
-8.1
---
Environmental Matters.
--------------------The Phase I Investigations.
--------------------------
(a) Within five days of the execution of this Agreement, the Buyer
shall retain, at its sole expense, an environmental consulting firm reasonably
acceptable to the Sellers (the "Phase I Consultant") to perform an
-----------------environmental assessment for the Properties in accordance with ASTM Phase I
Standard E 1527 and other sound practices and procedures normally employed in
the Phase I process (the "Phase I Assessments"). The Phase I Assessments
------------------shall be completed as soon as is reasonably practicable. The Phase I
Consultant shall report its findings simultaneously to the Buyer and the
Sellers both orally and in writing.
- ---------/10// Bracketed language applicable to S Corporations only.
53
(b) With respect to the leased Properties, the Phase I Assessment
shall provide the Phase I Consultant's estimate of the range of costs, from
the reasonable best to reasonable worst case, to remediate known or reasonably
suspected Releases of Hazardous Materials, on the leased Properties for which
the Company is obligated under Environmental Laws to perform Remedial Action,
or for which the Company would be obligated to perform Remedial Action if the
relevant Governmental Authorities were aware of the Release. The Phase I
Consultant shall also provide estimates for expenditures necessary to correct
violations of Environmental Laws on the leased Properties. The Phase I
Consultant shall assume the use of the most cost-effective, reasonable and
timely Remedial Action and shall consider the Company's status as a lessee in
evaluating the Company's potential obligations under Environmental Laws.
(c) With respect to the Owned Real Properties for which sufficient
sampling data exists to enable the Phase I Consultant to provide a reasonable
range of estimates, the Phase I Assessment shall provide the Phase I
Consultant's estimate of the range of cost, from the reasonable best to
reasonable worst case, to remediate known or reasonably suspected Releases of
Hazardous Materials for which there is an obligation under Environmental Laws
on the part of the Company or any Subsidiary of the Company to perform
Remedial Action, or for which there would be such an obligation, if relevant
Governmental Authorities had notice of the Release. The Phase I Consultant
shall also provide estimates for the expenditures necessary to correct
violations of Environmental Laws on the Owned Properties. In making its
estimates, the Phase I Consultant shall assume the use of the most costeffective, reasonable and timely Remedial Action. With respect to known or
reasonably suspected Releases of Hazardous Materials at the Owned Real
Properties where there is not sufficient information to enable the Phase I
Consultant to estimate reasonably the ranges of costs of the most costeffective, timely and reasonable Remedial Action, the Phase I Assessment shall
recommend appropriate media sampling.
8.2 The Phase II Investigations. In the event that the Phase I
--- --------------------------Report concludes that media sampling is necessary at one or more of the Owned
Real Properties,
54
the Buyer shall retain at its sole expense an environmental consulting firm
reasonably acceptable to the Sellers (the "Phase II Consultant") to perform
------------------the necessary Phase II assessments (the "Phase II Assessment") using
------------------subcontractors of its choice. For properties subject to the Phase II process,
the Phase II Consultant shall be required to provide simultaneously to the
Buyer and the Sellers a report identifying each identified Release of
Hazardous Materials, or violation of Environmental Laws, not addressed in the
Phase I Assessments for which there is an obligation under Environmental Law
on the part of the Company or any Subsidiary of the Company to undertake
Remedial Action (which could include further investigation), or for which
there would be such an obligation if the relevant Governmental Authorities had
notice of the Release or violation, and estimating the range of costs from the
reasonable best to reasonable worst case, of the actions reasonably necessary
to perform such Remedial Action. The Phase I Assessments prepared pursuant to
paragraph 8.1 and the Phase II Assessments are hereinafter referred to
collectively as the "Assessments."
8.3
---
Certain Procedures Relating to the Consultant's Estimates.
---------------------------------------------------------
(a) The Phase I and II Consultants' estimates shall be based upon
the assumption that the Buyer covenants (which the Buyer hereby does) to
undertake, or cause the Company to undertake, all reasonable actions necessary
to insure that the remediation of any area, or the correction of any violation
of Environmental Law, is accomplished in the most cost-effective, timely,
reasonable manner consistent with the present uses of the Properties, and that
the least onerous soil and groundwater cleanup criteria available under
applicable Environmental Laws are used in any such remediation. To the extent
reasonably necessary to achieve no further action status, such actions by the
Buyer and the Company shall include, but not be limited to, the execution of
consents by the Buyer and the Company to restrict the future use of the
Properties to commercial/industrial uses such as those in existence as of the
Closing Date.
55
(b) For each area or violation, the Consultants' estimates may be
made in ranges in which event the seventy-fifth percent of the range shall be
deemed to be the estimate for the purposes of this Agreement.
(c) In making its estimates, the Consultants shall assume that the
Company has responsibility for all investigative and remedial obligations that
must be performed under Environmental Laws (if any) as a result of the
transactions contemplated by this Agreement.
8.4 Review of the Estimated Costs of Remediation. In the event
--- -------------------------------------------that either the Buyer or the Sellers disagree with the Phase I or Phase II
Consultants' estimate of the cost of necessary compliance action or Remedial
Action, then either (or both) may submit such disagreement to an independent
environmental consultant mutually acceptable to the Buyer and the Sellers'
Representative (the "Independent Consultant") for a final and binding
---------------------determination. If the Buyer and the Sellers' Representative cannot agree on
the independent engineer, he or she shall be appointed by the President of the
National Society of Professional Engineers. Proceedings before the
Independent Consultant shall be restricted to the submission to him or her of
the Phase I Assessment and Phase II Assessment, and a statement of position
with one supporting affidavit by each party. Each statement of position shall
set forth the Parties' estimate of the costs of the remediation or capital
improvements reasonably necessary to achieve compliance with Environmental
Laws for each area at which Releases of Hazardous Materials have been
documented in the Phase I Assessments and/or Phase II Assessments based upon
the standards set forth in this Section 8. The statements of position of each
of the Buyer and the Sellers shall be submitted to the Independent Consultant
within 10 days of his or her appointment. The Independent Consultant shall,
within 14 days of receipt of such statements, issue a report accepting the
estimate of one or the other party for each area in dispute (the "Independent
----------Consultant's Report"). The Independent Consultant may employ counsel to
------------------assist it in the review process. Costs of the Independent Consultant and its
counsel shall be borne 50 percent by the Buyer and 50 percent by the Sellers.
56
8.5 The Sellers' Indemnification of Buyer. Subject to Sections
--- ------------------------------------12.1(c), 12.4 and 14.2, Sellers will defend, indemnify and hold harmless the
Buyer Indemnitees (as defined in Section 12.1) from all Pre-Closing
Environmental Losses. For the purposes of this Agreement, "Pre-Closing
----------Environmental Losses" means (1) all costs and expenses necessary to implement
-------------------Remedial Action on the Owned Real Properties for which a determination has
been made in the Phase I Assessment or Phase II Assessment that (i) Remedial
Action by the Company or any Subsidiaries of the Company is necessary to
discharge obligations under (or to cure violations of) Environmental Laws or
(ii) such Remedial Action would be necessary if applicable Governmental
Authorities had been notified of conditions on the Owned Real Properties;
provided that costs and expenses shall be subject to indemnification under
-------this clause (ii) only if incurred in connection with a suit (whether brought
by a Person or Governmental Entity), or an order, investigation or directive
of a Governmental Entity commenced prior to the third anniversary of the
Closing Date; and (2) Losses arising out of or relating to any breach of the
representations in Section 4.21 hereof; provided that in each of subsections
-------(1) and (2) above the aggregate Losses that the Sellers shall be obligated to
pay under this Agreement with respect to Remedial Action in connection with
Owned Real Property shall not exceed the aggregate estimated remediation costs
at the Owned Real Properties set forth in the Phase I Assessments and the
Phase II Assessments, in each case as modified by the Independent Consultant's
Report and reduced by any amounts the Buyer or the Company pays to perform
Remedial Action at such properties which would be subject to indemnification
under Article 8.5 but for the existence of the basket as established in
Section 12.1(c).
8.6 Buyer's Indemnification of the Sellers. Except with respect to
--- -------------------------------------Losses for which the Buyer is entitled to indemnification under Section 8.5,
the Buyer agrees to defend, indemnify and save harmless Seller Indemnitees (as
defined in Section 12.2) from and against any Losses under or relating to
Environmental Laws incurred by the Seller Indemnitees resulting from, arising
out of, relating to, the operation of the Business or condition of the
Properties, whether before or after the Closing Date; provided, the Buyer
--------
57
shall not be obligated to indemnify Seller Indemnitees for Losses resulting
from, arising out of, or related to the operation of the Business or condition
of the Properties before the Closing Date to the extent such Losses were
caused by the Seller Indemnitees' willful misconduct, violation of standards
under Environmental Laws, or to the extent such Losses arose out of a
condition on the Properties of which the Seller Indemnitees had knowledge
prior to the Closing Date, but concerning which the Sellers failed to make a
disclosure to the Buyer or the Phase I Consultant prior to such time.
8.7 Exclusive Remedy. Except with respect to claims for fraud, the
--- ---------------environmental indemnities in this Article shall be the sole and exclusive
remedy of the parties with respect to Losses under or relating to
Environmental Laws arising out of the operation of the Business or the
condition of the Properties prior to the Closing Date. The Buyer and the
Sellers specifically agree that, except to the extent that this Agreement is
held to be invalid or is unenforceable, they will not now or in the future
pursue any claims against one another, including, but not limited to, claims
pursuant to CERCLA or any analogous state law, with respect to environmental
matters arising out of the operation of the Business prior to the Closing Date
or conditions on, in, under or about the Properties as of the Closing Date
except as provided in this Agreement.
8.8 Limitation of Sellers' Duty to Indemnify. Notwith standing
--- ---------------------------------------anything herein to the contrary, the Sellers' obligation to indemnify the
Buyer Indemnitees pursuant to this Article 8 is limited to matters for which
an "Environmental Claim Notice" (as defined below) has been received by the
-------------------------Sellers (a) within 180 days after the Closing Date with respect to the matters
referred to in clause (1)(i) of the definition of Pre-Closing Environmental
Losses or (b) on or prior to the third anniversary of the Closing Date with
respect to matters referred to in clauses 1(ii) and (2) of the definition of
Pre-Closing Environmental Losses.
8.9 Expenses in the Ordinary Course Excluded from Indemnification.
--- ------------------------------------------------------------Environmental Liabilities indemnifiable pursuant to this Article 8 shall not
include costs or expenses of nonremedial or noncorrective activities
undertaken in the ordinary course of
58
business by the Company or any of its Subsidiaries after the Closing Date,
including, without limitation, costs or expenses relating to the routine
disposal of Hazardous Substances lawfully accumulated, sampling undertaken
pursuant to a Permit, or routine maintenance of environmental control
facilities unless undertaken to cure Pre-Closing violations of Environmental
Laws.
8.10
----
Control of Remedial Action.
--------------------------
(a) In the event that the transactions contemplated by this
Agreement trigger any investigative or remedial obligations under
Environmental Laws with respect to the Properties, including any
responsibility under the Connecticut Real Property Transfer Act and the New
Jersey Industrial Site Recovery Act, the Company shall have responsibility for
the discharge of such obligations; provided that Losses incurred by the
-------Company to discharge any such obligation shall be subject to the
indemnification by the Sellers to the extent provided in this Article 8.
(b) Until exhaustion of the basket established by Section 12.1(c),
the Company shall have the exclusive right to manage and control all Remedial
Actions for which Buyer would be entitled to indemnification (but for the
Section 12.1(c) basket), and to negotiate with and fulfill any requirements of
or claims by a Governmental Entity or other Person with respect to any such
matter; provided Buyer shall keep the Sellers' Representative informed of all
-------material developments, and provided further the Sellers' Representative (or
its designee) shall have the right to attend and observe negotiations/
meetings with relevant Governmental Entities.
(c) The Sellers shall have the exclusive right to manage and control
all Remedial Actions for which the Buyer is fully indemnified hereunder and to
negotiate with any fulfill any requirements of or claims by a Governmental
Entity or other Person with respect to any such matter; provided that such
-------remediation (and any settlement, agreement or ongoing obligations imposed in
connection therewith) shall not unreasonably interfere with the Buyer's or the
Company's use of the Properties, and provided further, that the Buyer shall
-------- ------have the right to attend and observe negotiations/meetings with relevant
59
Governmental Entities and participate in any negotiations with respect to
operational or use restrictions; provided further, that the Buyer shall have
-------- ------the right to take control of any Remedial Actions if (i) the Sellers fail to
diligently conduct the Remedial Action in light of an order or directive of a
Governmental Entity and Sellers fail to implement the same within 30 days of
receipt of notice from the Buyer or the Company or (ii) Buyer reasonably
determines that the Sellers are failing to adequately protect the environment,
human health or safety, including the health and safety of the Company's
employees.
8.11 Environmental Indemnification Procedure. In order to seek
---- --------------------------------------indemnification under this Article 8, the party seeking indemnification (the
"Indemnified Party") must submit to the party from which indemnification is
-----------------being sought (the "Indemnifying Party") (1) within 60 days of the discovery by
-----------------the Company or a Subsidiary of the Company of a matter which is likely to give
rise to indemnifiable Losses relating to environmental matters, and (2) within
30 days of receipt of a directive from a Governmental Entity or notice of
claim by a third party, a written notice of the claim for indemnification (an
"Environmental Claim Notice") which shall include a copy of the such directive
-------------------------or notice of a third-party claim, if any; provided, however, failure to
-------- ------promptly submit an Environmental Claim Notice shall not result in a loss of
the right to indemnification pursuant to this Article except to the extent
that it results in actual prejudice to the Indemnifying Party.
8.12 Access to Information. The Indemnified Party shall provide to
---- --------------------the Indemnifying Party reasonable access to all information (including
documentary records, physical conditions and personnel at any property that is
the subject of the claim for indemnification) necessary to evaluate the claim
for indemnification contained in an Environmental Claim Notice.
8.13 Matters Involving Third Parties. If any Governmental Entity
---- ------------------------------or other third party shall notify an Indemnified Party with respect to any
matter which may give rise to a claim for indemnification against any
Indemnifying Party under this Agreement, then the Indemnified Party shall
notify the Indemnifying Party thereof promptly; provided,
--------
60
however, that no delay on the part of the Indemnified Party in notifying the
------Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is actually prejudiced. In the event any Indemnifying Party
notifies the Indemnified Party within 15 days after the Indemnified Party has
given notice of the matter that the Indemnifying Party is assuming the defense
thereof, (i) the Indemnifying Party will defend the Indemnified Party against
the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party, (ii) the Indemnified Party may retain separate co-counsel
at its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel if the
Indemnified Party concludes reasonably that the counsel the Indemnifying Party
has selected has a conflict of interest with the Indemnified Party), (iii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iv) the
Indemnifying Party will not consent to the entry of any judgment with respect
to the matter, or enter into any settlement which does not include a provision
whereby the plaintiff or claimant in the matter releases the Indemnified Party
from all Loss with respect thereto, without the written consent of the
Indemnified Party (not to be withheld unreasonably). In the event the
Indemnifying Party does not notify the Indemnified Party within 15 days after
the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, or does not timely thereafter assume
such defense, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner consistent with the terms
of this Section at the expense of the Indemnifying Party.
9. Conditions Precedent to the Obligation of the Buyer to Close. The
-- -----------------------------------------------------------obligation of the Buyer to complete the Closing is subject to the fulfillment on
or prior to the Closing Date of the following conditions, any one or more of
which may be waived by the Buyer to the extent permitted by Applicable Law:
61
9.1 Representations and Covenants. All representations and
--- ----------------------------warranties of the Sellers contained herein that are qualified as to
materiality shall be true and correct, and the representations and warranties
of the Sellers contained herein not qualified as to materiality shall be true
and correct in all material respects, at and as of the Closing Date with the
same effect as though those representations and warranties had been made again
at and as of the Closing Date, except for those specifically relating to a
date other than the Closing Date, in which case at and as of such date. The
Sellers shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed or
complied with by the Sellers on or prior to the Closing Date. The Sellers
shall have delivered to the Buyer a certificate, dated the Closing Date and
signed by or on behalf of each of the Sellers, to the foregoing effect.
9.2 HSR Act Filing. Any Person required in connection with the
--- -------------transactions contemplated by this Agreement to file a notification and report
form in compliance with the HSR Act shall have filed such form and the
applicable waiting period with respect to each such form (including any
extension thereof by reason of a request for additional information) shall
have expired or been terminated.
9.3 No Injunction or Violation of Law. No order, statute, rule,
--- --------------------------------regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or Governmental
Entity which prohibits or prevents the consummation of the transactions
contemplated by this Agreement and which has not been stayed or vacated by the
Closing Date. The Buyer and each of the Sellers shall each use their
reasonable best efforts and shall cooperate with each other to have any such
order, statute, rule, regulation, executive order, stay, decree, judgment or
injunction vacated or stayed.
9.4 Title Policies. The Sellers shall have delivered or caused to
--- -------------be delivered, prior to or on the Closing Date, title insurance policies
relating to each Owned Real Property set forth on Schedule 4.10(a) (other than
---------------185 Thorpe Street) insuring such Owned Real property in the amount set forth
in Schedule 9.4 with respect to such property.
62
9.5 Simultaneous Closing. The transactions contemplated by (i)
--- -------------------that certain Share Purchase Agreement (the "MES Agreement") dated of even date
------------herewith, by and among the Buyer and the shareholders of McClinch Equipment
Services, Inc., a Connecticut corporation ("MES") and (ii) that certain Share
--Purchase Agreement ("Grey Fox Agreement") dated of even date herewith, by and
-----------------among the Buyer and the shareholders of Grey Fox Equipment, Inc., a
Connecticut corporation ("Grey Fox"), shall be consummated simultaneously with
-------the transactions contemplated hereby.
9.6 Resignations. The Buyer shall have received the written
--- -----------resignations of each of the officers and directors of the Company and releases
in the form of Exhibit F from each Seller other than Robert Russo and Ernest
Pierson.
9.7 Reports. The Buyer shall have obtained the Phase I Assessment
--- ------and Phase II Assessment reports as contemplated by Article 8 and, to the
extent required by Article 8, the Independent Consultant's Report.
9.8 Escrow Agreement. The Buyer shall have received a copy of the
--- ---------------Escrow Agreement, executed by the Sellers' Representative and the Escrow
Agent.
9.9 Legal Opinions. The Buyer shall have received the opinions of
--- -------------Paul, Weiss, Rifkind, Wharton & Garrison and Brody & Ober, P.C., counsel to
the Sellers, addressed to the Buyer, in form and substance reasonably
acceptable to Buyer.
9.10 Affidavits. Each of the Sellers shall have provided Buyer
---- ---------with an affidavit of non-foreign status that complies with Section 1445 of the
Code.
9.11 Affiliate Contracts. Buyer shall have received evidence
---- ------------------satisfactory to it that all Contracts between the Company or any Subsidiary
and any of its Affiliates (other than MES and Grey Fox) shall have been fully
discharged and terminated as of the Closing Date without any further liability
(contingent or otherwise) of the Company thereunder.
9.12 Certificates. Buyer shall have received certificates of good
---- -----------standing with respect to the Company and each of its Subsidiaries issued by
the Secretary of
63
State or comparable official of their respective jurisdiction of organization
and for each jurisdiction in which they are qualified to do business as a
foreign corporation.
9.13 Lease of Company Headquarters. Terrance J. McClinch or his
---- ----------------------------Affiliates shall have entered into a 7-year, triple net lease arrangement for
the Company's present headquarters at 185 Thorpe Street, Fairfield, CT 06430
substantially in the form attached hereto as Exhibit B. /11/
9.14 Employment/Consulting Agreements. Each of Ernest Pierson and
---- -------------------------------Robert Russo shall have executed and delivered the Employment Agreement, and
Terrance J. McClinch shall have executed and delivered the Consulting
Agreement in the form of Exhibits C, D and E, respectively, attached hereto.
9.15 Release of Guarantees. The guarantees by the Company and
---- --------------------Subsidiaries of (i) the synthetic aircraft lease between Fleet
Corporation and McClinch Aviation, Inc., and (ii) the mortgage
National Bank (formerly Shawmut Bank Connecticut, N.A.) to 185
Corporation, shall each be terminated.
its
Capital
loan by Fleet
Thorpe Street
9.16 Material Adverse Effect. No event having a Material Adverse
---- ----------------------Effect shall have occurred, other than (i) termination by any customer or
distributor of a contract or relationship with the Company primarily as a
result of the transactions contemplated by this Agreement, (ii) other adverse
events occurring solely as a result of the transactions contemplated by this
Agreement or (iii) the occurrence of a default under, or termination of any
Contracts listed on Schedule 4.6(a) occurring solely as a result of the
transactions contemplated by this Agreement.
10. Conditions Precedent to the Obligation of the Sellers to Close.
--- -------------------------------------------------------------The obligation of the Sellers to complete the Closing is subject, to the
fulfillment on or prior to the Closing Date of the following conditions, any one
or more of which may be unanimously waived by the Sellers to the extent
permitted by Applicable Law.
- ---------/11// Note to draft:
- ---
For McClinch, Inc. Agreement only.
64
10.1 Representations and Covenants. All representations and
---- ----------------------------warranties of the Buyer contained herein that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Buyer
contained herein not qualified as to materiality shall be true and correct in
all material respects, at and as of the Closing Date with the same effect as
though those representations and warranties had been made again at and as of
the Closing Date, except for those specifically relating to a date other than
the Closing Date, in which case at and as of such date. The Buyer shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it
on or prior to the Closing Date. The Buyer shall have delivered to the
Sellers a certificate, dated the Closing Date and signed by an authorized
officer of the Buyer, to the foregoing effect.
10.2 HSR Act Filing. Any Person required in connection with the
---- -------------transactions contemplated by this Agreement to file a notification and report
form in compliance with the HSR Act shall have filed such form and the
applicable waiting period with respect to each such form (including any
extension thereof by reason of a request for additional information) shall
have expired or been terminated.
10.3 No Injunction or Violation of Law. No order, statute, rule,
---- --------------------------------regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or Governmental
Entity which prohibits or prevents the consummation of the transactions
contemplated by this Agreement and which has not been stayed or vacated by the
Closing Date. The Buyer and each of the Sellers shall each use their best
efforts and shall cooperate with each other to have any such order, statute,
rule, regulation, executive order, stay, decree, judgment or injunction
vacated or stayed.
[10.4 United Rentals, Inc. Warrants. Terrance J. McClinch, Ernest
----------------------------Pierson and Robert Russo shall each have received a 10 year warrant
(collectively, the
65
"URI Warrants") to purchase $200,000 worth of common stock of the Buyer
-----------("Buyer Common Stock") substantially in the form attached hereto as
-----------------Exhibit A.] /12/
10.5 Lease of Company Headquarters. The Company shall have entered
---- ----------------------------into a 7-year, triple net lease arrangement for the Company's present
headquarters at 185 Thorpe Street, Fairfield, CT 06430 substantially in the
form attached hereto as Exhibit B. /13/
10.6 Employment/Consulting Agreements. The Buyer and the Company
---- -------------------------------shall have executed and delivered to each of Ernest Pierson and Robert Russo
an Employment Agreement and (ii) the Buyer shall have executed and delivered
to Terrance J. McClinch a Consulting Agreement in the form of Exhibits C, D
and E, respectively, attached hereto.
10.7 Simultaneous Closing. The transactions contemplated by (i)
---- -------------------the MES Agreement and (ii) the Grey Fox Agreement shall be consummated
simultaneously with the transactions consummated by this Agreement.
10.8 Reports. The Sellers shall have received copies of the Phase
---- ------I Assessment and Phase II Assessment reports as contemplated by Article 8 and,
to the extent required by Article 8, the Independent Consultant's Report.
10.9 Escrow Agreement. The Sellers shall have received a copy of
---- ---------------the Escrow Agreement, executed by each of the Buyer and the Escrow Agent.
10.10 Legal Opinion. The Sellers shall have received the opinion
----- ------------of Weil, Gotshal & Manges LLP, counsel to the Buyer, addressed to the Sellers
in form and substance reasonably acceptable to the Sellers.
10.11 Certificate. Sellers shall have received a certificate of
----- ----------good standing of the Buyer issued by the Secretary of State of the State of
Delaware.
11.
---
Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
- ---------/12// Note to draft: For MES Agreement only.
/13// Note to draft: For McClinch, Inc. Agreement only.
- ---
66
11.1 General Survival. Except as otherwise provided in this
---- ---------------Article 11, all representations, warranties, covenants, agreements and
obligations of each party contained herein, shall expire twenty-four (24)
months after the Closing Date, except for (i) covenants or obligations which
by their terms shall be performed after the Closing which shall survive the
Closing and not expire unless otherwise provided in this Agreement, (ii) the
representations and warranties contained in Sections 3.1 and 4.7 shall survive
the Closing Date until the expiration of any applicable statute of
limitations, including extensions thereof, (iii) the representations and
warranties contained in Section 4.21 shall survive the Closing Date and expire
thirty-six (36) months after the Closing Date, and (iv) the representations
and warranties in Section 4.10(a) and the first sentence of Section 4.10(c)
shall not survive the Closing.
12.
--12.1
----
General Indemnification.
----------------------Indemnification of the Buyer.
----------------------------
(a) Indemnification with Respect to Representations. Subject to
--- ----------------------------------------------Sections 12.1(c), 12.4 and 14.2, the Sellers hereby agree to, jointly and
severally, indemnify and hold harmless the Buyer, its directors, officers,
employees, agents, Affiliates, successors and assigns, the Company and its
Subsidiaries (the "Buyer Indemnitees") from and against all losses,
----------------liabilities, obligations, damages, costs (including costs of investigation)
and expenses (including reasonable attorneys' and other professionals' fees
and expenses) (collectively, the "Losses") actually incurred as a result of,
-----or attributable to any inaccuracy in, or breach of, any representation,
warranty, covenant or agreement of the Sellers in this Agreement; provided
-------that this Section 12.1 (a) shall not apply to any obligation of the Sellers to
indemnify with respect to (i) Taxes, which shall be governed exclusively by
Article 7, (ii) Losses relating to matters referred in Article 8, which shall
be governed exclusively by such Article and (iii) Losses relating to the
noncollection of accounts receivable which shall be governed exclusively by
Section 12.1(b).
(b) Indemnification for Accounts Receivable. From and after the
--- --------------------------------------Closing Date, the Buyer shall use its commercially reasonable best efforts to
cause the
67
Company and its Subsidiaries to collect payment of all trade accounts
receivable of the Company and its Subsidiaries. In the event that the Buyer
and the Company, after using their commercially reasonable best efforts
consistent with the past practices of the Company and its Subsidiaries to
collect payment in full of any Reimbursable Trade Account Receivable (as
defined below), has not received payment in full (net of bad debt reserves and
credit memo reserves reflected on the Audited Closing Balance Sheet (as
increased or decreased, as the case may be, by the Resolved Objections and the
CPA--Determined Differences)) on or before the Due Date (as defined below),
the Buyer shall notify the Sellers' Representative of such event (which notice
shall set forth the amount of such Reimbursable Trade Account Receivable, the
name of the customer and the Due Date with respect thereto). Upon receipt of
any such notice from the Buyer, the Sellers' Representative shall review the
information set forth therein. If the Sellers' Representative so requests, the
Buyer shall make available to the Sellers' Representative such additional
information which is in the possession and control of either the Buyer, the
Company or any of their respective Subsidiaries with respect to such
Reimbursable Trade Account Receivable as the Sellers' Representative may
reasonably require. Subject to Sections 12.1(c), 12.4 and 14.2, within fifteen
(15) days of the receipt by the Sellers' Representative of such notice (or
such later date as is reasonably required for the Sellers' Representative to
review any additional information received from the Buyer at the request of
the Sellers' Representative), the Sellers shall pay to the Buyer, an amount
equal to the excess of (A) the amount of such Reimbursable Trade Account
Receivable that remains past due and unpaid after the Due Date over (B) any
amount for which a reserve with respect to such Reimbursable Trade Account
Receivable has been established on the Audited Closing Balance Sheet (either
as a bad debt reserve or a credit memo reserve); provided that the Sellers
-------shall have no obligation to pay (i) any amount under this Section if the Buyer
(x) fails to keep and maintain the collection operation of the Company and its
Subsidiaries in its present location under the supervision of Ernest Pierson
or, in the case Mr. Pierson is not employed by the Buyer and was not
terminated without cause (as determined under Mr. Pierson's
68
Employment Agreement), his replacement, and (y) reduces the size or the salary
level of the staff below the present level or changes (adversely) the
commission basis for salesmen or (z) reduces the collection expense budget
below that which is consistent with past practice or (ii) to the extent the
Buyer takes any action which would reduce such Reimbursable Trade Account
Receivable or otherwise interfere with its collection in full. From time to
time at the request of the Sellers' Representative, the Buyer shall supply the
Sellers with such information as the Sellers' Representative may reasonably
request concerning the aging of the Reimbursable Trade Accounts Receivable of
the Company and its Subsidiaries and any conversion of the Company's computer
system referred to below. As used herein, the term "Reimbursable Trade Account
-------------------------Receivable" shall mean any trade account receivable of the Company (i)
---------reflected in the Audited Closing Balance Sheet, (ii) for which payment has not
been withheld or disputed as a result of any right of setoff or other claim
against the Buyer, the Company or any Subsidiary of the Company in respect of
transactions arising after the Closing Date and (iii) which does not reflect
any other concession made after the Closing Date by the Buyer, the Company or
any Subsidiary of the Company to the customer in respect of such trade account
receivable. Except as specified in respect of any payment received, all
payments received from a customer shall be applied first against the oldest
receivables with respect to such customer. As used herein, the term "Due
--Date" with respect to the Reimbursable Trade Account Receivables shall mean
180 days after the Closing Date; provided, however that in the event that it
-------is necessary for the Buyer to undertake a conversion of the Company's computer
system, the Due Date shall be extended for any period in which the Company's
computer system with respect to trade accounts receivable is not fully
operational. To the extent that the Buyer has not collected the full amount
of any Reimbursable Trade Account Receivable and the Buyer has been
compensated therefor as set forth in this Section 12.1(b), the Buyer shall
transfer and assign all right, title and interest in an any such Reimbursable
Trade Account Receivable to the Sellers, free of any Liens. It is agreed and
understood that in exercising "commercially reasonable best efforts" in
connection with the collection of accounts receivable pursuant to
69
this Section, the Buyer and the Company shall have no obligation to take any
action out of the ordinary course of business consistent with past practice of
the Business; provided that the Buyer agrees that it shall (consistent with
-------past practice of the Business) commence or threaten any litigation or prepare
or file any proof of claim in any bankruptcy or similar proceeding or incur
such expenses (consistent with past practice of the Business) to collect such
receivables.
(c) Limitation on Indemnification Obligations. The indemnification
--- ----------------------------------------provided for in Article 8 and Article 12 shall be subject to the following
limitations:
(i) Anything in this Agreement to the contrary
notwithstanding, no indemnification payment shall be made pursuant to
this Agreement (other than pursuant to Sections 1.2, 6.4, 6.11 and 6.14
and Article 7 hereof) except to the extent that the amounts which would
otherwise be payable under this Agreement (other than pursuant to
Sections 1.2, 6.4, 6.11 and 6.14 and Article 7 hereof) would
collectively aggregate at least $600,000 (the "Minimum Amount") and such
-------------Minimum Amount shall be deducted from the aggregate amount payable under
such provisions;
(ii) In no event shall the Sellers have any obligation or
liability to pay any amounts pursuant this Agreement (other than
pursuant to Sections 1.2, 6.4 and 6.11 and Article 7 hereof) in excess
of $56,300,000; provided that in no event shall the Sellers be obligated
-------to pay more than $22,520,000 with respect to claims made under this
Agreement (other than pursuant to Sections 1.2 and 6.4 and Article 7
hereof) by a Buyer Indemnitee on or after 180 days after the Closing
Date;
(iii) Notwithstanding anything herein to the contrary, the
Buyer shall have no right to any indemnification under this Article 12
for any matter to the extent (i) the Net Worth of the Company was
reduced because of such matter and either Buyer did not dispute the
amount of the reduction in the Audited Closing
70
Balance Sheet or the dispute as to the amount of the reduction was
resolved pursuant to Section 1.2, or (ii) the matter relates to whether
any item of Equipment was Rental Ready or missing or the fair market
value or cost of repair or replacement of any item of Equipment and such
matter was not disputed or was disputed in determining the amounts
payable under Section 6.14 and resolved as contemplated by Section 6.14;
(iv) In no event shall the Sellers be liable for loss of
profits or consequential damages; and
(v) Notwithstanding anything in this Agreement to the
contrary, the Sellers shall not be obligated to indemnify the Buyer
Indemnities with respect to any Losses to the extent of (A) any proceeds
received in connection with such Losses by the Company or any Subsidiary
of the Company under any insurance policy of the Company or any
Subsidiary of the Company in effect on the Closing Date (including,
without limitation, the insurance policy described in Section 6.12 to
be purchased pursuant to such Section 6.12 (each, a "Company Insurance
----------------Policy")); (B) any proceeds recoverable in connection with such Losses
-----by the Company or any Subsidiary of the Company under any applicable
warranty claim, which claims the Buyer hereby undertakes to pursue using
its commercially reasonable best efforts; and (C) any amounts
recoverable by the Buyer, the Company or any of its Subsidiaries from
customers or other third parties who are, in whole or in part,
responsible for such Losses, and the Buyer hereby undertakes to use its
commercially reasonable best efforts to pursue such claims; it being
agreed that the Buyer shall use commercially reasonable best efforts
(including threatening or instituting proceedings) to recover amounts
referred to in clause (A), (B) or (C) of this clause (v) but the Buyer
shall have no obligation to threaten or institute proceedings against
any insurance carrier; provided, that this clause (v) shall not be
-------applicable with respect to any amounts described in (A), (B) or (C)
above which are not received by the Company or the Buyer following the
exercise
71
of the Buyer's undertakings therein and only if, upon payment of the
relevant indemnification claims by the Sellers, all of the Buyer's or
the Company's right, title and interest in and to all claims for such
amounts are transferred and assigned to the Sellers.
(d) Any amounts payable to any Buyer Indemnitee pursuant to Article
7, 8 or 12 or Sections 6.4, 6.11 or 6.14 shall be paid by the Escrow Agent to
such Buyer Indemnitee from the Escrow Amount in accordance with the Escrow
Agreement until the Escrow Amount (including interest thereon at the Reference
Rate since the Closing Date) is exhausted. After the earlier of (i) the time
that the Escrow Amount (and any interest thereon) has been exhausted or (ii)
the date of the termination of the Escrow Agreement in accordance with its
terms and the return of the remaining Escrow Amount, if any, to the Sellers in
accordance with the Escrow Agreement, any amounts payable to any Buyer
Indemnitee pursuant to Article 7, 8 or 12 or Sections 6.4, 6.11 or 6.14,
subject to the limitations set forth in Sections 12.1(c), 12.4 and 14.2, shall
be paid by the Sellers to such Buyer Indemnitee.
12.2 Indemnification of the Sellers. The Buyer hereby agrees to
---- -----------------------------indemnify and hold harmless each of the Sellers, any trustee of any Seller in
his or her capacity as trustee and any beneficiary or trustee of any Seller in
his or her capacity as such, and their respective successors, assigns, agents
and Affiliates (collectively, the "Seller Indemnitees") against all Losses
-----------------actually incurred as a result of, or attributable to (i) any inaccuracy in, or
breach of, any representation, warranty, covenant or agreement made by the
Buyer in this Agreement or (ii) by reason of any act or failure to act by the
Buyer, its Affiliates its successors or assigns or, after the Closing Date, by
the Company or any Subsidiary, in connection with the ownership of the Company
or any Subsidiary or the operation of the Business after the Closing Date;
provided that in no event shall the Buyer be liable for loss of profits or
-------consequential damages.
12.3
----
Notice and Opportunity to Defend.
--------------------------------
72
(a) Notice of Asserted Liability. The party making a claim under
--- ---------------------------this Article 12 is referred to as the "Indemnitee," and the party against whom
---------such claims are asserted under this Article 12 is referred to as the
"Indemnifying Party." All claims by any Indemnitee under this Article 12
------------------shall be asserted and resolved as follows: promptly after receipt by the
Indemnitee of notice of any claim or circumstances which, with the lapse of
time, would or might give rise to a claim or the commencement (or threatened
commencement) of a claim including any action, proceeding or investigation (an
"Asserted Liability") that may result in a Loss, the Indemnitee shall give
-----------------notice thereof (the "Claims Notice") to the Indemnifying Party; provided that
-------------------no delay on the part of the Indemnitee in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation under
this Article unless (and then solely to the extent) the Indemnifying Party
thereby is actually prejudiced. The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount (estimated, if
necessary and to the extent feasible) of the Loss that has been or may be
suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect to
--- --------------------compromise or defend, at its own expense and by its own counsel which shall be
reasonably acceptable to the Indemnitee, any Asserted Liability; provided that
-------in the event that under then applicable standards of professional conduct the
Indemnitee is required to be represented by separate counsel and the
Indemnitee elects to be represented by separate counsel, the Indemnifying
Party shall pay the fees and expenses of one law firm incurred by the
Indemnitee in the compromise of, or defense against, such matter; and provided
-------further that if the Asserted Liability includes only a request for injunctive
------relief, the Indemnitee may control the defense thereof (at the Indemnifying
Party's expense) and if the Asserted Liability includes a request for
injunctive relief and other remedies, the Indemnitee may (at its own expense)
share control of the defense thereof to the extent of the injunctive relief
claims. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to do so,
and the Indemnitee shall cooperate, at the expense of the
73
Indemnifying Party, in the compromise of, or defense against, such Asserted
Liability. If the Indemnifying Party elects not to compromise or defend the
Asserted Liability or fails to notify the Indemnitee of its election as herein
provided, or otherwise fails to timely assume such defense the Indemnitee may
pay, compromise or defend such Asserted Liability at the Indemnifying Party's
expense. Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnitee may settle or compromise any Asserted Liability over the objection
of the other; provided, however, consent to settlement or compromise shall not
-------- ------be unreasonably withheld or delayed. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of
such Asserted Liability. If the Indemnifying Party chooses to defend any
Asserted Liability, the Indemnitee shall make available to the Indemnifying
Party any books, records or other documents within its control that are
necessary or appropriate for such defense.
12.4 Exclusive Remedies. Notwithstanding anything in this
---- -----------------Agreement to the contrary, the remedies provided in this Agreement shall be
the sole and exclusive remedies for any inaccuracy and for any breach of any
representation, warranty, covenant or agreement of, or obligation or liability
of, the Buyer or the Sellers, contained herein or in any certificate or
instrument delivered pursuant to this Agreement or otherwise relating hereto
or thereto; provided, however, that nothing in this Section 12.4 shall be
-------- ------construed to limit any right or remedy that the Buyer or the Sellers may have
with respect to fraud.
12.5 Sellers' Representative. Each Seller hereby irrevocably
---- ----------------------appoints Terrance J. McClinch as Sellers' Representative (or his designee, the
"Sellers' Representative"), and the Sellers' Representative hereby accepts
----------------------such appointment and agrees to act as such Sellers' Representative, who shall,
in such capacity, have full power and authority to make, on behalf of the
Sellers, all decisions relating to the defense or settlement of any claims for
which any Buyer Indemnitee may claim to be entitled to indemnity or payment
pursuant to this Agreement and otherwise to act on behalf of the Sellers in
all respects with respect to this Agreement. All decisions and actions by the
74
Sellers' Representative shall be binding upon all of the Sellers, and no
Seller shall have the right to object to, dissent from, protest or otherwise
contest the same. The Buyer shall not have the right to object to, protest or
otherwise contest any matter related to the procedures for action being taken
by the Sellers' Representative. By the execution of this Agreement by or on
behalf of such Seller, each Seller shall be deemed to have agreed that (i) the
provisions of this Section 12.5 are independent and severable, are irrevocable
and coupled with an interest and shall be enforceable notwithstanding any
rights or remedies any Seller may have in connection with the transactions
contemplated by this Agreement, (ii) the remedy at law for any breach of the
provisions of this Section 12.5 would be inadequate, (iii) the provisions of
this Section 12.5 shall be binding upon the successors and assigns of each
Seller and (iv) any references in this Agreement to a Seller or the Sellers
shall mean and include the successors to the Seller's rights hereunder. In
addition, by the execution of this Agreement by or on behalf of such Seller,
each Seller shall be deemed to have waived any claims they may have or assert,
including those that may arise in the future, against the Sellers'
Representative for any action or inaction taken or not taken by the Sellers'
Representative except to the extent that such action or inaction shall have
been held by a court of competent jurisdiction to constitute willful
misconduct. In consideration for serving as the Sellers' Representative, the
Sellers' Representative shall be released by each Seller from any liability
for any action or inaction taken or not taken by such Sellers' Representative
except to the extent that such action or inaction shall have been held by a
court of competent jurisdiction to constitute willful misconduct.
12.6 Nature of Payments. Any payment under this Article 12 shall
---- -----------------be treated for tax purposes as an adjustment of the Purchase Price given or
received, as the case may be, with respect to the Shares to the extent such
characterization is proper and permissible under relevant Tax authorities,
including court decisions, statutes, regulations and administrative
promulgations.
13.
---
Termination of Agreement.
------------------------
75
13.1 Termination. This Agreement may be terminated prior to the
---- ----------Closing as follows:
(a) at the election of the Sellers' Representative, if any one or
more of the conditions to the obligation of the Sellers to close set forth in
Article 10 has not been fulfilled as of the Scheduled Closing;
(b) at the election of the Buyer, if any one or more of the
conditions to the obligation of the Buyer to close set forth in Article 9 has
not been fulfilled as of the Scheduled Closing;
(c) at the election of the Buyer or the Sellers' Representative, if
the transactions contemplated by this Agreement have not been consummated by
November 15, 1998; provided, that the right to terminate this Agreement
-------pursuant to this Section 13.1(c) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of,
or resulted in, the failure of the consummation of the transactions
contemplated by this Agreement to occur on or prior to such date; or
(d) at the election of the Buyer (i) if the aggregate remediation
costs set forth in the Phase I Assessment for the leased Properties and the
Phase I Assessments for the leased properties in the MES Agreement and Grey
Fox Agreement exceed a dollar amount equal to $1,000,000 less the aggregate
estimated remediation costs for the Owned Real Properties set forth in the
Assessments and the Assessments referred to in the MES and Grey Fox Agreements
(but in no event less than $0); provided, however, Buyer shall not have any
-------- ------right of termination pursuant to this subsection (i) if the Sellers notify
Buyer within 10 days of receipt of the Phase I and II Assessments that the
Sellers agree to amend the indemnification provisions of Section 8.5 to
include an indemnity in the Buyer's favor covering the leased Properties in
the same manner as the Owned Real Properties, such that such indemnity will,
among other things, be subject to the same basket set forth in Section 8.5, it
being understood that the Loss limitations for the leased Properties will be
the remediation estimates for the leased Properties set forth in the
Assessments;
76
(e) at the election of the Buyer if the aggregate remediation
estimates for the Properties set forth in the Phase I Assessment, Phase II
Assessment and the Phase I and Phase II Assessments referred to in the MES
Agreement and the Grey Fox Agreement exceed $51,600,000;
(f) at the election of the Sellers' Representative, if the aggregate
remediation costs for the Properties set forth in the Phase I Assessment,
Phase II Assessment and the Phase I and Phase II Assessments referred to in
the MES Agreement and the Grey Fox Agreement exceed $2,300,000; and
(g) at any time on or prior to the Closing Date, by mutual written
consent of the Sellers' Representative and the Buyer.
If this Agreement so terminates, it shall become null and void and have
no further force or effect, except as provided in Section 13.2.
13.2 Survival After Termination. If this Agreement terminates
---- -------------------------pursuant to Section 12.1 and the contemplated transactions are not
consummated, this Agreement shall become null and void and have no further
force or effect, except that any such termination shall be without prejudice
to the rights of any party on account of the nonsatisfaction of the conditions
set forth in Articles 9 and 10 resulting from the intentional or willful
breach or violation of the representations, warranties, covenants or
agreements of another party under this Agreement. Notwithstanding anything in
this Agreement to the contrary, (i) the provisions of Section 6.2 relating to
the obligation of the Buyer to keep confidential and not to use certain
information and data obtained by it from the Company, and to return documents
to the Company and (ii) the provisions of Sections 6.4, this Section 13.2 and
Article 14 shall survive any termination of this Agreement.
14.
---
Miscellaneous.
-------------
14.1 Certain Definitions. As used in this Agreement, the following
---- ------------------terms have the following meanings:
77
"Affiliate" means, with respect to any Person, any other Person
--------controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of, such Person.
"Applicable Law" means with respect to any Person, any domestic or
-------------foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, policy, guidance, judgment, decree or other requirement of any
Governmental Entity applicable to such Person or its properties, business,
operations or assets.
"Benefit Plan" means any employee benefit plan, arrangement, policy or
-----------commitment (whether or not an employee benefit plan within the meaning of
section 3(3) of ERISA), including any employment, consulting or deferred
compensation agreement, executive compensation, retention, change in control,
bonus, incentive, pension, profit-sharing, savings, retirement, stock option,
stock award, stock purchase or severance pay plan or arrangement, any life,
health, disability or accident insurance plan, any fringe benefit plan or
arrangement or any holiday or vacation practice, as to which the Company or
any Subsidiary has or in the future would have any direct or indirect, actual
or contingent liability.
"Business Day" means any day of the year (other than a Saturday or
-----------Sunday) on which national banking institutions in Greenwich, Connecticut are
open to the public for conducting business and are not required or authorized
to close.
"Closing Balance Sheet Tax Reserve" means the portion of the deferred
--------------------------------tax reserve shown on the Audited Closing Balance Sheet (and reflected in the
Audited Closing Adjusted Net Worth, as increased or decreased, as the case
may be, by the Resolved Objections and the CPA--Determined Differences) that
does not relate to timing differences between book and tax accounting.
"Code" means the Internal Revenue Code of 1986, as amended.
---"DOL" means the United States Department of Labor.
---
78
"Employee" means any individual employed by the Company or any
-------Subsidiary of the Company.
"Environmental Laws" means all applicable laws relating to Hazardous
-----------------Substances, the environment or natural resources, including the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), the Clean Air Act, the
Water Pollution Control Act, the Safe Drinking Water Act, and the Toxic
Substances Control Act ("TSCA"), and any requirements promulgated pursuant to
these applicable laws or any analogous state or local applicable laws.
"Environmental Liabilities" means all Liabilities of a Person (whether
------------------------such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise) which arise under or relate to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
----amended.
"GAAP" means generally accepted accounting principles in the United
---States applied in a consistent basis during the relevant periods.
"Governmental Entity" means any foreign, domestic, federal, territorial,
------------------state or local governmental authority, quasi-governmental authority,
instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or
other agency or any political or other subdivision, department or branch of
the any of the foregoing.
"Hazardous Substance" means any substance, material or waste: (i) the
------------------presence of which in the environment requires investigation or remediation
under any applicable law; or (ii) that is defined characterized or otherwise
classified as a "hazardous waste," "hazardous substance," "toxic material" or
--------------------------------"toxic waste" or words of similar connotation under any Environmental Law; or
(iii) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated pursuant to any Environmental Law; (iv) the presence of which
causes a
79
nuisance, trespass or other tortious condition; or (v) without limitation,
that contains gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenols (PCBs) or asbestos.
"IRS" means the Internal Revenue Service.
--"Knowledge of Sellers" shall have the meaning assigned to it in that
-------------------certain letter agreement among the parties hereto of even date herewith.
"Lien" means any lien, pledge, mortgage, deed of trust, security
---interest, claim, lease, license, charge, option, right of first refusal,
easement, servitude or transfer restriction and, with respect to the Shares,
voting trusts, proxies, stockholder or similar agreements, encumbrances or
restrictions of any nature whatsoever.
"Material Adverse Effect" means material adverse effect on the
----------------------properties, business, results of operations or financial condition of the
Company and its Subsidiaries, taken as a whole, or on their ability to
consummate the transactions contemplated by this Agreement on the terms set
forth herein.
"Pension Plan" means any Benefit Plan which is a pension plan within
-----------the meaning of ERISA section 3(2) (regardless of whether the plan is covered
by ERISA).
"Permitted Liens" means (i) Liens for Taxes or governmental assessments,
--------------charges or claims the payment of which is not yet due, or for Taxes the
validity of which is being contested in good faith by appropriate proceedings
[and for which adequate reserves are reflected on the Balance Sheet]; (ii)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
materialmen and other similar Persons and other Liens imposed by applicable
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith; (iii) Liens relating to deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security or to secure the
performance of leases, trade contracts or other similar agreements; (iv)
Liens specifically identified on the Balance Sheet; (v) Liens securing
executory obligations under any lease
80
that constitutes an "operating lease" under GAAP; and (vi) other Liens set
--------------forth on Schedule 14.1(b) hereto.
---------------"Person" means any individual, corporation, partnership, limited
-----liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Entity or other entity.
"property" or "properties" means real, personal or mixed property,
----------------tangible or intangible.
"Reference Rate" means the per
-------------announced from time to time by
reference rate). Any change in
opening of business on the day
change.
annum rate of interest publicly
Chase Manhattan Bank as its prime rate (or
the Reference Rate shall take effect at the
specified in the public announcement of such
"Release" means any release, spill, emission, leaking, pumping, pouring,
------dumping, emptying, injection, deposit, disposal, discharge, dispersal,
leaching or migration of Hazardous Materials on or into the environment.
"Remedial Action" has the meaning ascribed to it on the definitional
--------------provisions of CERCLA and also means such actions as are necessary to cause
fixtures and operations on the Properties (not including movable equipment
leased by the Company and its Subsidiaries in the ordinary course) to be in
compliance with Environmental Laws, assuming use of such fixtures and
operations in a manner consistent with past practices of the Company and its
Subsidiaries.
"Restricted Business" means, collectively, (a) any business in which the
------------------Company, MES, Grey Fox and/or their respective Subsidiaries are engaged on
the Closing Date and (b) the business of renting, leasing, acting as a dealer
or distributor for, repairing, servicing or selling light to heavy
construction and industrial equipment (including, without limitation, aerial
lifts (including boom and scissor lifts), cranes, backhoes, digging
equipment, forklifts, tractors, skid-steer loaders, scaffolding, compressors,
pumps and generators), and/or general tools and equipment (including, without
limitation, power tools, hand tools, high-pressure washers, paint sprayers,
gardening and landscaping
81
equipment and roto tillers) and, in each case, any related merchandise,
accessories or parts.
"Subsidiary" means any Person of which a majority of the outstanding
---------voting securities or other voting equity interests are owned, directly or
indirectly, by the Company.
"Tax" means all taxes of any nature including any United States federal,
--state, local or foreign income, sales and use, excise, franchise, real and
personal property, transfer, gross receipts, license, payroll, employment,
withholding, estimated or other tax or charge imposed by any governmental
entity, together with any interest and penalties related thereto or to the
nonpayment thereof and any loss in connection with the determination,
settlement or litigation of any tax liability.
14.2
----
Nature of Obligations.
---------------------
(a) The representations, warranties, and covenants of the Sellers in
this Agreement are joint and several obligations. Notwithstanding the
foregoing, the aggregate amount a Seller shall be required to pay to Buyer or
any Buyer Indemnitee hereunder shall not exceed such Seller's Pro Rata Portion
of the Purchase Price.
14.3 Notices. Any notice or other communication required or
---- ------permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission sent by overnight courier or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, or sent by facsimile transmission or if
sent by overnight courier, one Business Day after the date so sent, or, if
mailed, five Business Days after the date of deposit in the United States
mails, as follows:
(i)
If to Buyer or, after the Closing Date, the Company:
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, CT 06830
Attention: Mr. John N. Milne
Facsimile: (203) 622-6080
82
with copies to:
Oscar D. Folger, Esq.
521 Fifth Avenue, 24th Floor
New York, NY 10175
Facsimile: (212) 697-9570
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
(ii)
if to the Sellers or the Sellers' Representative, to
the addresses set forth beside each Seller's and the
Sellers' Representatives name on Annex C
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices hereunder.
14.4 Entire Agreement. The Confidentiality Agreement, this
---- ---------------Agreement and any other collateral agreements executed in connection with the
consummation of the transactions contemplated by this Agreement contain the
entire agreement among the parties with respect to the purchase of the Shares
and supersede all prior agreements, written or oral, with respect thereto.
14.5 Waivers and Amendments; Non-Contractual Remedies. This
---- -----------------------------------------------Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by the Buyer
and the Sellers' Representative or, in the case of a waiver, by the party
waiving compliance. No delay on
83
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any
party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The
rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
14.6 Governing Law. This Agreement shall be governed and construed
---- ------------in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
14.7 Binding Effect; Assignment. This Agreement shall be binding
---- -------------------------upon and inure to the benefit of the parties and their respective successors
and legal representatives. This Agreement is not assignable; provided,
-------however, that the Buyer may assign this Agreement to a wholly-owned subsidiary
of the Buyer; and provided further, that no such assignment shall release the
-------- ------Buyer from any of its obligations hereunder.
14.8 Usage. All pronouns and any variations thereof refer to the
---- ----masculine, feminine or neuter, singular or plural, as the context may require.
All terms defined in this Agreement in their singular or plural forms have
correlative meanings when used herein in their plural or singular forms,
respectively. Unless otherwise expressly provided, the words "include,"
"includes" and "including" do not limit the preceding words or terms and shall
be deemed to be followed by the words "without limitation."
14.9 Counterparts. This Agreement may be executed by the parties
---- -----------hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
14.10 Exhibits and Schedules. The Exhibits and Schedules are a
----- ---------------------part of this Agreement as if fully set forth herein and all references to this
Agreement shall be deemed to include the Exhibits and Schedules. All
references herein to Sections, Exhibits
84
and Schedules shall be deemed references to such parts of this Agreement,
unless the context shall otherwise require. Any matter disclosed on one
Schedule hereto shall be deemed to have been disclosed on any other Schedule
provided the relevance of such matter to such other Schedule is reasonably
discernible from the information provided in the Schedule on which such
disclosure appears.
14.11 Headings. The headings in this Agreement are for reference
----- -------only, and shall not affect the interpretation of this Agreement.
14.12
-----
Severability of Provisions.
--------------------------
(a) If any provision or any portion of any provision of this
Agreement shall be held invalid or unenforceable, the remaining portion of
such provision and the remaining provisions of this Agreement shall not be
affected thereby; provided, that the material economic terms provided for
-------herein are not affected thereby in a manner adverse to the Buyer or any
Seller.
(b) If the application of any provision or any portion of any
provision of this Agreement to any Person or circumstance shall be held
invalid or unenforceable, the application of such provision or portion of such
provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby; provided, that the
-------material economic terms provided for herein are not affected thereby in a
manner adverse to the Buyer or any Seller.
14.13 Consent to Jurisdiction. Each of the parties hereto hereby
----- ----------------------irrevocably submits to the exclusive jurisdiction of any U.S. District Court
for the District of Connecticut; and irrevocably agrees that all claims in
respect of any such action or proceeding may be heard and determined in such
court. Each of the parties hereto further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth in Section 14.3 shall be effective service of process for
any action, suit or proceeding in the State of Connecticut with respect to any
matters to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any
85
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the U.S. District
Court for the District of Connecticut, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any action, suit or proceeding brought in any such court has been brought in
an inconvenient forum.
86
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
UNITED RENTALS, INC.
By:
Name:
Title:
SELLERS:
------Terrance J. McClinch
Karen E. Alonso
Faith M. Rivenburg
Janis V. McClinch
FUND A UNDER AGREEMENT DATED
AUGUST 5, 1986
By:
Name:
Title:
ARTHUR L. McCLINCH TRUST
DATED APRIL 3, 1981
By:
Name:
Title:
ANNEX A
Name of Shareholder
------------------
Number of Shares
----------------
- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------TOTAL
- ---------------------------------------------------------------------------------------------------
ANNEX B
[Escrow Agreement -- to come]
ANNEX C
[Addresses for Notices -- to come]
EXHIBIT 10.1
- --------------------------------------------------------------------------------
SHARE PURCHASE AGREEMENT
among
UNITED RENTALS , INC.
and
THE PARTIES LISTED ON THE SIGNATURE PAGE HERETO
___________________________________
for all of the outstanding shares of
McCLINCH EQUIPMENT SERVICES, INC.
___________________________________
July 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
---1.
1.1
1.2
1.3
1.4
Sale and Purchase of Shares
Sale and Purchase of Shares
Purchase Price Adjustment
Payment of Purchase Price
Delivery of Shares
2
2.
Closing; Closing Date
3.
3.1
3.2
3.3
Representations and Warranties of Each Seller
Title to the Shares
Authority to Execute and Perform Agreement
Purchase for Investment
8
9
10
4.
Representations and Warranties of the Sellers
as to the Company
4.1
Corporate Organization
4.2
Subsidiaries
4.3
Outstanding Capital Stock
4.4
Financial Statements
4.5
Liabilities; Ordinary Course
4.6
Contravention
4.7
Taxes
4.8
Claims and Proceedings
4.9
Contracts
4.10 Real Estate
4.11 Employee Benefit Plans
4.12 Insurance
4.13 Tangible Properties
4.14 Related Party Transactions
4.15 Banks
4.16 Permits
4.17 Compliance with Applicable Laws
4.18 Employment Agreements
4.19 Labor and Employment Matters
11
11
11
12
13
13
15
16
21
22
24
26
28
29
29
29
30
30
31
31
2
2
7
8
8
8
Page
---4.20
4.21
4.22
4.23
4.24
5.
5.1
5.2
5.3
5.4
5.5
5.6
5.7
Intangible Property
Environmental Compliance
Finders and Investment Bankers
Certain Actions
No Other Representations and Warranties
Representations and Warranties of the Buyer
Corporate Organization
Authority to Execute and Perform Agreement
Purchase for Investment
[Intentionally omitted]
Sources of Information
Finders and Investment Bankers
Litigation.
32
33
35
35
35
35
36
36
37
38
38
38
38
6.
Covenants and Agreements
6.1
Conduct of Business of the Company
6.2
Access to Information; Confidentiality
6.3
Disclosure Supplements
6.4
Expenses
6.5
Further Assurances
6.6
Cooperation Regarding Landlords
6.7
Transfer Taxes.
6.8
Compliance with Antitrust Laws
6.9
SOC Rebates
6.10 Non-Compete
6.11 Excluded Assets and Liabilities.
6.12 Insurance Tail
6.13 Payment of Indebtedness
6.14 Rental Ready Adjustment
6.15 No Solicitation
6.16 Publicity
39
42
44
45
45
46
46
46
48
48
51
52
52
53
55
56
39
7.
7.1
7.2
7.3
Tax and Related Matters
Taxes; Section 338(h)(10) Election
Tax Administration
Contests
56
60
65
8.
8.1
8.2
Environmental Matters.
The Phase I Investigations.
The Phase II Investigations.
67
69
56
67
Page
---8.3
Certain Procedures Relating to the
Consultant's Estimates
69
8.4
Review of the Estimated Costs of Remediation
8.5
The Sellers' Indemnification of Buyer
8.6
Buyer's Indemnification of the Sellers.
8.7
Exclusive Remedy
8.8
Limitation of Sellers' Duty to Indemnify
8.9
Expenses in the Ordinary Course Excluded
from Indemnification
74
8.10 Control of Remedial Action.
8.11 Environmental Indemnification Procedure
8.12 Access to Information
8.13 Matters Involving Third Parties
9.
Buyer
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11
9.12
9.13
9.14
9.15
9.16
70
71
72
73
73
74
76
76
76
Conditions Precedent to the Obligation of the
to Close
78
Representations and Covenants
78
HSR Act Filing
78
No Injunction or Violation of Law
79
Title Policies
79
Simultaneous Closing.
79
Resignations
79
Reports.
80
Escrow Agreement
80
Legal Opinions
80
Affidavits
80
Affiliate Contracts
80
Certificates
80
[Intentionally Omitted]
81
Employment/Consulting Agreements
81
Release of Guarantees
81
Material Adverse Effect
81
10.
Conditions Precedent to the Obligation of the
Sellers to Close
81
10.1
Representations and Covenants
82
10.2
HSR Act Filing
82
10.3
No Injunction or Violation of Law
82
10.4
United Rentals, Inc. Warrants
83
10.5
[Intentionally Omitted]
83
10.6
[Intentionally Omitted].
83
10.7
Simultaneous Closing
83
10.8
Reports.
83
10.9
Escrow Agreement
83
10.10 Legal Opinion
83
Page
---10.11 Certificate
83
11.
11.1
Survival of Representations, Warranties and Covenants
General Survival
84
83
12.
12.1
12.2
12.3
12.4
12.5
12.6
General Indemnification
Indemnification of the Buyer
Indemnification of the Sellers
Notice and Opportunity to Defend
Exclusive Remedies
Sellers' Representative
Nature of Payments
84
84
91
91
93
94
95
13.
13.1
13.2
Termination of Agreement
Termination
Survival After Termination
95
97
14.
Miscellaneous
14.1 Certain Definitions
14.2 Nature of Obligations
14.3 Notices
14.4 Entire Agreement
14.5 Waivers and Amendments; Non-Contractual
Remedies
105
14.6 Governing Law
14.7 Binding Effect; Assignment
14.8 Usage
14.9 Counterparts
14.10 Exhibits and Schedules
14.11 Headings
14.12 Severability of Provisions
14.13 Consent to Jurisdiction
ANNEX A
ANNEX B
ANNEX C
95
98
98
103
104
105
106
106
106
106
107
107
107
108
Schedules
--------Schedule 1.2(b).
--------------Schedule 1.2(b)
--------------Schedule 1.2(b)
--------------Schedule 1.2(a)
--------------Schedule 1.3(a)
--------------Schedule 1.3(a)
--------------Schedule 1.3(b)
Schedule 3.2
-----------Schedule 4.1
-----------Schedule 4.2
-----------Schedule 4.2
-----------Schedule 4.3
-----------Schedule 4.3
Schedule 4.4
Schedule 4.4(b)
Schedule 4.5(a)
Schedule 4.5(b)
Schedule 4.6(a)
Schedule 4.6(b)
Schedule 4.7(h)
--------------Schedule 4.8
Schedule 4.9
Schedule 4.9
Schedule 4.10(a)
Schedule 4.10(b)
Schedule 4.11(a)
Schedule 4.11(c)
Schedule 4.11(d)
Schedule 4.11(f)
Schedule 4.12
Schedule 4.14
Schedule 4.14
Schedule 4.15
Schedule 4.15
------------Schedule 4.17
Page
---2
3
3
4
7
7
7
10
11
11
11
12
12
13
13
13
14
15
15
18
21
22
24
24
24
26
27
27
27
28
29
29
29
30
30
Schedules
--------Schedule 4.18
Schedule 4.19(a)
Schedule 4.19(a)
---------------Schedule 4.19(b)
Schedule 4.20
Schedule 4.20
------------Schedule 4.21
Schedule 4.9
Schedule 4.18
Schedule 6.14(b)
---------------Schedule 4.10(a)
Schedule 14.1(b)
---------------Annex A
Annex B [Escrow Agreement]
Annex C [Addresses for Notices]
Page
---31
31
31
31
32
32
33
40
41
54
79
102
1
SHARE PURCHASE AGREEMENT
-----------------------SHARE PURCHASE AGREEMENT, dated as of July 30, 1998, among UNITED
RENTALS, INC., a Delaware corporation (the "Buyer"), and THE PERSONS LISTED
----ON THE SIGNATURE PAGE HERETO AS SELLERS (the "Sellers"), for the purchase and
------sale of all of the issued and outstanding shares of capital stock of McCLINCH
EQUIPMENT SERVICES, INC., a Connecticut corporation (the "Company").
------The Company is engaged in the business of renting, selling and
servicing aerial lifts, rough terrain forklifts, industrial forklifts,
cranes, material handling products, generators, welders, light towers and
assorted construction equipment in the Northeast and Mid-Atlantic regions of
the United States (the "Business").
-------The Sellers are the beneficial and record owners of all of the issued
and outstanding shares of capital stock of the Company (the "Shares"),
-----consisting of 100 shares of Common Stock, no par value per share.
The Sellers wish to sell the Shares to the Buyer, and the Buyer wishes
to purchase the Shares from the Sellers, upon the terms and subject to the
conditions of this Agreement.
Certain capitalized terms not otherwise defined and used in this
Agreement are defined in Section 14.1.
Accordingly, the parties agree as follows:
1.
Sale and Purchase of Shares.
1.1 Sale and Purchase of Shares. At the closing provided for in
--------------------------Article 2 (the "Closing"), upon the terms and subject to the conditions of
------this Agreement and in reliance upon the representations, warranties and
agreements contained herein, the Sellers shall sell to the Buyer, and the
Buyer shall purchase from the Sellers, all of the Shares for an aggregate
consideration (the "Purchase Price") equal to $40,500,000 subject to
-------------adjustment as provided in Section 1.2. The Purchase Price shall be paid in
accordance with Section 1.3.
2
1.2 Purchase Price Adjustment.
------------------------(a) Determination of Net Worth. As used herein, the "Net
---------------------------Worth" of the Company as of any particular date shall mean an amount
----equal to the tangible net worth of the Company and its consolidated
Subsidiaries determined by subtracting total liabilities of the Company
and its consolidated Subsidiaries as at such date from the total
tangible assets of the Company and its consolidated Subsidiaries as at
such date, in each case as shown on the balance sheet of the Company as
at such date; provided, however, that for the purposes of the
-------- ------Preliminary Closing Balance Sheet and Audited Closing Balance Sheet, Net
Worth shall be calculated for the period from December 31, 1997 to the
Closing Date, using the depreciation methods set forth on Schedule
-------1.2(b).
-----(b) Preparation of Closing Adjusted Net Worth Schedule. As
-------------------------------------------------soon as practicable, the Sellers or their designee shall prepare (based
on data and financial statements supplied by the Company) on a basis
consistent with the preparation of the Balance Sheet (as defined in
Section 4.4) and as contemplated by Schedule 1.2(b), and deliver to the
--------------Buyer and PricewaterhouseCoopers LLP, a consolidated balance sheet of
the Company as of the close of business on the Closing Date (the
"Preliminary Closing Balance Sheet"). The Sellers shall cause the
--------------------------------Preliminary Closing Balance Sheet to be audited by
PricewaterhouseCoopers LLP (the "Audited Closing Balance Sheet") which
----------------------------firm shall deliver an opinion stating that the Audited Closing Balance
Sheet presents fairly, in all material respects, the financial position
of the Company and its consolidated Subsidiaries at the Closing Date in
accordance with GAAP applied on a basis consistent with the Balance
Sheet. The Preliminary Closing Balance Sheet and the Audited Closing
Balance Sheet shall (i) not include (x) the assets of the Company or any
Subsidiary and the liabilities relating thereto set forth in Schedule
-------1.2(b) (the "Excluded Assets and Liabilities"), (y) any expenses,
-----------------------------------amounts or prepayment penalties incurred in connection with the
prepayment or repayment of any
3
indebtedness of the Company or any Subsidiary at Closing except for any
such prepayment penalties in excess of $18,750 in the aggregate and (z)
any amount the Buyer is obligated to pay pursuant to this Agreement
(other than amounts referred to in clause (ii) below) or any amount the
Sellers are obligated to pay pursuant to Section 6.4 and (ii) include
the principal amount of and interest due on all indebtedness of the
Company or any of its Subsidiaries as of the Closing Date (whether or
not such amounts are repaid by the Buyer on such date). The Audited
Closing Balance Sheet shall include a schedule (the "Closing Adjusted
---------------Net Worth Schedule"), prepared by PricewaterhouseCoopers LLP,
-----------------calculating the Net Worth of the Company and its consolidated
Subsidiaries as of the close of business on the Closing Date, as
adjusted in accordance with the provisions of Schedule 1.2(a) (as so
--------------adjusted and as set forth on the Closing Adjusted Net Worth Schedule,
the "Closing Adjusted Net Worth"). The Audited Closing Balance Sheet
-------------------------and the Closing Adjusted Net Worth Schedule shall be provided by the
Sellers to the Buyer promptly upon the availability thereof and in any
event within 75 days following the Closing Date. The Buyer will (and
will cause the Company to) provide the Sellers or their designee and
PricewaterhouseCoopers LLP full access to the books, ledgers, files,
reports and operating records of the Company and the then current
employees of the Company and will fully cooperate in the Sellers'
preparation of the Preliminary Closing Balance Sheet, the Audited
Closing Balance Sheet and the Closing Adjusted Net Worth Schedule. The
fees and expenses incurred in connection with the preparation of the
Preliminary Closing Balance Sheet, the Audited Closing Balance Sheet and
the Closing Adjusted Net Worth Schedule shall be paid by the Sellers.
(c) Buyer's Review. Upon receipt of the Audited Closing
-------------Balance Sheet and the Closing Adjusted Net Worth Schedule, the Buyer and
its independent accountants shall have the right during the succeeding
30-day period to examine the Audited Closing Balance Sheet, the Closing
Adjusted Net Worth
4
Schedule and all books and records used to prepare the Balance Sheet,
the Audited Closing Balance Sheet and the Closing Adjusted Net Worth
Schedule. The Sellers shall use commercially reasonable efforts to cause
PricewaterhouseCoopers LLP to provide access to the work papers used to
prepare, audit and review the Balance Sheet, the Audited Closing Balance
Sheet and the Closing Adjusted Net Worth Schedule and supporting their
opinion referred to above, and the Sellers shall provide the Buyer with
access to the books and records used in, and employees involved with,
the preparation of the Balance Sheet, the Audited Closing Balance Sheet
and the Closing Adjusted Net Worth Schedule.
If the Buyer does not agree that the Closing Adjusted Net Worth has
been calculated on the basis set forth in Section 1.2(b), the Buyer
shall so notify the Sellers' Representative in writing (such notice, the
"Disagreement Notice") on or before the last day of the 30-day period
------------------after delivery to the Buyer of the Audited Closing Balance Sheet and
Closing Adjusted Net Worth Schedule, setting forth a specific
description of the Buyer's objections and the amount of the adjustment
which the Buyer believes should be made to each item of its objection.
If the Buyer does not deliver a Disagreement Notice within such 30-day
period, the Audited Closing Balance Sheet, the Closing Adjusted Net
Worth Schedule and the Closing Adjusted Net Worth shall be deemed to
have been accepted by Buyer.
(d) Dispute Resolution. In the event that the Buyer delivers
-----------------a Disagreement Notice in accordance with Section 1.2(c), the Sellers'
Representative and the Buyer shall attempt to resolve the objections set
forth therein within 15 days of the Sellers' receipt of such
Disagreement Notice. The objections set forth on the Disagreement
Notice that are resolved by the Buyer and the Sellers' Representative in
accordance with this Section 1.2(d) shall collectively be referred to
herein as the "Resolved Objections."
------------------(e) Differences. If the Sellers' Representative and the Buyer
----------are unable to resolve all the objections set forth in the Disagreement
Notice within
5
such 15-day period, they shall jointly appoint Deloitte & Touche LLP
(the "CPA Firm") within five days of the end of such 15-day period.
-------The CPA Firm, acting as experts and not as arbitrators, shall review the
objections set forth in the Disagreement Notice which are not Resolved
Objections (collectively, the "Differences") and determine, based on the
----------requirements set forth in Section 1.2(b) and only with respect to
Differences submitted to the CPA Firm, whether and to what extent the
Closing Adjusted Net Worth Schedule requires adjustments. The fees and
disbursements of the CPA Firm shall be allocated 50% to the Buyer and
50% to the Sellers. The Sellers and the Buyer shall (and shall cause the
Company to) provide to the CPA Firm full cooperation. The CPA Firm's
resolution of the Differences shall be conclusive and binding upon the
parties. The Differences as resolved by the CPA Firm in accordance with
this Section 1.2(e) shall collectively be referred to herein as the
"CPA-Determined Differences."
-------------------------(f) Adjustment. On the fifth Business Day following the
---------earliest to occur of (such fifth Business Day, the "Adjustment Payment
-----------------Date") (x) the acceptance in full by the Buyer of the Audited Closing
---Balance Sheet, Closing Adjusted Net Worth and Closing Adjusted Net Worth
Schedule, (y) the resolution by the Buyer and the Sellers'
Representative of all objections set forth on the Disagreement Notice,
if any, and (z) the resolution by the CPA Firm of all Differences, as an
adjustment to the Purchase Price, either (i) the Buyer shall pay to the
Sellers an amount equal to the excess, if any, of the Closing Adjusted
Net Worth (as increased or decreased, as the case may be, by the
Resolved Objections and the CPA-Determined Differences) over the YearEnd Adjusted Net Worth (as hereinafter defined) or (ii) the Sellers
shall pay to the Buyer an amount equal to the excess (the "Overpayment
----------Amount"), if any, of the Year-End Adjusted Net Worth over the Closing
-----Adjusted Net Worth (as increased or decreased, as the case may be, by
the Resolved Objections and the CPA-Determined Differences). In either
case, such amount shall be payable on the Adjustment Payment Date, with
6
interest, based upon a year of 360 days for the actual number of days
elapsed, accrued from the Closing Date until, but not including, the
Adjustment Payment Date at the Reference Rate. Such payment shall be
made by wire transfer of immediately available funds to a bank account
or accounts designated by the Sellers or the Buyer, as the case may be.
"Year-end Adjusted Net Worth" shall mean $5,203,000.
--------------------------1.3 Payment of Purchase Price. At the Closing,
------------------------Price shall be paid by the Buyer as follows:
the Purchase
(a) the Buyer shall deliver to each Seller cash by wire
transfer of immediately available funds to the account or accounts
designated by each Seller on Schedule 1.3(a) hereto, each such Seller's
--------------respective pro rata portion (the "Pro Rata Portion"), as specified on
---------------Schedule 1.3(a), of an amount equal to the Purchase Price minus the
--------------Escrow Amount.
(b) the Buyer shall deliver to the escrow agent to be selected
by the Sellers' Representative and the Buyer prior to the Closing (the
"Escrow Agent") cash, by wire transfer of immediately available funds
-----------to the account of such Escrow Agent designated on Schedule 1.3(b), in
--------------an amount equal to $2,815,000 (the "Escrow Amount"), which shall be
------------held by the Escrow Agent and applied as set forth herein and in the
escrow agreement among the Buyer, the Sellers' Representative and the
Escrow Agent (the "Escrow Agreement") in the form of Annex B hereto.
----------------1.4 Delivery of Shares. At the Closing, the Sellers shall
-----------------deliver to the Buyer share certificates constituting all of the Shares,
free and clear of all Liens, duly endorsed in blank or accompanied by stock
powers duly executed in blank, in proper form for transfer.
2. Closing; Closing Date. The Closing of the sale and purchase of
--------------------the Shares contemplated hereby shall take place at the offices of Paul, Weiss,
Rifkind, Wharton &
7
Garrison, 1285 Avenue of the Americas, New York, New York, on the date which
is the later to occur of August 27, 1998 and the third Business Day after all
of the conditions to the Closing set forth in Sections 9.2, 9.7, 10.2 and
10.10 have been satisfied or waived by the party entitled to waive the same or
on such other date as the Buyer and the Sellers' Representative may mutually
agree (such date being the "Scheduled Closing"). The time and date upon which
----------------the Closing occurs is herein called the "Closing Date."
-----------3. Representations and Warranties of Each Seller. The Sellers,
--------------------------------------------jointly and severally (subject to Section 14.2), represent and warrant to the
Buyer as follows:
3.1 Title to the Shares. Each Seller owns the Shares set forth
------------------opposite such Seller's name on Annex A beneficially and of record, and,
------upon delivery of and payment for such Shares at the Closing as herein
provided, such Seller will convey to the Buyer good and valid title
thereto, free and clear of any Lien other than any restrictions imposed by
any state or federal securities laws.
3.2 Authority to Execute and Perform Agreement. Each Seller has
-----------------------------------------full legal right and power and all authority and approvals required to
enter into, execute and deliver as applicable, this Agreement, and each
other agreement, document, or instrument or certificate contemplated by
this Agreement to be executed by such Seller in connection with the
consummation of the transactions contemplated by this Agreement (together
with this Agreement, the "Seller Documents"), and to consummate the
---------------transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by such Seller and, assuming due execution and
delivery hereof by the other parties hereto, this Agreement constitutes a
legal, valid and binding obligation of such Seller enforceable against such
Seller in accordance with its terms except: (a) as rights to indemnity
hereunder may be limited by federal or state securities laws or the public
policies embodied therein; (b) as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the enforcement of creditors' rights generally; and (c) as the
remedy of
8
specific performance and other forms of injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery by such
Seller of this Agreement and each of the other Seller Documents, the
consummation of the transactions contemplated hereby and thereby and the
performance by such Seller of this Agreement and each of the other Seller
Documents in accordance with its terms and conditions will not (i) require
such Seller to obtain any consent, approval, authorization or action of, or
make any filing with or give any notice to, any Governmental Entity or any
other Person, (ii) violate or conflict with the declaration of trust or
related documents of such Seller or, except as set forth in Schedule 3.2,
-----------violate, conflict with or result in the breach of any of the terms and
conditions of, result in a modification of the effect of, otherwise cause
the termination of or give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material agreement, contract, indenture,
lease, license, mortgage, plan, arrangement, commitment or other
instrument or obligation (collectively, "Contracts") to which such Seller
--------is a party or by or to which such Seller is or such Seller's Shares are or
may be bound or subject, or (iii) violate Applicable Law or an Order (as
hereafter defined) of any Governmental Entity applicable to such Seller or
to such Seller's Shares.
3.3 Purchase for Investment.
Each of Terrance J. McClinch,
----------------------Ernest Pierson and Robert Russo (a "Warrantholder") are acquiring the URI
------------Warrants (as defined in Article 10) for their own account for investment
and not for resale or distribution. Each Warrantholder acknowledges that
the sale of the URI Warrants (as hereafter defined) has not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or any
-------------applicable state securities laws and that such URI Warrants and the shares
of Buyer Common Stock (as defined in Article 10) issuable upon the exercise
thereof may only be sold or otherwise disposed of under an effective
registration statement under the Securities Act or under an exemption
therefrom. Each Warrantholder has no contract, undertaking, agreement or
arrangement with any Person
9
or entity to sell, hypothecate, pledge, donate, or otherwise transfer (with
or without consideration) to such Person any of the URI Warrants or such
shares, and each Warrantholder has no present plans or intention to enter
into any such contract, undertaking, agreement, or arrangement. Each
Warrantholder is an "accredited investor" as defined in Regulation D of the
Securities Act.
4. Representations and Warranties of the Sellers as to the Company.
--------------------------------------------------------------The Sellers jointly and severally (subject to Section 14.2) represent and
warrant to the Buyer as follows:
4.1 Corporate Organization. The Company and each of its
---------------------Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and lawful authority to own, lease and
operate its properties and to carry on its business as now being conducted.
The Company and each of its Subsidiaries is duly qualified or otherwise
authorized as a foreign corporation to transact business and is in good
standing in each jurisdiction listed on Schedule 4.1 hereto, which
-----------jurisdictions are the only jurisdictions where the failure to so qualify or
be authorized would have a Material Adverse Effect. The Sellers have
heretofore delivered or made available to the Buyer true and complete
copies of the Articles of Incorporation and By-Laws of the Company and each
of its Subsidiaries as in effect on the date hereof.
4.2 Subsidiaries.
Each of the Company's Subsidiaries is listed
-----------on Schedule 4.2. Except as set forth on Schedule 4.2, the Company does
----------------------not, directly or indirectly, own or have the option or obligation to
acquire or have the power to vote the shares of any capital stock or other
ownership interest or ordinary voting power to elect the majority of
directors of any corporation or other entity or other Person or body
performing a similar function of any such entity, as the case may be. The
Company owns all the outstanding shares of capital stock of each Subsidiary
free and clear of all Liens, and all of such shares have been duly
authorized for issuance and
10
validly issued and are fully paid and non-assessable and have not been
issued in violation of the preemptive or similar rights of any Person.
4.3 Outstanding Capital Stock. The Company is authorized to
------------------------issue a total of 5,000 shares of Common Stock. All of the outstanding
shares of Common Stock, which constitute all of the Shares, were duly
authorized for issuance and are validly issued, fully paid and
nonassessable and not issued in violation of the preemptive or similar
rights of any Person. The Company has not issued and does not have
outstanding any shares of preferred stock or any other class of capital
stock other than the Shares. Except as set forth in Schedule 4.3 hereto,
-----------there are no outstanding rights, subscriptions, warrants, calls,
unsatisfied preemptive rights, options or other agreements of any kind to
purchase or otherwise to receive from the Company or any of its
Subsidiaries any of the outstanding, authorized but unissued or
unauthorized capital stock or any other security of the Company or any of
its Subsidiaries, and there is no outstanding security of any kind of the
Company or any of its Subsidiaries convertible into or exercisable for the
purchase of any such capital stock or other security of the Company or any
of its Subsidiaries. Except as set forth on Schedule 4.3 (which agreements
-----------will terminate upon Closing), none of the Sellers nor the Company nor any
of its Subsidiaries is a party to any voting trust or other voting
agreement with respect to any of the Shares or to any agreement relating to
the issuance, sale, redemption, transfer, registration or other disposition
of the capital stock of the Company or any of its Subsidiaries.
4.4 Financial Statements. The consolidated balance sheets of
-------------------the Company and its Subsidiaries as at December 31, 1996 and December 31,
1997 and the related statements of earnings and stockholders' equity and
statements of cash flows for the years then ended, including the footnotes
thereto, which are attached hereto as Schedule 4.4, and the consolidated
-----------balance sheet of the Company and its Subsidiaries as at March 31, 1998 and
the related statements of earnings and stockholders' equity and statements
of cash flows for the three-month period then ended, which are attached
11
hereto as Schedule 4.4(b) (the "Interim Financials") have been prepared in
-------------------------------accordance with GAAP, consistently applied, and fairly present in all
material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as at such dates and the consolidated results
of operations and changes in cash flows of the Company and its consolidated
Subsidiaries for such respective periods, in each case in accordance with
GAAP consistently applied for the periods covered thereby and, in the case
of the Interim Financials, consistent with the Company's past practices for
its preparation of its unaudited financial statements (and subject to
normal year-end audit adjustments). (The foregoing financial statements of
the Company and its consolidated Subsidiaries as at December 31, 1997 and
for the year then ended are sometimes herein called the "Annual
-----Financials." The balance sheet included in the Annual Financials is
sometimes herein called the "Balance Sheet" and December 31, 1997 is
------------sometimes herein called the "Balance Sheet Date.")
-----------------4.5 Liabilities; Ordinary Course.
---------------------------(a) Except as set forth on Schedule 4.5(a), the Company and
--------------its Subsidiaries have not incurred any indebtedness, liability or
obligation (whether or not accrued, fixed, due, contingent or known)
("Liabilities") of a kind required by GAAP to be set forth on the
------------Balance Sheet which was not fully reflected in, reserved against, or
otherwise described in the Balance Sheet except those Liabilities
incurred in the ordinary course of business since the Balance Sheet
Date; and
(b) Between the Balance Sheet Date and the date hereof, there
has been no material adverse change in the properties, business, results
of operations or financial condition of the Company and its Subsidiaries
taken as a whole, without regard, however, to changes in general
economic conditions. Except as expressly contemplated by this Agreement
or as set forth on Schedule 4.5(b), since the Balance Sheet Date, the
--------------Business has been conducted in the
12
ordinary course and neither the Company nor any of its Subsidiaries have
(i) declared or paid any dividends or made any other non-cash
distributions on the Shares or redeemed, purchased or otherwise acquired
any shares of Common Stock, (ii)(A) increased the rate or terms of
compensation payable or to become payable to its directors, officers or
employees except in the ordinary course of business consistent with past
practice and that in the aggregate does not result in a material
increase of the compensation or benefits expense of the Company, (B)
paid or agreed to pay any pension, retirement allowance or other
employee benefit not provided for by any Benefit Plan or Employment
Agreement (as hereafter defined) set forth in the Schedules hereto or
(C) announced an intention or committed itself to any additional
pension, profit-sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance pay, continuation pay, termination pay, retirement or other
employee benefit plan, agreement or arrangement, or increased the rate
or terms of any Benefit Plan, (iii) made any change in its accounting or
tax reporting methods or in the manner of keeping its books and records
or changed its current practices with respect to sales, receivables,
payables or accrued or deferred expenses, or (iv) amended, terminated or
renewed any lease of the Properties.
4.6 Contravention. Except as set forth on Schedule 4.6(a),
--------------------------neither the execution and delivery of this Agreement or the other Seller
Documents nor the consummation of the transactions contemplated hereby or
thereby will (i) conflict with or result in any breach of any provision of
the Articles of Incorporation or By-Laws of the Company or any of its
Subsidiaries, (ii) require any consent, approval or notice under or result
in a violation or breach of, or constitute (with or without notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or increase the obligations or decrease the
rights) under, any terms, conditions or provisions of any Contract, (iii)
violate Applicable Law or the terms of any Permit or Order with respect to
the Company or any of its Subsidiaries or (iv)
13
result in the creation of any Lien upon the properties or assets of the
Company or any of its Subsidiaries, except, in the case of clause (ii),
(iii) and (iv), for such violations, Liens, breaches or defaults as would
not, individually or in the aggregate, result in a Material Adverse Effect.
Except as set forth on Schedule 4.6(b), other than any filing required
--------------under the HSR Act, neither the Company nor any Subsidiary is required to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any Governmental Entity in order for the parties to
consummate the transactions contemplated by this Agreement, except where
the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect.
4.7 Taxes.
----(a) The Company and each of its Subsidiaries have paid all
Taxes required to be paid by them through the date of this Agreement,
and will pay all Taxes required to be paid by them on or before the
Closing Date (which will not include a requirement to pay any Taxes
shown as an accrual on the Audited Closing Balance Sheet and reflected
in the Audited Closing Adjusted Net Worth (as increased or decreased, as
the case may be, by the Resolved Objections and the CPA - Determined
Differences) but not yet due on the Closing Date).
(b) The Company and its Subsidiaries have timely filed or
timely filed extensions for all reports, declarations, information
statements and returns relating to the Taxes ("Tax Returns") required to
----------be filed by or on behalf of each of the Company and its Subsidiaries
with the appropriate taxing authority through the date of this Agreement
and all such Tax Returns are true, complete and correct in all material
respects, and will prepare and timely file, in a manner consistent with
prior years and applicable laws and regulations, all Tax Returns
required to be filed by them on or before the Closing Date which Tax
Returns will be true, correct and complete in all material respects. No
penalties or other charges are or
14
will become due with respect to the late filing of any Tax Return or
payment of any Tax of the Company or any Subsidiary required to be filed
or paid on or before the Closing Date.
(c) All deficiencies asserted or assessments made as a result
of any examinations by the IRS or any other taxing authority of the Tax
Returns of or covering or including the Company and each of its
Subsidiaries have been fully paid. There are no audits or
investigations by any taxing authority in progress, nor has any Seller,
the Company or any of its Subsidiaries received any notice from any
taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised in writing by a federal, state,
local or foreign taxing authority in any current or prior examination
which, by application of the same or similar principles, could
reasonably be expected to result in a proposed material deficiency for
any subsequent taxable period. None of the Company or any of its
Subsidiaries is subject to any private letter ruling of the IRS or
comparable rulings of other taxing authorities. No extension of time is
in force with respect to any date on which any Tax Return was or is to
be filed and no waiver or agreement is in force for the extension of
time for the assessment or payment of any Tax. To the Knowledge of the
Sellers, there is no unassessed deficiency proposed or threatened
against the Company or any Subsidiary.
(d) None of the Sellers, the Company or any of its
Subsidiaries has (i) agreed to or is required to make any adjustments
under Section 481(a) of the Code or any similar provision of state,
local or foreign law by reason of a change in accounting method or
otherwise or has any knowledge that the IRS has proposed any such
adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes
in accounting methods that relate to the business or operations of the
Company or any of its Subsidiaries, (ii) executed or entered into a
closing agreement pursuant to Section 7121 of the Code or any
predecessor provision
15
thereof or any similar provision of state, local or foreign law with
respect to the Company or any of its Subsidiaries, or (iii) any power of
attorney with respect to any Tax matter currently in force.
(e) The Company and its Subsidiaries have complied with all
applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have withheld or collected from each payment
made to employees or otherwise in connection with services rendered the
amount of all Taxes required to be withheld or collected therefrom, and
the Company and its Subsidiaries has paid all such Taxes when due to the
proper Tax receiving officials.
(f) Except in connection with the Election (as hereinafter
defined,) and except as set forth in Schedule 4.7(f), none of the
--------------Company or any of its Subsidiaries has any material elections in effect
for federal, state, local or foreign income tax purposes and the Sellers
will not permit or cause the Company or any of its Subsidiaries to make
any additional federal tax elections under the Code with respect to the
Company or any of its Subsidiaries for any tax period ending after the
Closing Date.
(g) Neither the Company nor any of its Subsidiaries has at any
time consented under Section 341(f)(1) of the Code to have the
provisions of Section 341(f)(2) of the Code apply to any sale of its
stock.
(h) Except as set forth on Schedule 4.7(h), neither the
--------------Company nor any of its Subsidiaries has ever been, nor will be through
the Closing Date, a member of a consolidated, unitary, combined or
affiliated group of corporations for any Tax purpose.
(i) The Company has properly elected under Section 1362(a) of
the Code, and except as set forth on Schedule 4.7(i), under each
--------------analogous or similar provision of state or local law in each
jurisdiction where the Company is required to file income Tax Returns,
to be treated as an S Corporation for its
16
taxable period beginning with the taxable year ended December 31, 1990
and will continue to qualify as an S Corporation for all federal, state
and local income tax purposes at all times through its taxable year
ending on the day before the Closing Date and, accordingly, has and will
have no liability for federal income taxes with respect to any taxable
period beginning with its first taxable year and through its taxable
year ending on the Closing Date, including as a result of the Election.
(j) The Buyer has received complete copies of (i) all federal,
state, local and foreign income or franchise Tax Returns of the Company
and each of its Subsidiaries relating to the last three taxable periods
of the Company and each of its Subsidiaries and (ii) any audit report
issued within the last three years (or otherwise with respect to any
audit or investigation in progress) relating to Taxes due from or with
respect to the Company and each of its Subsidiaries, their respective
income, assets or operations. With respect to all income and franchise
Tax Returns filed by or on behalf of the Company and each of its
Subsidiaries for the taxable years ended on the respective dates set
forth on Schedule 4.7(j), either (x) such Tax Returns have been examined
--------------by and settled with the relevant taxing authority, or (y) the applicable
statute of limitations with respect to the taxable years covered by such
Tax Returns has expired.
(k) Schedule 4.7(k) lists all material types of Taxes paid and
--------------material types of Tax Returns filed by or on behalf of the Company and
each of its Subsidiaries. To the Knowledge of the Sellers, no claim has
been made by a taxing authority in a jurisdiction where the Company or
any of its Subsidiaries does not file Tax Returns such that it is or may
be subject to taxation by that jurisdiction.
(l) No property owned by the Company or any of its
Subsidiaries is (i) property required to be treated as being owned by
another Person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue
17
Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, (ii) constitutes "tax-exempt
use property" within the meaning of Section 168(h)(1) of the Code or
(iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(m) There are no Liens for or as a result of any unpaid Taxes
on the assets of the Company or any of its Subsidiaries except for Liens
for current Taxes not yet due.
(n) No Seller is a foreign person with the meaning of Section
1445 of the Code.
(o) None of the Company or any of its Subsidiaries are parties
to any tax sharing or similar Contract or arrangement (whether or not
written).
(p) There is no Contract, plan or arrangement involving the
Company or any of its Subsidiaries and covering any Person that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Buyer, the Company or any of
its Subsidiaries or their respective Affiliates by reason of Section
280G of the Code.
(q) None of the Company or any of its Subsidiaries has any
elections in effect for federal income tax purposes under Section 168 of
the Code or any analogous or similar provision of state, local or
foreign law.
4.8 Claims and Proceedings. Except as set forth on Schedule
----------------------------4.8, there are (i) no suits, claims, actions or proceedings pending or, to
the Knowledge of Sellers, threatened, and (ii) to the Knowledge of Sellers,
no investigations are pending or threatened, in each case, against or
relating to the Company or any of its Subsidiaries or any material portion
of their respective properties or assets before any court or Governmental
Entity, (x) which if adversely determined, would result in a liability of
the Company or any of its Subsidiaries in excess of $100,000, with respect
to any one such matter, or $500,000, in the case of all such matters, or
(y) which would
18
(if successful) require specific performance or an injunction by the
Company, any of its Subsidiaries or any of their respective directors,
officers, employees, shareholders, or Affiliates; and (iii) to the
Knowledge of the Sellers no event has occurred which is likely to result in
any such action, proceeding or investigation which would have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries is engaged
in any legal action to recover monies due it or for damages sustained
(other than ordinary course collections). No material portion of the
Company's or its Subsidiaries' properties or assets is subject to any
specific order, judgment, injunction or decree (collectively, "Orders") of
-----any court or Governmental Entity of which the Company, any of its
Subsidiaries, or any Seller was notified that would result in a Material
Adverse Effect. All matters listed on Schedule 4.8, whether litigation has
-----------been instituted or not, have been reported by the Company to its insurance
carriers for coverage and such carriers have not indicated that they will
deny coverage in respect thereof.
4.9 Contracts. Schedule 4.9 sets forth, as of the date hereof,
-------------------a list of all of the following Contracts to which the Company or any of its
Subsidiaries is a party or by which it or any material portion of their
respective properties or assets are bound or subject (together with the
agreements specifically identified in this Agreement or in the other
Schedules hereto, the "Scheduled Contracts"):
------------------(a) contracts and other agreements with any labor union,
collective bargaining unit or association representing any employee of
the Company or any of its Subsidiaries;
(b) agreements for acquisitions or dispositions (by merger,
purchase or sale of stock or otherwise) of material assets entered into
in the last two years or pursuant to which the Company has ongoing
obligations (other than acquisitions or dispositions of assets in the
ordinary course) with a value in excess of $200,000 (other than the
exercise of the option to purchase the property at Egg
19
Harbor Township at a price no greater than $350,000, and on terms
reasonably acceptable to the Sellers and the Buyer);
(c) contracts and other agreements relating to indebtedness of
the Company or such Subsidiary, guarantees of the indebtedness of any
other Person or the deferred purchase price of property where such
deferred purchase price is in excess of $200,000;
(d) all partnership, joint venture or other similar Contracts,
arrangements or agreements;
(e) any lease, license or other Contract pursuant to which any
person has the right to occupy or use any of the Owned Real Property or
any portion of the premises that are the subject of the Leases;
(f) each agreement that restricts or purports to restrict the
right of the Company or any Subsidiary of the Company to engage in any
business anywhere in the world or to compete with any Person with
respect to any business anywhere in the world;
(g) all license, sale, dealer, distribution, commission,
marketing, agent, franchise, technical assistance or similar agreements,
other than commission arrangements with employees of the Company or any
of its Subsidiaries, relating to or providing for the marketing or sale
of the products or services of or by the Company or any Subsidiary of
the Company; and
(h) any other material contract whether or not made in the
ordinary course of business which provides for or would reasonably be
expected to provide for the payment by the Company or any Subsidiary of
the Company after the date of this Agreement of more than $200,000 per
annum.
Except as disclosed on Schedule 4.9, each Scheduled Contract is a legal,
-----------valid and binding obligation of the Company or of its Subsidiary, as the case
may be, and, to the Knowledge of Sellers, each other party thereto, enforceable
against each such party thereto in
20
accordance with its material terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and subject to general principles of equity, and
none of the Company, any Subsidiary of the Company nor, to the Knowledge of
Sellers, any other party thereto, is (or with notice or lapse of time or both
would be) in default thereunder, except where such default would not have a
Material Adverse Effect. As of the date of this Agreement, the Company has not
received notice to the effect that any party to a Scheduled Contract intends to
terminate or not renew the same at its next renewal date. Complete and correct
copies of each Scheduled Contract have been previously delivered to Buyer.
4.10 Real Estate.
----------(a) The Company and its Subsidiaries are the owners of fee
title to all of the real property listed on Schedule 4.10(a) and all
---------------buildings, structures and other improvements located thereon other than
any real property included in the Excluded Assets and Liabilities (the
"Owned Real Property").
-------------------(b) The Company and its Subsidiaries are the lessees of
certain real property (together with the Owned Real Property, the
"Properties") pursuant to the leases listed on Schedule 4.10(b) (the
-------------------------"Leases"). The Company and its Subsidiaries have a valid, enforceable
-----and binding leasehold interest in the real property subject to each of
the Leases. The Sellers have heretofore delivered to, or have caused the
Company to deliver to, the Buyer true, correct and complete copies of
the Leases (including any modifications, amendments and supplements).
Except as set forth in Schedule 4.10(b) with respect to the Leases,
---------------there exists no default or circumstance which with notice or lapse of
time or both would constitute a default by the Company or any of its
Subsidiaries or, to the Knowledge of Sellers, any default or threatened
default by any third party thereunder. The Properties (together with the
properties of McClinch, Inc. ("MI") and Grey Fox Equipment, Inc.
-("Grey Fox")) constitute all interests in real property currently
--------
21
used or currently held for use in connection with the Business of the
Company and its Subsidiaries and which are necessary for the continued
operation of the Business as currently conducted. All of the Properties,
buildings, fixtures and improvements thereon owned or leased by the
Company and its Subsidiaries are in condition and repair (subject to the
normal wear and tear) sufficient to operate the Business, with
sufficient access to roads and utilities to operate the Business as
presently conducted. With respect to the Owned Real Property, the
Company has all material certificates of occupancy. Except for the
option to purchase the Egg Harbor Township property, neither the Company
nor any Subsidiary owns or holds, or is obligated under or a party to,
any option, right of first refusal or other contractual right to
purchase, acquire, sell, assign or dispose of any real estate or any
portion thereof or interest therein.
(c) Except as set forth on Schedule 4.10(c), none of the Owned
Real Properties are subject to a Lien, other than Permitted Liens and
other than any other Lien that does not materially interfere with the
value or operation of the Owned Real Property as presently operated. No
condemnation or eminent domain proceeding is pending or, to the
Knowledge of Sellers, threatened which would preclude or impair in any
material respect the use of any Owned Real Property or the Thorpe
Property or, to the Knowledge of the Sellers, any property subject to
the Leases, for the uses for which it is currently being used.
4.11 Employee Benefit Plans.
---------------------(a) Schedule 4.11(a) lists all Benefit Plans of the Company
---------------and its Subsidiaries. With respect to each such Benefit Plan, the
Sellers heretofore have delivered, or have caused the Company heretofore
to have made available to the Buyer true, correct and complete copies of
(i) all plan texts and agreements and related trust agreements or
annuity contracts, (ii) all summary plan descriptions and material
employee communications, (iii) the most recent annual report
22
(including all schedules thereto); or (iv) if the plan is intended to
qualify under Code section 401(a) or 403(a), the most recent
determination letter received from the IRS;
(b) Each Benefit Plan conforms in all material respects to,
and its administration is in compliance in all material respects with,
all Applicable Laws and regulations. Each Benefit Plan intended to be
qualified under Code section 401(a) has been determined to be so
qualified by the IRS and each trust established in connection with any
Benefit Plan that is intended to be exempt from federal income taxation
under Code section 501(a) has been determined to be so exempt by the IRS
and no event has occurred and no condition or circumstance has existed
to adversely affect the qualified status of any Benefit Plan;
(c) Except as set forth on Schedule 4.11(c) or as contemplated
---------------by this Agreement, the consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee to
severance pay, unemployment compensation or any similar payment or (ii)
accelerate the time of payment or vesting, or increase the amount of any
compensation or benefits due to, any current or former employee;
(d) Except as set forth on Schedule 4.11(d), no Benefit Plan
---------------is a "multiple employer plan" or a "multiemployer plan" within the
--------------------------------------meaning of the Code or ERISA and no Benefit Plan is subject to Title IV
of ERISA;
(e) No "reportable event" as defined in Section 4043 of ERISA
---------------has occurred with respect to any Benefit Plan and no accumulated funding
deficiency, whether or not waived, exists with respect to any Benefit
Plan; and, to the Knowledge of Sellers, there is no risk of termination
of any Benefit Plan by the PBGC under Section 4042 of ERISA and no event
has occurred which has or is likely to subject the Company or any of its
Subsidiaries to liability under Section 4062 of ERISA;
23
(f) Except as set forth on Schedule 4.11(f), each Benefit Plan
---------------can be amended or terminated at any time, without the consent of any
other party and without liability other than for benefits accrued as of
the date of such amendment or termination;
(g) Neither the Company nor any of its Subsidiaries is
obligated to provide life insurance or health care benefits of any kind
to its retired or former officers, directors or employees pursuant to
any Benefit Plan, including any "group health plan" as such term is
----------------defined in Code section 5000(b)(1), or pursuant to any agreement or
understanding, except as may be required under Part 6 of Title I of
ERISA and at the sole expense of the participant or the participant's
beneficiary;
(h) Except as disclosed in Schedule 4.11(h), none of the
---------------assets of any Benefit Plan is stock of the Company or any of its
Affiliates, or property leased to or jointly owned by the Company or any
of its Affiliates;
(i) All contributions or other payments required to have been
made by the Company and its Subsidiaries to or under any Benefit Plan by
Applicable Law or by the terms of such Benefit Plan have been timely and
properly made; and
(j) There are no pending or, to the Knowledge of the Sellers,
threatened actions, claims or proceedings against or relating to any
Benefit Plan other than routine claims by persons entitled to benefits
thereunder.
4.12 Insurance. Schedule 4.12 sets forth a list of all material
--------------------policies or binders of fire, liability, product liability, worker's
compensation, casualty, vehicular and other insurance held by or on behalf
of the Company or any of its Subsidiaries. Each such policy and binder is
valid and binding in accordance with its terms, is in full force and
effect, and neither the Company nor any of its Subsidiaries is in default
with respect to any provision contained in any such policy or binder nor
has the Company or any of its Subsidiaries failed to give any notice or
present any claim
24
under any such policy or binder in due and timely fashion except to the
extent such default or failure would not have a Material Adverse Effect.
4.13 Tangible Properties. Each of the Company and its
------------------Subsidiaries has good and marketable title to, or leases with respect to,
all of its owned or leased tangible personal property which is necessary
for the conduct of its business in the ordinary course consistent with past
practices and is reflected in the Balance Sheet, except as indicated in the
notes thereto, and no such personal property is subject to any Lien (except
for Liens reflected in the Balance Sheet and Permitted Liens). Such
tangible personal property has been maintained by the Company or its
Subsidiary, as the case may be, in a manner consistent with past practices.
4.14 Related Party Transactions. Except as set forth on
-------------------------Schedule 4.14, neither the Sellers nor any of their respective Affiliates
------------(other than MI and Grey Fox) has borrowed any moneys from the Company or
any of its Subsidiaries which has not been repaid or has outstanding any
indebtedness or other similar obligations to the Company or any of its
Subsidiaries. Except as set forth in Schedule 4.14, none of the Sellers
------------is, or owns any direct or indirect interest of any kind in (other than any
interest of less than 5% in any Person subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended), or
controls or is a director, officer, employee or partner of, or consultant
to, or lender to or borrower from or has the right to participate in the
profits of, any Person which is, (A) a competitor, supplier, customer,
landlord, tenant, creditor or debtor of the Company or any of its
Subsidiaries, or (B) a party to any Contract with the Company or any of its
Subsidiaries.
4.15 Banks. Schedule 4.15 contains a complete and correct list
----------------of the names and locations of all banks in which the Company or any of its
Subsidiaries has accounts or safe deposit boxes and the names of all
persons authorized to draw thereon or to have access thereto. Except as
set forth on Schedule 4.15, no Person holds a power of attorney to act on
------------behalf of the Company or any of its Subsidiaries.
25
4.16 Permits. The Company and its Subsidiaries have all
------material approvals, authorizations, certificates, consents, licenses,
exemptions, orders and permits or other similar authorizations of all
Governmental Entities (the "Permits") necessary for the operation of the
------Business in the manner currently operated, and each such Permit is valid
and in full force and effect in all material respects and there are no
proceedings pending or, to the Knowledge of the Sellers, threatened to
revoke or cancel the same; provided, that nothing in this Section 4.16
-------shall be or be deemed to be a representation or warranty concerning
Environmental Laws or Permits with respect to environmental matters.
4.17 Compliance with Applicable Laws. Except as set forth on
------------------------------Schedule 4.17, the Company and each of its Subsidiaries have complied and
------------are in compliance with Applicable Law with respect to the Company and each
of its Subsidiaries and the conduct of their business and the use of their
properties, except in the case where failure to comply or be in compliance
would not have a Material Adverse Effect; provided, that nothing in this
-------Section 4.17 shall be or be deemed to be a representation or warranty
concerning Environmental Laws or Permits with respect to environmental
matters.
4.18 Employment Agreements. Except as set forth on Schedule
---------------------------4.18, there are no employment, consulting, severance pay, continuation pay,
---termination pay or indemnification agreements or other similar agreements
(collectively, the "Employment Agreements") between the Company or any of
--------------------its Subsidiaries and any current or former shareholder, officer, director
or employee or any consultant or agent of the Company or any of its
Subsidiaries that are currently in effect. True and complete copies of the
Employment Agreements have been delivered to Buyer.
4.19 Labor and Employment Matters.
---------------------------(a) Except as set forth on Schedule 4.19(a), no collective
---------------bargaining agreement existed or exists that is binding on the Company or
any of its
26
Subsidiaries, and to the Knowledge of Sellers, no petition has been
filed or proceedings instituted by an employee or group of employees
with any labor relations board seeking recognition of a bargaining
representative. Schedule 4.19(a), to the Knowledge of Sellers,
---------------describes any organizational effort currently being made or threatened
by or on behalf of any labor union to organize any employees of the
Company or any of its Subsidiaries; and
(b) Except as set forth on Schedule 4.19(b), (i) there is no
---------------labor strike, dispute, slow down or stoppage pending or, to the
Knowledge of Sellers, threatened, against or directly affecting the
Company or any of its Subsidiaries, (ii) no grievance or arbitration
proceeding arising out of or under any collective bargaining agreement
is pending, and to the Knowledge of the Sellers, no claims therefor
exist, and (iii) neither the Company nor any of its Subsidiaries has
received any notice of any labor or civil rights dispute, controversy or
grievance or any other unfair labor practice proceeding or breach of
contract claim or action with respect to claims of, or obligations to,
any employee or group of employees of the Company or any of its
Subsidiaries. The Company and its Subsidiaries are in material
compliance with all laws, regulations and orders relating to the
employment of labor, including all such laws, regulations and orders
relating to wages, hours, WARN, collective bargaining, discrimination,
civil rights, safety and health, workers' compensation and the
collection and payment of withholding and/or social security taxes and
any similar tax except for immaterial non-compliance. There has been no
"mass layoff" or "plant closing" as defined by WARN with respect to the
Company and its Subsidiaries within the six (6) months prior to the
Closing Date.
4.20 Intangible Property. Other than generally available, "off--------------------the-shelf" items containing intellectual property, Schedule 4.20 contains a
--------------------complete and correct list of each patent, trademark, trade name, service
mark and copyright owned or used by Company and its Subsidiaries as well as
all registrations thereof and pending
27
applications therefor, and each license or other agreement relating
thereto. Except as set forth on Schedule 4.20, each of the foregoing is
------------owned by the Company or its Subsidiaries free and clear of all Liens and,
to the Knowledge of the Sellers, is not the subject of any ownership
challenge. Neither the Company nor any Subsidiary has received any written
notice that any of the foregoing is invalid or conflicts with the asserted
rights of others.
4.21 Environmental Compliance.
-----------------------4.21 hereto:
----
Except as set forth on Schedule
--------
(a) the operations and facilities (as defined by CERCLA) of
the Company and each of its Subsidiaries have been for the past three
years, and are in, material compliance with all applicable Environmental
Laws and all Permits issued pursuant to Environmental Laws;
(b) the Company and each of its Subsidiaries have obtained and
currently maintains all material Permits required under all applicable
Environmental Laws necessary to operate its business;
(c) neither the Company nor its Subsidiaries is the subject of
any outstanding proceeding, written claim, written order or Contract
with any Governmental Entity or Person with respect to (i) Environmental
Law, (ii) Remedial Action or (iii) any Release or threatened Release of
a Hazardous Material and, to the knowledge of the Sellers, no such
proceedings, claims, orders or contracts are threatened;
(d) neither the Company nor any of its Subsidiaries has
received any written communication or, to the Knowledge of the Sellers,
any other communication, alleging either or both that the Company or any
of its Subsidiaries, or any of their respective Properties or facilities
may be in violation of (i) any Environmental Law or (ii) any Permit
issued pursuant to any Environmental Law,
28
or that the Company or any of its Subsidiaries may have any liability
under any Environmental Law;
(e) to the Knowledge of the Sellers, there are no
investigations by any Governmental Entity under or pursuant to
Environmental Laws of the business, operations, Properties or former
properties of the Company or any of its Subsidiaries pending or
threatened;
(f) there is not now located at any of the Properties of the
Company or any of its Subsidiaries any underground storage tanks for
which the Company or the Subsidiaries has responsibility ("UST") nor, to
--the Knowledge of the Sellers, any asbestos-containing material in a
condition necessitating abatement, nor equipment containing
polychlorinated biphenyls necessitating immediate removal or
remediation;
(g) the Sellers have provided to the Buyer all environmentally
related Phase I and Phase II reports or other material environmental
reports that have been performed and provided to the Company or any of
its Subsidiaries with respect to the Properties or former properties,
assets or current operations of the Company or any of its Subsidiaries
and that are in the Company's or any of its Subsidiaries' possession,
custody or control; and
(h) as of the Closing Date, to the Knowledge of Sellers, there
are no conditions requiring Remedial Action on the Properties resulting
from Releases of Hazardous Materials prior to the Closing, other than
conditions disclosed to the Phase I or Phase II Consultants. To the
knowledge of Sellers, there are no conditions on the formerly owned,
operated or leased properties of the Company or any Subsidiary requiring
Remedial Action for which the Company may be responsible, other than
conditions described in the environmental reports provided by the
Sellers to the Buyer and listed on Schedule 4.21(h).
29
4.22 Finders and Investment Bankers. Except for Brown Brothers
-----------------------------Harriman & Co. ("Brown Brothers"), no broker, finder, agent or similar
-------------intermediary has acted on behalf of the Company in connection with this
Agreement, and that, except for the fees and expenses of Brown Brothers,
there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection therewith based on any agreement,
arrangement or understanding with the Company or any action taken by the
Company or any Subsidiary of the Company.
4.23 Certain Actions. None of the Company, any of its
--------------Subsidiaries nor any Person acting at the direction or on behalf of the
Company or any of its Subsidiaries has serviced, maintained, modified,
altered or refurbished any product sold, rented or distributed prior to the
Closing Date by the Company, any of its Subsidiaries or any of their
respective predecessors in a wanton, malicious, wilfully improper or
criminally negligent manner.
4.24 No Other Representations and Warranties. Except for the
--------------------------------------representations and warranties contained in Articles 3 and 4, the Sellers
make no other express or implied representations or warranties concerning
the Shares, the Company, any Subsidiary or asset of the Company or any
Seller or any of the transactions contemplated hereby.
5. Representations and Warranties of the Buyer. The Buyer represents
------------------------------------------and warrants to the Sellers as follows:
5.1 Corporate Organization. The Buyer is a corporation duly
---------------------organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now
being and as heretofore conducted.
5.2 Authority to Execute and Perform Agreement. The Buyer has
-----------------------------------------the full legal right and power and all authority and approvals required to
enter into, execute and deliver this Agreement and each other agreement,
document, or instrument or
30
certificate contemplated by this Agreement to be executed by Buyer in
connection with the consummation of the transactions contemplated by this
Agreement (collectively the "Buyer Documents"), and to consummate the
--------------transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by the Buyer and, assuming due execution and
delivery hereof by the other parties hereto, this Agreement will be valid
and binding obligation of the Buyer enforceable against the Buyer in
accordance with its terms except: (a) as rights to indemnity hereunder may
be limited by federal or state securities laws or the public policies
embodied therein; (b) as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally; and (c) as the remedy of
specific performance and other forms of injunctive relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The execution and delivery by the Buyer
of this Agreement and the other Buyer Documents, the consummation of the
transactions contemplated hereby and thereby and the performance by the
Buyer of this Agreement and the other Buyer Documents in accordance with
their respective terms and conditions will not (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or ByLaws of the Buyer; (ii) require the Buyer to obtain any consent, approval,
authorization or action of, or make any filing with or give any notice to,
any Governmental Entity or any other Person other than any filings required
under the HSR Act and applicable securities laws except for the consent of
the lenders under the Buyer's credit agreement, which the Buyer has
obtained; (iii) violate, conflict with or result in the breach of any of
the terms and conditions of, result in a material modification of the
effect of, otherwise cause the termination of or give any other contracting
party the right to terminate, or constitute (or with notice or lapse of
time or both constitute) a default under, any Contract to which the Buyer
is a party or by or to which the Buyer or any of its properties is or may
be bound or subject; or (iv) violate Applicable Law or Order of any
Governmental Entity applicable to the Buyer.
31
5.3 Purchase for Investment. The Buyer is purchasing the Shares
----------------------for its own account for investment and not for resale or distribution. The
Buyer acknowledges that the sale of the Shares has not been registered
under the Securities Act, or any applicable state securities laws and that
such Shares may only be sold or otherwise disposed of under an effective
registration statement under the Securities Act or under an exemption
therefrom. Except with respect to the Buyer's credit agreement, the Buyer
has no contract, undertaking, agreement or arrangement with any Person or
entity to sell, hypothecate, pledge, donate, or otherwise transfer (with or
without consideration) to any such Person any of the Shares, and the Buyer
has no present plans or intention to enter into any such contract,
undertaking, agreement, or arrangement.
5.4
[Intentionally omitted].
5.5 Sources of Information. The Buyer acknowledges that it has
---------------------conducted its own investigation of the business and affairs of the Company
and its Subsidiaries. The Buyer has been afforded the opportunity: (i) to
ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company and its Subsidiaries concerning the
Company and its Subsidiaries; and (ii) to obtain such additional
information that the Company and its Subsidiaries possess or can acquire
without unreasonable effort or expense that is reasonably necessary to
verify the accuracy and completeness of the information previously
furnished to it by the Company and its Subsidiaries; provided that no
-------investigation by the Buyer shall affect the representations and warranties
of the Sellers.
5.6 Finders and Investment Bankers. No broker, finder, agent or
-----------------------------similar intermediary has acted on behalf of the Buyer in connection with
this Agreement, and there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with the Buyer or any action taken
by the Buyer.
32
5.7 Litigation. There are no legal proceedings pending or, to
---------the Knowledge of the Buyer, threatened that are reasonably likely to
prohibit or restrain the ability of the Buyer to enter into this Agreement
or any other Buyer Document or consummate the transactions contemplated
hereby or thereby.
6. Covenants and Agreements.
-----------------------6.1 Conduct of Business of the Company. Except as contemplated
---------------------------------by this Agreement, during the period commencing on the date hereof and
ending at the Closing Date, the Sellers shall cause the Company and its
Subsidiaries to conduct their respective operations in accordance with
their ordinary course of business consistent with past practice. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Closing Date, neither the Company
nor any of its Subsidiaries will, without the prior written consent of the
Buyer (which may not be unreasonably withheld or delayed):
(a) amend or propose to amend its Articles of Incorporation or
By-Laws or merge or consolidate with or into any other Person;
(b) authorize for issuance, issue, sell, pledge, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the
issuance or granting of any options, warrants, calls, subscriptions,
stock appreciation rights or other rights or agreements) any capital
stock of any class or any securities convertible into or exchangeable
for shares of capital stock of any class of the Company or such
Subsidiary, as the case may be (except for the issuance of securities of
Subsidiaries issued to the Company or another Subsidiary);
(c) split, combine or reclassify any shares of Common Stock;
(d) enter into any agreements, commitments or contracts that
are material to the Company and the Subsidiaries, taken as a whole,
other than in the ordinary course of business consistent with past
practice, or otherwise make any material change in (i) any existing
agreement, commitment or arrangement that is
33
material to the Company and its Subsidiaries, taken as a whole or (ii)
the conduct of the Business;
(e) except for the exercise of the option regarding the
property at Egg Harbor Township, purchase or otherwise acquire assets
from any Person other than in the ordinary course of business;
(f) sell, assign, lease, license, transfer or otherwise
dispose of, or mortgage, pledge or encumber (other than with Permitted
Liens), any Owned Real Property or any of its assets, or amend,
terminate or renew any of the Leases;
(g) amend or modify in any material respect or terminate any
Contract entered into by the Company after the date hereof which, if in
existence on the date hereof, would be required to be set forth in
Schedule 4.9 as a Scheduled Contract (each, a "Subsequent Material
-----------------------------Contract");
-------(h) enter into or commit or propose to enter into any
Subsequent Material Contract, except as necessary to permit the Company
or its Subsidiaries or the Sellers to carry out any of their respective
covenants and other obligations under this Agreement or any other Seller
Document;
(i) except in the ordinary course of business, waive, cancel
or take any other action materially impairing any of its rights;
(j) make or commit to make any capital expenditure, or group
of related capital expenditures other than (A) the purchases of
Equipment and vehicles having an aggregate purchase price of no more
than $7,000,000; provided that the funds used to purchase such Equipment
-------or vehicles is obtained from the Company's or its Subsidiaries' working
capital, existing revolving credit agreement or other indebtedness that
may be prepaid without penalty, or (B) other capital expenditures or
group of related capital expenditures of no more than $2,000,000 in the
aggregate;
34
(k) create, incur, assume or guarantee any indebtedness for
borrowed money (except (i) in the ordinary course of business or (ii) to
make the purchases and other capital expenditures permitted under
Section 6.1(j));
(l) (i) increase the rate or terms of compensation payable or
to become payable to its directors, officers or employees except with
respect to employees other than officers in the ordinary course of
business consistent with past custom and practice, (ii) announce an
intention to or pay or agree to pay any pension, retirement allowance or
other employee benefit not provided for by any Benefit Plan or
Employment Agreement set forth in the Schedules hereto, (iii) announce
an intention to or commit itself to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
continuation pay, termination pay, retirement or other employee benefit
plan, agreement or arrangement, or increase the rate or terms of any
Benefit Plan, (iv) enter into any employment agreement with or for the
benefit of any Person, or (v) increase the rate of compensation under or
otherwise change the terms of any Employment Agreement set forth in
Schedule 4.18;
------------(m) except as set
--------------its accounting or
books and records
inventory, sales,
forth on Schedule 6.1(m), make any change in
tax reporting methods or in the manner of keeping its
or any change in its current practices with respect to
receivables, payables or accrued expenses;
(n) declare or pay any dividend or make any distribution in
respect of Common Stock or, directly or indirectly, redeem, purchase or
otherwise acquire any of its Common Stock or make any other payments of
any kind to the holders of any of its Common Stock in respect thereof,
or enter into any commitment agreement to do any of the foregoing;
provided, however, that the Subsidiaries may declare and pay dividends
-------- ------to the Company of another Subsidiary
35
and the Company may distribute the Excluded Assets and Liabilities
pursuant to Section 6.11;
(o) enter into or commit or propose to enter into any
agreements, commitments or contracts with an Affiliate of the Company or
any Seller other than MI and Grey Fox; or
(p) agree, commit or arrange to do any of the foregoing.
6.2 Access to Information; Confidentiality.
-------------------------------------(a) Between the date of this Agreement and the Closing Date,
the Sellers shall cause the Company and its Subsidiaries to afford the
Buyer and its authorized representatives (including its accountants,
financial advisors and legal counsel) reasonable access during normal
business hours to all of the properties, personnel, Contracts, books and
records of the Company and its Subsidiaries and shall promptly deliver
or make available to the Buyer information concerning the business,
properties, assets and personnel of the Company and its Subsidiaries as
the Buyer may from time to time reasonably request;
(b) The Buyer shall hold, and shall cause its authorized
representatives (including its accountants, financial advisors and legal
counsel) to hold, all material subject to the Confidentiality Agreement
dated February 12, 1998, between MI and the Buyer (the "Confidentiality
--------------Agreement") in confidence in accordance with the terms of the
--------Confidentiality Agreement and, in the event of the termination of this
Agreement for any reason, the Buyer promptly shall return or destroy all
such material in accordance with the terms of the Confidentiality
Agreement;
(c) After the Closing, the Sellers and their respective
Affiliates will and will cause their respective representatives to treat
any data and information related to the Company and/or its Subsidiaries
and the Business confidentially and with commercially reasonable care
and discretion, and will not
36
disclose any such information to third parties; provided, however, that
-------- ------the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by a party other than Sellers or
any of their respective Affiliates or any of their respective
representatives, so long as such other party is not in breach of a
confidentiality obligation to the Buyer and (ii) information that may be
required to be disclosed by Applicable Law.
(d) In the event that either a Seller or the Buyer, as the
case may be, is required, by subpoena or other legal process, in any
action or proceeding to disclose any such confidential information or
material referred to in this Section, such party will give the other
party prompt notice of such request so that such other party may seek an
appropriate protective order or other confidential treatment of such
information and will cooperate with such other party in obtaining such
treatment; and
(e) Each of the parties acknowledges and agrees that in the
event of any breach of Section 6.2, money damages would not be an
adequate remedy to the Buyer, on the one hand, or the Sellers, on the
other, for such breach and, even if money damages were adequate, it
would be impossible to ascertain or measure with any degree of accuracy
the damages sustained by the Buyer, on the one hand, or the Sellers, on
the other, therefrom. Accordingly, if there should be a breach or
threatened breach by any Person of any provision of Section 6.2, the
Buyer, on the one hand, or the Sellers, on the other, shall be entitled,
without showing or providing actual damage sustained by the Buyer, on
the one hand, or the Sellers on the other, to an injunction restraining
such Person from any breach. Nothing in this Section 6.2(d) shall limit
or otherwise affect the remedies that the Buyer, the Company or the
Sellers may otherwise have under Applicable Law.
6.3 Disclosure Supplements. Prior to the Closing, the Sellers
---------------------may supplement or amend the schedules referred to in this Agreement with
respect to (i) any
37
matter not existing on the date hereof which, if existing or occurring at
or prior to the date hereof, would have been required to be set forth or
described in a schedule or (ii) any matter arising after the date hereof
which is necessary to correct any information in a schedule or in any
representation and warranty of the Sellers which has been rendered
inaccurate thereby; provided that any such supplement or amendment shall
-------not waive, limit or otherwise affect the condition to Closing set forth in
Section 9.1, which shall be based on the representations and warranties,
covenants and agreements made as of the date of this Agreement, but only
the representations, warranties, covenants and agreements made by the
Sellers as amended or supplemented pursuant to this Section 6.3 shall be
the basis for any indemnification pursuant to Article 7, 8 or 12.
6.4 Expenses. Except as otherwise expressly set forth in this
-------Agreement, the parties to this Agreement shall bear their respective
expenses incurred in connection with the preparation, negotiation,
execution and performance of this Agreement and the contemplated
transactions, including all fees and expenses of agents, representatives,
counsel and accountants, provided, however, that the Buyer is agreeing to
-------- ------pay the first $400,000 of the fee owed to Brown Brothers by the Sellers
pursuant to the MI Agreement and the Sellers shall pay all amounts of such
fee to Brown Brothers in excess of $400,000.
6.5 Further Assurances. Each of the parties shall execute such
-----------------certificates, bills of sale, agreements and other documents and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the contemplated transactions. Each such party shall
use its commercially reasonable efforts to fulfill or obtain the
fulfillment of the conditions to the Closing set forth in Articles 9 and
10. Between the date of this Agreement and the Closing Date, each of the
parties hereto shall promptly notify the other parties in writing (a) if
such party becomes aware of any fact or condition that causes or would be
reasonably likely to cause or constitute a Material Adverse Effect or a
breach of any of the representations and warranties of such party set forth
herein and (b) of the occurrence of any breach of
38
any covenant in this Agreement or of the occurrence of any event that may
make the satisfaction of the conditions to Closing set forth herein
impossible or unlikely.
6.6 Cooperation Regarding Landlords. The Sellers agree that
------------------------------they will cause the officers of the Company to reasonably cooperate with
the Buyer in obtaining consents and estoppel certificates from the
landlords under the Leases; provided, that the foregoing shall not require
-------the Sellers or the Company to pay any amounts to any Person to obtain such
consents or estoppels; and; provided further, that the Buyer acknowledges
-------- ------that the receipt of such consents or estoppel certificates is not a
condition precedent to the consummation of the transactions contemplated
hereby.
6.7 Transfer Taxes. All sales, use, stamp, documentary, filing,
-------------recording, transfer or similar fees or Taxes and governmental charges as
levied by any taxing authority or other Governmental Entity as a result of
the transfer of the Shares pursuant to this Agreement (other than those
arising out of the Election (as defined in Section 7.1(a)(i) below)) shall
be borne 50% by the Buyer and 50% by the Sellers.
6.8 Compliance with Antitrust Laws. Each of the parties hereto
-----------------------------shall file an appropriate Notification and Report Form concerning the
transactions contemplated herein as promptly as practicable following the
date hereof. Each of the Buyer and each Seller shall cooperate (including
by way of furnishing to the other such documents and information as may
reasonably be required) in making filings under the HSR Act and shall use
its commercially reasonable best efforts to take, or cause to be taken, all
actions necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using its commercially reasonable best efforts (including,
without limitation, the Buyer agrees that it will dispose of or hold
separate any part of its or the Company's assets or business; provided,
-------that in no event shall the Buyer be required to (or be required to agree
to) dispose of or hold separate assets of the Combined Business which
generate in the aggregate more than $5 million per year of revenues; and
provided, further, that
39
in no event shall the Buyer be required to (or be required to agree to)
dispose of any one of the following locations; the Company's (and its
Affiliates') location in Fairfield, Connecticut, the Buyer's (or its
subsidiary's) location in Burlington, New Jersey and the Buyer's (or its
subsidiary's) location in Baltimore, Maryland) in order to consummate or
make effective as promptly as practicable the transactions contemplated by
this Agreement to resolve such objections, if any, as the Antitrust
Division of the Department of Justice or the Federal Trade Commission or
state antitrust enforcement or other Governmental Entity (collectively,
the "Regulatory Agencies") may assert under the federal or state antitrust
------------------laws with respect to the transactions contemplated hereby. In the event an
action is instituted by any Person challenging the transactions
contemplated hereby as violative of the antitrust laws, each of the Buyer
and each Seller shall cooperate with the other parties hereto and use its
commercially reasonable best efforts to resist or resolve such action.
"Combined Business" means the existing business of the Buyer or any of its
current subsidiaries and the business of the Company, MES, Grey Fox or any
of their respective Subsidiaries.
6.9 SOC Rebates. From and after the Closing Date, the Buyer
----------shall use its best efforts to collect all supplier-of-choice rebates owed
to the Company or any Subsidiary of the Company relating to equipment
expenditures made prior to the Closing and pass-through rebates for
equipment purchased by Hertz Equipment Rental Corp. during the period from
and including August, 1, 1997 through and including July 31, 1998 (the "SOC
--Rebates"). All monies collected on account of the SOC Rebates shall be
------held by the Buyer for the Sellers' account. The Buyer shall pay or cause
to be paid to the Sellers' Representative, on behalf of the Sellers, on the
first Business Day of each month all monies so received during the prior
month.
6.10 Non-Compete. For a period commencing on the Closing Date
----------and terminating three (3) years thereafter in the case of Ernest Pierson
and Robert Russo and five (5) years thereafter in the case of each of the
other Sellers (the "Restricted Period"), the Sellers (i) shall not (except,
----------------(x) in the case of Terrance
40
McClinch, in his capacity as a consultant to MI or another subsidiary of
the Buyer in accordance with his consulting agreement with MI to be entered
into as of the Closing Date and (y) in the case of Ernest Pierson and
Robert Russo, in their capacity as employees of MI or another Subsidiary of
the Buyer), and shall cause their respective Affiliates not to, in each
case, without the express prior written consent of Buyer (which consent may
be withheld by Buyer in its sole and absolute discretion) for his, her, or
its or their, as the case may be, own account or jointly with any other
Person, directly or indirectly, own, manage, operate, join, control,
finance, invest in, bid for, advise (or advise others with respect to) or
otherwise participate in, or be connected with, or become or act as a
partner, manager, member, director, officer, employee, consultant,
representative, agent or landlord of (other than pursuant to the lease of
185 Thorpe Street contemplated by the MI Agreement), any business,
individual, partnership, firm, corporation (other than Buyer), limited
liability company, association or other entity which is in competition
with, or is otherwise engaged anywhere in the United States of America and
the Provinces of Ontario and Quebec, Canada, in the Restricted Business
-----------------(as hereafter defined); provided, however, that a Seller may own,
-------- ------directly or indirectly, solely as an investment, (x) the URI Warrants and
Buyer Common Stock issued upon the exercise thereof (and any stock
dividends or other securities issued to holders thereof) and (y) securities
of any business traded on any national securities exchange or NASDAQ,
provided such Seller is not a controlling person of, or a member of a group
which controls or seeks to control, such business and further provided that
such Seller and its Affiliates do not, in the aggregate, directly or
indirectly, own 2% or more of any class of securities of such business ;
and (ii) shall not, and shall cause their respective Affiliates not to,
directly or indirectly, for his, her, or its or their own account or
jointly with another, or for or on behalf of any Person, as principal,
agent or otherwise, (A) solicit or induce or in any manner attempt to
solicit or induce any Person employed by the Company or any of its
Subsidiaries to leave such position or (B) interfere with, disrupt or
attempt to disrupt any relationship,
41
contractual or otherwise, between the Company or any of its Subsidiaries
and any of the customers, clients or suppliers of the Company or any of
such Subsidiaries; provided that notwithstanding the foregoing the Sellers
-------and their Affiliates may take any action whatsoever (including without
limitation legal action) against (x) any customer in connection with any
Reimbursable Trade Account Receivable with respect to which the Sellers
have an obligation to indemnify under Section 12.1(b) or (y) any supplier,
manufacturer or any other Person relating to, resulting from or in
connection with any claims for indemnification by the Buyer or a Buyer
Indemnitee against the Sellers under Article 7, 8 or 12 of this Agreement.
In addition, the Sellers shall not, and shall cause their
respective Affiliates not to, to any Person denigrate or derogate the Buyer
or any of its subsidiaries (including the Company), or any product or service
or procedure of any such company whether or not such denigrating or
derogatory statements shall be true or are based on acts or omissions which
occurred or are learned by a Seller prior to the date hereof or otherwise. A
statement shall be deemed denigrating or derogatory to any Person only if it
(i) materially adversely affects the esteem in which such Person is held by
investors, lenders or licensing, rating, or regulatory entities and (ii) is
not privileged in law.
The Sellers acknowledge that irreparable harm would be suffered by
the parties relying on the Sellers' covenants and undertakings set forth
herein in the event that any of the provisions of this Section were not
performed fully by the Sellers in accordance with the terms specified herein,
and that monetary damages are an inadequate remedy for breach of this Section
because of the difficulty of ascertaining and quantifying the amount of
damages that will be suffered by the parties relying hereon in the event that
the undertakings and provisions contained in this Section were breached or
violated. Accordingly, each Seller agrees that Buyer shall be entitled to an
injunction or injunctions to restrain, enjoin and prevent breaches or
threatened breaches of the covenants, undertakings and provisions herein and
to enforce specifically the provisions hereof in any court of the United
States or any state having jurisdiction over the matter, it being
42
understood that any such remedies shall be in addition to, and not in lieu
of, any other rights and remedies available at law or in equity. The Sellers
further acknowledge and agree that the covenants contained in this Section
shall not be deemed exclusive of any common law or other rights of Buyer in
connection with the matters covered hereby.
The provisions of this Section are severable, and the invalidity of
any provision shall not affect the validity of any other provision. It is
the intention of the parties that this Section be enforced to the fullest
extent permitted and, therefore, in the event that any provision of this
Section or the application thereof is held to be unenforceable in any
jurisdiction because of the duration or scope thereof, the parties hereto
agree that the court or panel of arbitrators making such determination shall
have the power to reduce the duration and scope of such provision to the
extent necessary to make it enforceable, and that this Section in its reduced
form shall be valid and enforceable to the full extent permitted by law, but
no such reduction shall affect the enforceability of the express terms hereof
in any other jurisdiction.
6.11 Excluded Assets and Liabilities. Prior to the Closing
------------------------------Date, the Company shall transfer all right, title and interest to, and all
responsibility in respect of, the Excluded Assets and Liabilities to the
Sellers or their respective designees. The Sellers hereby agree to
indemnify the Buyer Indemnitees from and against all Losses and Liabilities
attributable to the Excluded Assets and Liabilities.
6.12 Insurance Tail. The Buyer shall purchase and cause to be
-------------maintained in effect at Closing and for a period of two years after the
Closing Date, for the benefit of the Company and its Subsidiaries,
liability insurance policies having at least the same coverage as,
deductible amounts no greater than, and which contain terms and conditions
that are not less advantageous to the Company and its Subsidiaries than,
the liability insurance policies maintained by the Company and its
Subsidiaries as of the Closing Date; provided that the Buyer's obligation
-------under this Section with
43
respect to an employee practice liability insurance policy is only to the
extent that the maximum premium therefore does not exceed $20,000 per
annum.
6.13 Payment of Indebtedness. At Closing, the Buyer may, at its
----------------------option, repay any other indebtedness of the Company or any of its
Subsidiaries. If the Buyer notifies the Sellers at least 10 Business Days
prior to the Closing Date that it will repay any such indebtedness at
Closing, the Sellers shall arrange to have the lenders with respect to such
indebtedness deliver pay-off letters and UCC-3 Termination Statements at
the closing with respect to such indebtedness. If the Buyer elects to
repay any indebtedness of the Company or its Subsidiaries at Closing,
neither the Sellers nor the Company or any of its Subsidiaries shall have
any liability or obligation with respect thereto (it being understood that
any prepayment penalties resulting therefrom in excess of $18,750 shall be
included as a liability of the Company in the Preliminary Closing Balance
Sheet, the Audited Closing Balance Sheet and the Closing Adjusted Net Worth
Schedule pursuant to Section 1.2). The Buyer agrees to pay the first
$18,750 of any such prepayment penalties.
6.14 Rental Ready Adjustment. Sellers will deliver a Rental
----------------------Asset Listing to the Buyer at Closing ("Rental Asset Listing") which shall
-------------------set forth as of the Closing Date (i) the asset description, make, model and
original cost, accumulated depreciation and net book value of all rental
equipment inventory held for rent to customers of the Company and its
Subsidiaries (the "Equipment") as of the Closing Date. The Sellers shall,
--------subject to Sections 12.1(c) (other than Section 12.1(c)(i)), 12.4 and 14.2,
indemnify the Buyer for (x) each item of Equipment listed on the Rental
Asset Listing which is not Rental Ready and (y) each item of Equipment
which is listed on the Rental Asset Listing and which is missing, in the
amount calculated as described below (the "Rental Ready Adjustment").
----------------------Within 15 days following the Closing Date, the Buyer shall complete a
physical inventory of each item of Equipment on the Rental Asset Listing,
including by visiting renters' locations as necessary to inspect such
Equipment, and the indemnification provided in this Section 6.14 shall be
based on the
44
Rental Ready Adjustment resulting from the findings of such
physical inventory (the "Post Closing Rental Ready Adjustment"). The
-----------------------------------Sellers' Representative or its designee shall have the right to observe and
consult with the Buyer during the physical inventory. The amount of any
indemnification payment required under this Section shall equal (I) the
lesser of (x) the repair cost and (y) the replacement cost for each item of
Equipment that is not Rental Ready and (II) the fair market value (as
determined by the Buyer and the Sellers' Representative) for each item of
Equipment that is missing; provided, that the Buyer shall be entitled to
-------indemnification pursuant to this Section 6.14 only when and if the
aggregate fair market value (determined as aforesaid) of all such missing
Equipment plus the repair/replacement costs of all such non Rental Ready
Equipment, exceeds $100,000, and then only to the extent of such excess,
and any indemnification obligation shall be subject to Sections 12.1(c)
(other than Section 12.1(c)(i)), 12.4 and 14.2. The amount of any such
indemnification shall be paid to the Buyer out of the Escrow Amount, and
the Buyer and the Sellers' Representative shall give instructions to the
Escrow Agent to pay, an amount equal to such adjustment within five
Business Days of completion of the determination of the Rental Ready
Adjustment; provided that if such Post Closing Rental Ready Adjustment
-------exceeds the Escrow Amount, the Sellers shall pay to the Buyer on such date
the excess of the Post Closing Rental Ready Adjustment over the Escrow
Amount. For purposes of this Agreement, an item of Equipment is "Rental
Ready" if (i) no maintenance or repairs (other than routine maintenance)
costing more than the greater of (x) $750 per item and (y) 3.5% of the
original cost of such item of Equipment, are required with respect to such
item to bring such item into condition for rental. The repair cost with
respect to any item of Equipment shall be determined based upon the cost of
a similar repair most recently performed by the Company or any Subsidiary
of the Company to the same or similar item of Equipment. The parties agree
that the items of Equipment listed in Schedule 6.14(b) shall not give rise
---------------to a Rental Ready Adjustment. Any disputes as to the physical count, fair
market value or whether any item of Equipment is Rental Ready
45
will, if possible, be resolved while the physical inventory of such
Equipment is being taken. Any disputes not so resolved within 15 days shall
be resolved by an independent third party mutually acceptable to Buyer and
the Sellers' Representative or, if Buyer and the Sellers' Representative
cannot agree on the designation of such independent third party within five
Business Days, by the CPA Firm, whose determination shall be final, binding
and conclusive on the parties hereto. Unless otherwise agreed to by the
Buyer and the Sellers' Representative in writing, operating leases entered
into by the Company or any of its Subsidiaries shall not cause an
adjustment to the Purchase Price pursuant to an Rental Ready Adjustment.
6.15 No Solicitation. The Sellers will not, and will not cause
--------------or permit the Company or any of its directors, officers, employees,
representatives or agents (collectively, "Agents") to, directly or
-----indirectly, (i) discuss, negotiate, undertake, authorize, recommend,
propose or enter into, any transaction involving a merger, consolidation,
business combination, purchase or disposition of any capital stock or other
equity interest in, or any material amount of the assets of, the Company,
other than the transactions contemplated by this Agreement (an "Acquisition
----------Transaction"), (ii) facilitate, encourage, solicit, participate in or
----------initiate discussions, negotiations or submissions of proposals or offers in
respect of an Acquisition Transaction, (iii) furnish or cause to be
furnished, to any Person, any information concerning the business,
operations, properties or assets of the Company in connection with an
Acquisition Transaction, or (iv) otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by
any other Person to do or seek any of the foregoing. The Sellers will
inform the Buyer in writing immediately following the receipt any Seller,
the Company or any Agent of any proposal or inquiry in respect of any
Acquisition Transaction.
6.16 Publicity. None of the Buyer, the Sellers, the Company or
--------the Agents shall issue any press release or public announcement concerning
this Agreement or the transactions contemplated hereby without obtaining
the prior written approval of
46
the other parties hereto, which approval will not be unreasonably withheld
or delayed; provided, however, that the Buyer may make such disclosure as
-------- ------the Buyer deems is required by Applicable Law or by the applicable rules of
any stock exchange on which any securities of the Buyer are listed. The
Sellers acknowledge and agree that the Buyer may disclose information
concerning this Agreement to the extent required by law in any filing with
the Securities and Exchange Commission or in any offering memorandum
relating to a financing of the Buyer; provided that the Buyer shall give
-------the Sellers' Representative an opportunity to review such disclosure (and
an opportunity to comment thereon) to the extent reasonably possible.
7. Tax and Related Matters.
----------------------7.1 Taxes; Section 338(h)(10) Election.
---------------------------------(a) (i) At the election of the Buyer, the Buyer and the
Sellers shall file an election under Section 338(h)(10) of the Code and
under any comparable provisions of state, local, or foreign law with
respect to the purchase of the Shares (the "Election"). No later than
-------60 days after the Closing Date the Buyer shall notify the Sellers
whether the Buyer will make the Election. If the Election is made, the
Election Tax Cost (as determined hereunder) shall be paid as additional
Purchase Price by the Buyer to the Sellers and the Buyer and Sellers
shall report, in connection with the determination of Taxes, the
transactions contemplated by this Agreement in a manner consistent with
the Election, the computation of the Election Tax Cost, the Modified
Aggregate Deemed Sales Price (as defined below) and the Deemed Sales
Price Allocation (as defined below). The Sellers and the Buyer shall
take no action which is inconsistent with the Election or its validity
under the Code and the applicable Treasury Regulations.
(ii) On the Closing Date, the Sellers shall execute and
deliver to Buyer five copies of Internal Revenue Service Form 8023
provided
47
by the Buyer and any similar forms under applicable state, local and
foreign law (the "Election Forms").
(iii) As soon as practicable after the Closing Date, but in
no event later than 60 days after the Closing Date, the Buyer shall
deliver to the Sellers a written notice of its intention to file the
Election, together with the Buyer's calculation of (A) the Modified
Aggregate Deemed Sales Price, (B) the allocation thereof among the
assets of the Company in accordance with the principles of Treasury
Regulations (S) 1.338(h)(10)-1(f)(1)(ii) (the "Deemed Sales Price
Allocation") and (C) the Election Tax Cost. The term "Modified
Aggregate Deemed Sales Price" shall mean an amount resulting from the
Election, determined pursuant to Treasury Regulation (S) 1.338(h)(10)1(f) without regard to items described in Treasury Regulation (S)
1.338(h)(10)-1(f)(4) (provided that the Sellers may take such items into
account in filing Tax Returns.) The term "Election Tax Cost" shall
mean, with respect to each Seller, (A) the excess, if any, of (x) the
net ordinary income and capital gain recognized by such Seller as a
consequence of the Election multiplied by a tax rate of 44% for ordinary
income and 24% for capital gain, as the case may be, over (y) the net
long-term capital gain that would have been recognized by such Seller on
the sale of his Shares if the Election had not been made multiplied by
24%, divided by (B) the excess of 100 percent over the applicable
percentage described in clause (x).
(iv) The Buyer shall be responsible for the preparation and
filing of all forms and documents required in connection with the
Election. The Buyer shall provide the Sellers with copies of (A) any
necessary corrections, amendments, or supplements to Form 8023, (B) all
attachments required to be filed therewith pursuant to applicable
Treasury Regulations, and (C) any comparable forms and attachments with
respect to any applicable state, foreign, or local elections included as
part of the Election. The Sellers shall execute and
48
deliver to the Buyer within five (5) days of receipt by the Sellers such
documents or forms as are required properly to complete the Election.
(v) The Sellers and the Buyer shall cooperate fully with each
other and make available to each other such Tax data and other
information as may be reasonably required by the Sellers or the Buyer in
order for the Buyer to (A) timely file the Election and any other
required statements or schedules (or any amendments or supplements
thereto), (B) compute the Modified Aggregate Deemed Sale Price and the
Deemed Sale Price Allocation and (C) compute the Election Tax Cost.
(b) Payment Mechanism. If the Buyer makes the Election
----------------pursuant to Section 7.1(a), the Buyer shall pay to the Sellers the
amount of the Election Tax Cost by March 15, 1999. The Buyer's
determination of the Election Tax Cost shall be final and binding upon
the parties to this Agreement unless within thirty (30) days after
receipt by the Sellers of the Buyer's computation of the Election Tax
Cost the Sellers shall have delivered to the Buyer a notice (an "ETC
--Disagreement Notice") setting forth specific objections to the amount or
------------------calculations of the Election Tax Cost. If any ETC Disagreement Notice
is delivered by the Sellers to the Buyer in a timely manner indicating
objections to the amount of the Election Tax Cost, then during a period
of ten (10) Business Days following delivery by the Sellers of such ETC
Disagreement Notice, the Buyer and the Sellers shall attempt to resolve,
in writing, any differences they have with respect to any matter
specified in the ETC Disagreement Notice and to agree on the amounts of
the calculations made in determining the Election Tax Cost. If at the
end of such 10-Business Day period, the Buyer and the Sellers have
failed to reach written agreement with respect to any of such matters,
then either of the Buyer or the Sellers may submit a demand for
resolution as to matters as to which they have failed to reach written
agreement to the CPA Firm (in such capacity, the "ETC Accountant"). The
-------------ETC Accountant shall on or prior to the date that is thirty
49
(30) days after any information reasonably requested by the ETC
Accountant to be provided shall have been received by the ETC
Accountant, deliver to the Buyer and the Sellers, a statement stating
that the calculations made in determining the Election Tax Cost are
correct or setting forth its resolution of any specific items of
disagreement and a calculation of any unpaid Election Tax Cost based
upon such resolution. The Buyer shall pay any such unpaid Election Tax
Cost to the affected Sellers within five (5) Business Days after receipt
of the ETC Accountant's statement. All fees and expenses payable to the
ETC Accountant incurred in connection with such disagreement shall be
borne 50% by the Buyer and 50% by the Sellers and all other expenses
incurred in connection therewith shall be borne by the party incurring
such expenses.
7.2 Tax Administration.
-----------------(a) (i) The Sellers shall prepare or cause to be prepared and
shall timely file or cause to be timely filed all Tax Returns required
to be filed by or on behalf of the Company and any of its Subsidiaries
any of their respective operations and assets on or before the Closing
Date (taking into account applicable extensions of time) and shall cause
to be paid any Taxes shown to be due thereon. Such Tax Returns shall be
prepared in a manner consistent with prior practice and in accordance
with applicable law. The Sellers shall also prepare or cause to be
prepared for the Company, in a manner consistent with prior practice and
in accordance with applicable law all Tax Returns required to be filed
or with respect to the Company which relate to taxable periods (or
portions thereof) ending on or prior to the Closing Date ("Pre-Closing
----------Date Tax Returns") and shall remit or cause to be remitted to the Buyer
---------------any and all Taxes due, to the extent such Taxes have not been provided
for in the Closing Balance Sheet Tax Reserve, with respect to such PreClosing Date Tax Returns. The Sellers shall deliver or cause to be
delivered all such Pre-Closing Date Tax Returns to the Buyer not less
than 20 Business Days prior to the due date therefor. The Buyer shall
review and
50
comment upon such Tax Returns, and upon the Buyer's approval thereof,
the Buyer shall cause the Company to file such Pre-Closing Date Tax
Returns. Expenses relating to the preparation of the Tax Returns
described in the preceding sentences shall be borne 50% by the Buyer and
50% by the Sellers; provided, however, that the amount of expense
-------- ------incurred by the Buyer in connection with the preparation of such Tax
Returns for the Company, MI and Grey Fox shall not exceed, in the
aggregate, $10,000. Except as otherwise provided herein, the Buyer shall
be responsible for preparing and filing or causing to be prepared and
filed all Tax Returns required to be filed by or on behalf of the
Company and any of its operations and/or assets after the Closing Date
(taking into account applicable extensions of time) and shall, subject
to this Section 7.2(a)(i) and Section 7.2(a)(ii) hereof, pay or cause to
be paid any Taxes shown to be due thereon.
(ii) With respect to any Tax Return required to be filed by
the Buyer for a taxable period of the Company or any of its Subsidiaries
beginning on or before and ending on or after the Closing Date, the
Buyer shall provide the Sellers with a statement setting forth the
amount of Tax shown on such Tax Return for which the Sellers are
responsible pursuant to Section 7.2(b)(i) hereof or that are allocable
to the Sellers pursuant to Section 7.2(b)(iii) hereof (as the case may
be) (the "Statement") at least thirty (30) Business Days prior to the
--------due date for filing of such Tax Return (including extensions). Not
later than 5 business days before the due date (including extensions)
for payment of Taxes with respect to such a Tax Return the Sellers shall
pay to Buyer an equal amount to the Taxes shown on the Statement as
being the responsibility of the Sellers pursuant to Section 7.2(b)(i)
hereof or allocable to the Sellers pursuant to Section 7.2(b)(iii)
hereof (as the case may be). No payment pursuant to this Section
7.2(a)(ii) shall excuse the Sellers from their indemnification
obligations pursuant to Section 7.2(b) hereof should the amount of Taxes
as ultimately determined (on audit or otherwise),
51
for the periods covered by such Tax Returns and which are the
responsibility of Sellers, exceed the amount of the Sellers' payment
under this Section 7.2(a)(ii).
(iii) The Sellers may not file any amended Tax Returns or
refund claims in respect of any taxable period of the Company or any of
its Subsidiaries ending on or prior to the Closing Date without the
prior written consent of the Buyer which shall not be unreasonably
withheld.
(iv) The parties shall cooperate fully with and make
available to one another in a timely fashion such Tax data and other
information as may be reasonably required for the preparation by the
Buyer or the Sellers, as applicable, of any Tax Returns required to be
prepared and filed hereunder. The Sellers and the Buyer shall make
available to the other, as reasonably requested, all information,
records or documents in their possession relating to Tax liabilities of
the Company or any of its Subsidiaries for all taxable periods of the
Company or any of its Subsidiaries, as the case may be, ending on, prior
to or including the Closing Date and shall preserve all such
information, records and documents until the expiration of any
applicable Tax statute of limitations or extensions thereof; provided,
-------however, that if a proceeding has been instituted for which the
------information, records or documents is required prior to the expiration of
the applicable statute of limitations, such information, records or
documents shall be retained until there is a final determination with
respect to such proceeding.
(b) (i) The Sellers will, jointly and severally, be liable
for, and will hold the Buyer and the Company and their respective
directors, officers, affiliates, successors and permitted assigns (each
a "Buyer Indemnified Person") harmless from and against any and all
-----------------------Losses resulting from, arising out of or based upon (A) any and all
Taxes for which the Company or any of its Subsidiaries may be liable for
all taxable periods ending on or before the Closing Date (the "Pre--Closing Period") and to the extent provided in clause (iii) below,
---------------
52
all taxable periods that include, and end after the Closing Date in each
case to the extent that such Taxes exceed, in the aggregate, the Closing
Balance Sheet Tax Reserve and (B) any inaccuracy in or breach of any
representation or warranty set forth in Section 4.7 of this Agreement;
provided, however, that if an audit adjustment for a Pre-Closing Period
-------- ------(x) gives rise to an indemnity obligation under this Section 7.3(b)(i)
and (y) is reasonably expected to reduce the taxable income of the
Company or any of its Subsidiaries for a taxable year or period
beginning after the Closing Date (such estimated reduction in taxable
income is referred to herein as a "Post-Closing Tax Benefit"), then
-----------------------the amount required to be indemnified by the Sellers pursuant to this
Section 7.3(b)(i) shall be reduced by the "net present value" of such
Post-Closing Tax Benefit. The "net present value" of a Post-Closing Tax
Benefit shall be determined by using a discount rate equal to 6%. For
purposes of making this determination, the parties shall assume that a
Post-Closing Tax Benefit shall be realized by the Company or relevant
Subsidiary at the time the relevant Tax Return is required to be filed
for the taxable year or period in which such Post-Closing Tax Benefit is
reasonably expected to be available and that the Company or relevant
Subsidiary is subject to Federal income tax, and any applicable state
and local taxes, at the maximum rates provided by law for such taxable
year or period.
(ii) The Buyer will indemnify and hold harmless the Sellers,
any trustee of any Seller in his or her individual capacity as trustee
and any beneficiary or trustee of any Seller in his or her capacity and
their respective successors from and against any and all Losses
resulting from, arising out of or based upon all Taxes for which the
Company may be liable for all taxable periods or portions thereof
beginning after the Closing Date.
(iii) For purposes of the foregoing, if a taxable period
begins before and ends after the Closing Date (the "Interim Period"),
-------------Taxes for the portion of such taxable period ending on the Closing Date
will be
53
determined by an interim closing the books of the Company or its
relevant Subsidiary and determining the amount of relevant Taxes that
would have been due had such taxable period ended on the Closing Date,
without regard to any events occurring after the Closing Date. Any Taxes
for such taxable period in excess of the foregoing amount will be deemed
to be attributable to the portion of such taxable period occurring after
the Closing Date. To the extent any Taxes are not susceptible to such
allocation, such Taxes shall be allocated by apportionment on the basis
of elapsed days.
7.3 Contests.
-------(a) After the Closing Date, the Buyer shall promptly notify
the Sellers in writing of any written notice of a proposed assessment or
claim in an audit or administrative or judicial proceeding involving the
Company or any of its Subsidiaries which, if determined adversely to the
Company or relevant Subsidiary, would be grounds for indemnification
under this Article 7; provided, however, that a failure to give such
-------- ------notice will not affect a Buyer Indemnified Person's right to
indemnification hereunder except to the extent, if any, that, but for
such failure, the Sellers could have avoided the Tax liability in
question.
(b) Except as provided in Section 7.3(c) below, in the case of
an audit or administrative or judicial proceeding that relates to any
Pre-Closing Period, the Sellers shall have the right at their own
expense to control the conduct of such audit or proceeding; provided
-------that within 30 days after the Sellers have received the written notice
from the Buyer that is required under Section 7.3(a) above, and prior to
taking any action with respect to such audit or administrative or
judicial proceeding, the Sellers acknowledge in writing their joint
liability under Section 7.3(b)(i) of this Agreement to hold any Buyer
Indemnified Person harmless against the full amount of any adjustment
which may be made as a result of such audit or proceeding that relates
to the Pre-Closing Period (to the extent
54
such amount exceeds the Closing Balance Sheet Tax Reserve after giving
effect to all prior and concurrent payments made pursuant to Section
7.3(b)(i) of this Agreement to any Buyer Indemnified Person); provided,
-------further, that the Sellers may not agree to a settlement or compromise
------to any such audit or proceeding that may reasonably be expected to have
an adverse effect on the tax liability of the Company for a taxable
period after the Closing Date without the prior written consent of the
Buyer; provided, further, that if the Buyer does not consent to such
-------- ------settlement or compromise, the Sellers' liability to indemnify the Buyer
as a result of such audit or proceeding shall be limited to the amount
that the Sellers would have paid had the Buyer consented to such
settlement or compromise. The Buyer also may participate in any such
audit or proceeding at its own expense and, if the Sellers do not assume
the defense of any such audit or proceeding, the Buyer may defend the
same at its own expense in such manner as it may deem appropriate,
including, but not limited to, settling such audit or proceeding,
without any effect to any Buyer Indemnified Person's right to
indemnification under this Article 7.
(c) Notwithstanding subsection (a) above, any contest and/or
settlement of any issue raised in an official inquiry, examination or
proceeding that relates to the validity or effect of the Election will
be conducted by the Buyer and the Company.
(d) In the case of an audit or administrative or judicial
proceeding that relates to the Interim Period, the Buyer shall have the
right at its own expense to control the conduct of such audit or
proceeding; provided that the Buyer may not agree to a settlement or
-------compromise in any such audit or proceeding without the prior written
consent of the Seller's Representative (as defined in Section 12.5
below), which consent shall not be unreasonably withheld. The Sellers
also may participate in any such audit or proceeding at their own
expense and, if the Buyer does not assume the defense of any such audit
or proceeding, the Sellers may defend the same at its own expense in
such manner as it may deem
55
appropriate, including, but not limited to, settling such audit or
proceeding, without any effect to the Sellers' right to indemnification
under this Article 7.
8. Environmental Matters.
--------------------8.1 The Phase I Investigations.
-------------------------(a) Within ten days of the execution of this Agreement, the
Buyer shall retain, at its sole expense, an environmental consulting
firm reasonably acceptable to the Sellers (the "Phase I Consultant") to
-----------------perform an environmental assessment for the Properties in accordance
with ASTM Phase I Standard E 1527 and other sound practices and
procedures normally employed in the Phase I process (the "Phase I
------Assessments"). The Phase I Assessments shall be completed as soon as is
----------reasonably practicable. The Phase I Consultant shall report its
findings simultaneously to the Buyer and the Sellers both orally and in
writing.
(b) With respect to the leased Properties, the Phase I
Assessment shall provide the Phase I Consultant's estimate of the range
of costs, from the reasonable best to reasonable worst case, to
remediate known or reasonably suspected Releases of Hazardous Materials,
on the leased Properties for which the Company is obligated under
Environmental Laws to perform Remedial Action, or for which the Company
would be obligated to perform Remedial Action if the relevant
Governmental Authorities were aware of the Release. The Phase I
Consultant shall also provide estimates for expenditures necessary to
correct violations of Environmental Laws on the leased Properties. The
Phase I Consultant shall assume the use of the most cost-effective,
reasonable and timely Remedial Action and shall consider the Company's
status as a lessee in evaluating the Company's potential obligations
under Environmental Laws.
(c) With respect to the Owned Real Properties for which
sufficient sampling data exists to enable the Phase I Consultant to
provide a reasonable range of estimates, the Phase I Assessment shall
provide the Phase I
56
Consultant's estimate of the range of cost, from the reasonable best to
reasonable worst case, to remediate known or reasonably suspected
Releases of Hazardous Materials for which there is an obligation under
Environmental Laws on the part of the Company or any Subsidiary of the
Company to perform Remedial Action, or for which there would be such an
obligation, if relevant Governmental Entities had notice of the Release.
The Phase I Consultant shall also provide estimates for the expenditures
necessary to correct violations of Environmental Laws on the Owned
Properties. In making its estimates, the Phase I Consultant shall assume
the use of the most cost-effective, reasonable and timely Remedial
Action. With respect to known or reasonably suspected Releases of
Hazardous Materials at the Owned Real Properties where there is not
sufficient information to enable the Phase I Consultant to estimate
reasonably the ranges of costs of the most cost-effective, timely and
reasonable Remedial Action, the Phase I Assessment shall recommend
appropriate media sampling.
8.2 The Phase II Investigations. In the event that the Phase I
--------------------------Report concludes that media sampling is necessary at one or more of the
Owned Real Properties, the Buyer shall retain at its sole expense an
environmental consulting firm reasonably acceptable to the Sellers (the
"Phase II Consultant") to perform the necessary Phase II assessments (the
-------------------"Phase II Assessment") using subcontractors of its choice. For properties
-------------------subject to the Phase II process, the Phase II Consultant shall be required
to provide simultaneously to the Buyer and the Sellers a report identifying
each identified Release of Hazardous Materials, or violation of
Environmental Laws, not addressed in the Phase I Assessments for which
there is an obligation under Environmental Law on the part of the Company
or any Subsidiary of the Company to undertake Remedial Action (which could
include further investigation), or for which there would be such an
obligation if the relevant Governmental Entities had notice of the Release
or violation, and estimating the range of costs from the reasonable best to
reasonable worst case, of the actions reasonably necessary to perform such
Remedial
57
Action. The Phase I Assessments prepared pursuant to paragraph 8.1 and the
Phase II Assessments are hereinafter referred to collectively as the
"Assessments."
8.3 Certain Procedures Relating to the Consultant's Estimates.
--------------------------------------------------------(a) The Phase I and II Consultants' estimates shall be based
upon the assumption that the Buyer covenants (which the Buyer hereby
does) to undertake, or cause the Company to undertake, all reasonable
actions necessary to insure that the remediation of any area, or the
correction of any violation of Environmental Law, is accomplished in the
most cost-effective, timely, reasonable manner consistent with the
present uses of the Properties, and that the least onerous soil and
groundwater cleanup criteria available under applicable Environmental
Laws are used in any such remediation. To the extent reasonably
necessary to achieve no further action status, such actions by the Buyer
and the Company shall include, but not be limited to, the execution of
consents by the Buyer and the Company to restrict the future use of the
Properties to commercial/industrial uses such as those in existence as
of the Closing Date.
(b) For each area or violation, the Consultants' estimates may
be made in ranges in which event the seventy-fifth percent of the range
shall be deemed to be the estimate for the purposes of this Agreement
which shall be calculated by multiplying the difference between the high
and the low end by .75 and adding the product of that multiplication to
the low end.
(c) In making its estimates, the Consultants shall assume that
the Company has responsibility for all investigative and remedial
obligations that must be performed under Environmental Laws (if any) as
a result of the transactions contemplated by this Agreement.
8.4 Review of the Estimated Costs of Remediation. In the event
-------------------------------------------that either the Buyer or the Sellers disagree with the Phase I or Phase II
Consultants' estimate of the cost of necessary compliance action or
Remedial Action, then either (or
58
both) may submit such disagreement to an independent environmental
consultant mutually acceptable to the Buyer and the Sellers' Representative
(the "Independent Consultant") for a final and binding determination. If
---------------------the Buyer and the Sellers' Representative cannot agree on the independent
engineer, he or she shall be appointed by the President of the National
Society of Professional Engineers. Proceedings before the Independent
Consultant shall be restricted to the submission to him or her of the Phase
I Assessment and Phase II Assessment, and a statement of position with one
supporting affidavit by each party. Each statement of position shall set
forth the parties' estimate of the costs of the remediation or capital
improvements reasonably necessary to achieve compliance with Environmental
Laws for each area at which Releases of Hazardous Materials have been
documented in the Phase I Assessments and/or Phase II Assessments based
upon the standards set forth in this Section 8. The statements of position
of each of the Buyer and the Sellers shall be submitted to the Independent
Consultant within 10 days of his or her appointment. The Independent
Consultant shall, within 14 days of receipt of such statements, issue a
report accepting the estimate of one or the other party for each area in
dispute (the "Independent Consultant's Report"). The Independent
------------------------------Consultant may employ counsel to assist it in the review process. Costs of
the Independent Consultant and its counsel shall be borne 50 percent by the
Buyer and 50 percent by the Sellers.
8.5 The Sellers' Indemnification of Buyer. Subject to Sections
------------------------------------12.1(c), 12.4 and 14.2, Sellers will defend, indemnify and hold harmless
the Buyer Indemnitees (as defined in Section 12.1) from all Pre-Closing
Environmental Losses. For the purposes of this Agreement, "Pre-Closing
----------Environmental Losses" means (1) all costs and expenses necessary to
-------------------implement Remedial Action on the Owned Real Properties for which a
determination has been made in the Phase I Assessment or Phase II
Assessment that (i) Remedial Action by the Company or any Subsidiaries of
the Company is necessary to discharge obligations under (or to cure
violations of) Environmental Laws, including obligations to remediate
Hazardous Materials in soil or
59
ground water to the extent applicable Environmental Laws require such
remediation or (ii) such Remedial Action would be necessary if applicable
Governmental Authorities had been notified of conditions on the Owned Real
Properties; provided that costs and expenses shall be subject to
-------indemnification under this clause (ii) only if incurred in connection with
a suit (whether brought by a Person or Governmental Entity), or an order,
investigation or directive of a Governmental Entity commenced prior to the
third anniversary of the Closing Date; and (2) Losses arising out of or
relating to any breach of the representations in Section 4.21 hereof;
provided that in each of subsections (1) and (2) above the aggregate
-------Losses that the Sellers shall be obligated to pay under this Agreement with
respect to Remedial Action in connection with Owned Real Property shall not
exceed the aggregate estimated remediation costs at the Owned Real
Properties set forth in the Phase I Assessments and the Phase II
Assessments, in each case as modified by the Independent Consultant's
Report and reduced by any amounts the Buyer or the Company pays to perform
Remedial Action at such properties which would be subject to
indemnification under Article 8.5 but for the existence of the Minimum
Amount as established in Section 12.1(c)(i).
8.6 Buyer's Indemnification of the Sellers. Except with respect
-------------------------------------to Losses for which the Buyer is entitled to indemnification under Section
8.5, the Buyer agrees to defend, indemnify and save harmless Seller
Indemnitees (as defined in Section 12.2) from and against any Losses under
or relating to Environmental Laws incurred by the Seller Indemnitees
resulting from, arising out of, relating to, the operation of the Business
or condition of the Properties, whether before or after the Closing Date;
provided, the Buyer shall not be obligated to indemnify Seller Indemnitees
-------for Losses resulting from, arising out of, or related to the operation of
the Business or condition of the Properties before the Closing Date to the
extent such Losses were caused by the Seller Indemnitees' willful
misconduct, violation of standards under Environmental Laws, or to the
extent such Losses arose out of a condition on the Properties of which the
Seller Indemnitees had knowledge prior to the
60
Closing Date, but concerning which the Sellers failed to make a disclosure
to the Buyer or the Phase I Consultant prior to such time.
8.7 Exclusive Remedy. Except with respect to claims for fraud,
---------------the environmental indemnities in this Article shall be the sole and
exclusive remedy of the parties with respect to Losses under or relating to
Environmental Laws arising out of the operation of the Business or the
condition of the Properties prior to the Closing Date. The Buyer and the
Sellers specifically agree that, except to the extent that this Agreement
is held to be invalid or is unenforceable, they will not now or in the
future pursue any claims against one another, including, but not limited
to, claims pursuant to CERCLA or any analogous state law, with respect to
environmental matters arising out of the operation of the Business prior to
the Closing Date or conditions on, in, under or about the Properties as of
the Closing Date except as provided in this Agreement.
8.8 Limitation of Sellers' Duty to Indemnify. Notwith standing
---------------------------------------anything herein to the contrary, the Sellers' obligation to indemnify the
Buyer Indemnitees pursuant to this Article 8 is limited to matters for
which an "Environmental Claim Notice" (as defined below) has been received
-------------------------by the Sellers (a) within 180 days after the Closing Date with respect to
the matters referred to in clause (1)(i) of the definition of Pre-Closing
Environmental Losses or (b) on or prior to the third anniversary of the
Closing Date with respect to matters referred to in clauses 1(ii) and (2)
of the definition of Pre-Closing Environmental Losses.
8.9 Expenses in the Ordinary Course Excluded from
--------------------------------------------Indemnification. Environmental Liabilities indemnifiable pursuant to this
--------------Article 8 shall not include costs or expenses of nonremedial or
noncorrective activities undertaken in the ordinary course of business by
the Company or any of its Subsidiaries after the Closing Date, including,
without limitation, costs or expenses relating to the routine disposal of
Hazardous Substances lawfully accumulated, sampling undertaken pursuant to
a Permit,
61
or routine maintenance of environmental control facilities unless
undertaken to cure Pre-Closing violations of Environmental Laws.
8.10 Control of Remedial Action.
-------------------------(a) In the event that the transactions contemplated by this
Agreement trigger any investigative or remedial obligations under
Environmental Laws with respect to the Properties, including any
responsibility under the Connecticut Real Property Transfer Act and the
New Jersey Industrial Site Recovery Act, the Company shall have
responsibility for the discharge of such obligations; provided that
-------Losses incurred by the Company to discharge any such obligation shall be
subject to the indemnification by the Sellers to the extent provided in
this Article 8.
(b) Until exhaustion of the Minimum Amount established by
Section 12.1(c)(i), the Company shall have the exclusive right to manage
and control all Remedial Actions for which the Buyer would be entitled
to indemnification (but for the Section 12.1(c) basket), and to
negotiate with and fulfill any requirements of or claims by a
Governmental Entity or other Person with respect to any such matter;
provided that the Buyer shall keep the Sellers' Representative informed
-------of all material developments, and provided further the Sellers'
Representative (or its designee) shall have the right to attend and
observe negotiations/ meetings with relevant Governmental Entities.
(c) The Sellers shall have the exclusive right to manage and
control all Remedial Actions for which the Buyer is fully indemnified
hereunder and to negotiate with any fulfill any requirements of or
claims by a Governmental Entity or other Person with respect to any such
matter; provided that such remediation (and any settlement, agreement
-------or ongoing obligations imposed in connection therewith) shall not
unreasonably interfere with the Buyer's or the Company's use of the
Properties, and provided further, that the Buyer shall have
-------- -------
62
the right to attend and observe negotiations/meetings with relevant
Governmental Entities and participate in any negotiations with respect
to operational or use restrictions; provided further, that the Buyer
-------- ------shall have the right to take control of any Remedial Actions if (i) the
Sellers fail to diligently conduct the Remedial Action in light of an
order or directive of a Governmental Entity and Sellers fail to
implement the same within 30 days of receipt of notice from the Buyer or
the Company or (ii) the Buyer reasonably determines that the Sellers are
failing to adequately protect the environment, human health or safety,
including the health and safety of the Company's employees.
8.11 Environmental Indemnification Procedure. In order to seek
--------------------------------------indemnification under this Article 8, the party seeking indemnification
(the "Indemnified Party") must submit to the party from which
----------------indemnification is being sought (the "Indemnifying Party") (1) within 60
-----------------days of the discovery by the Company or a Subsidiary of the Company of a
matter which is likely to give rise to indemnifiable Losses relating to
environmental matters, and (2) within 30 days of receipt of a directive
from a Governmental Entity or notice of claim by a third party, a written
notice of the claim for indemnification (an "Environmental Claim Notice")
-------------------------which shall include a copy of the such directive or notice of a third-party
claim, if any; provided, however, failure to promptly submit an
-------- ------Environmental Claim Notice shall not result in a loss of the right to
indemnification pursuant to this Article except to the extent that it
results in actual prejudice to the Indemnifying Party.
8.12 Access to Information. The Indemnified Party shall provide
--------------------to the Indemnifying Party reasonable access to all information (including
documentary records, physical conditions and personnel at any property that
is the subject of the claim for indemnification) necessary to evaluate the
claim for indemnification contained in an Environmental Claim Notice.
63
8.13 Matters Involving Third Parties. If any Governmental
------------------------------Entity or other third party shall notify an Indemnified Party with respect
to any matter which may give rise to a claim for indemnification against
any Indemnifying Party under this Agreement, then the Indemnified Party
shall notify the Indemnifying Party thereof promptly; provided, however,
-------- ------that no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any liability
or obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is actually prejudiced. In the event any
Indemnifying Party notifies the Indemnified Party within 15 days after the
Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, (i) the Indemnifying Party will
defend the Indemnified Party against the matter with counsel of its choice
reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may retain separate co-counsel at its sole cost and expense (except
that the Indemnifying Party will be responsible for the fees and expenses
of the separate co-counsel if the Indemnified Party concludes reasonably
that the counsel the Indemnifying Party has selected has a conflict of
interest with the Indemnified Party), (iii) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (iv) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter
into any settlement which does not include a provision whereby the
plaintiff or claimant in the matter releases the Indemnified Party from all
Loss with respect thereto, without the written consent of the Indemnified
Party (not to be withheld unreasonably). In the event the Indemnifying
Party does not notify the Indemnified Party within 15 days after the
Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, or does not timely thereafter assume
such defense, the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner consistent with the
terms of this Section at the expense of the Indemnifying Party.
64
9. Conditions Precedent to the Obligation of the Buyer to Close. The
-----------------------------------------------------------obligation of the Buyer to complete the Closing is subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more
of which may be waived by the Buyer to the extent permitted by Applicable Law:
9.1 Representations and Covenants. All representations and
----------------------------warranties of the Sellers contained herein that are qualified as to
materiality shall be true and correct, and the representations and
warranties of the Sellers contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the
Closing Date with the same effect as though those representations and
warranties had been made again at and as of the Closing Date, except for
those specifically relating to a date other than the Closing Date, in which
case at and as of such date. The Sellers shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by the Sellers on or prior to
the Closing Date. The Sellers shall have delivered to the Buyer a
certificate, dated the Closing Date and signed by or on behalf of each of
the Sellers, to the foregoing effect.
9.2 HSR Act Filing. Any Person required in connection with the
-------------transactions contemplated by this Agreement to file a notification and
report form in compliance with the HSR Act shall have filed such form and
the applicable waiting period with respect to each such form (including any
extension thereof by reason of a request for additional information) shall
have expired or been terminated.
9.3 No Injunction or Violation of Law. No order, statute, rule,
--------------------------------regulation, executive order, stay, decree, judgment or injunction shall
have been enacted, entered, promulgated or enforced by any court or
Governmental Entity which prohibits or prevents the consummation of the
transactions contemplated by this Agreement and which has not been stayed
or vacated by the Closing Date. The Buyer and each of the Sellers shall
each use their reasonable best efforts and shall cooperate
65
with each other to have any such order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction vacated or stayed.
9.4 Title Policies. The Sellers shall have delivered or caused
-------------to be delivered, prior to or on the Closing Date, title insurance policies
relating to each Owned Real Property set forth on Schedule 4.10(a) insuring
---------------such Owned Real property in the amount set forth in Schedule 9.4 with
respect to such property.
9.5 Simultaneous Closing. The transactions contemplated by (i)
-------------------that certain Share Purchase Agreement (the "MI Agreement") dated of even
-----------date herewith, by and among the Buyer and the shareholders of McClinch,
Inc., a Connecticut corporation ("MI") and (ii) that certain Share Purchase
-Agreement ("Grey Fox Agreement") dated of even date herewith, by and among
-----------------the Buyer and the shareholders of Grey Fox Equipment, Inc., a Connecticut
corporation ("Grey Fox"), shall be consummated simultaneously with the
-------transactions contemplated hereby.
9.6 Resignations. The Buyer shall have received the written
-----------resignations of each of the officers and directors of the Company and
releases in the form of Exhibit F from each Seller other than Robert Russo
and Ernest Pierson.
9.7 Reports. The Buyer shall have obtained the Phase I
------Assessment and Phase II Assessment reports as contemplated by Article 8
and, to the extent required by Article 8, the Independent Consultant's
Report.
9.8 Escrow Agreement. The Buyer shall have received a copy of
---------------the Escrow Agreement, executed by the Sellers' Representative and the
Escrow Agent.
9.9 Legal Opinions. The Buyer shall have received the opinions
-------------of Paul, Weiss, Rifkind, Wharton & Garrison and Brody & Ober, P.C., counsel
to the Sellers, addressed to the Buyer, in form and substance reasonably
acceptable to Buyer.
9.10 Affidavits. Each of the Sellers shall have provided Buyer
---------with an affidavit of non-foreign status that complies with Section 1445 of
the Code.
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9.11 Affiliate Contracts. Buyer shall have received evidence
------------------satisfactory to it that all Contracts between the Company or any Subsidiary
and any of its Affiliates (other than MI and Grey Fox) shall have been
fully discharged and terminated as of the Closing Date without any further
liability (contingent or otherwise) of the Company thereunder.
9.12 Certificates. Buyer shall have received certificates of
-----------good standing with respect to the Company and each of its Subsidiaries
issued by the Secretary of State or comparable official of their respective
jurisdiction of organization and for each jurisdiction in which they are
qualified to do business as a foreign corporation.
9.13
[Intentionally Omitted].
9.14 Employment/Consulting Agreements. Each of Ernest Pierson
-------------------------------and Robert Russo shall have executed and delivered the Employment
Agreement, and Terrance J. McClinch shall have executed and delivered the
Consulting Agreement in the form of Exhibits C, D and E, respectively,
attached hereto.
9.15 Release of Guarantees. The guarantees by the Company and
--------------------its Subsidiaries of (i) the synthetic aircraft lease between Fleet Capital
Corporation and McClinch Aviation, Inc., and (ii) the mortgage loan by
Fleet National Bank (formerly Shawmut Bank Connecticut, N.A.) to 185 Thorpe
Street Corporation, shall each be terminated.
9.16 Material Adverse Effect. No event having a Material
----------------------Adverse Effect shall have occurred, other than (i) termination by any
customer or distributor of a contract or relationship with the Company
primarily as a result of the transactions contemplated by this Agreement,
(ii) other adverse events occurring solely as a result of the transactions
contemplated by this Agreement or (iii) the occurrence of a default under,
or termination of any Contracts listed on Schedule 4.6(a) occurring solely
as a result of the transactions contemplated by this Agreement
67
10. Conditions Precedent to the Obligation of the Sellers to Close.
-------------------------------------------------------------The obligation of the Sellers to complete the Closing is subject, to the
fulfillment on or prior to the Closing Date of the following conditions, any
one or more of which may be unanimously waived by the Sellers to the extent
permitted by Applicable Law.
10.1 Representations and Covenants. All representations and
----------------------------warranties of the Buyer contained herein that are qualified as to
materiality shall be true and correct, and the representations and
warranties of the Buyer contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the
Closing Date with the same effect as though those representations and
warranties had been made again at and as of the Closing Date, except for
those specifically relating to a date other than the Closing Date, in which
case at and as of such date. The Buyer shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. The Buyer shall have delivered to the Sellers a certificate, dated
the Closing Date and signed by an authorized officer of the Buyer, to the
foregoing effect.
10.2 HSR Act Filing. Any Person required in connection with the
-------------transactions contemplated by this Agreement to file a notification and
report form in compliance with the HSR Act shall have filed such form and
the applicable waiting period with respect to each such form (including any
extension thereof by reason of a request for additional information) shall
have expired or been terminated.
10.3 No Injunction or Violation of Law. No order, statute, rule,
--------------------------------regulation, executive order, stay, decree, judgment or injunction shall
have been enacted, entered, promulgated or enforced by any court or
Governmental Entity which prohibits or prevents the consummation of the
transactions contemplated by this Agreement and which has not been stayed
or vacated by the Closing Date. The Buyer and each of the Sellers shall
each use their best efforts and shall cooperate with each
68
other to have any such order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction vacated or stayed.
10.4 United Rentals, Inc. Warrants. Terrance J. McClinch,
----------------------------Ernest Pierson and Robert Russo shall each have received a 10 year warrant
(collectively, the "URI Warrants") to purchase $200,000 worth of common
-----------stock of the Buyer ("Buyer Common Stock") substantially in the form
-----------------attached hereto as Exhibit A.
10.5
[Intentionally Omitted].
10.6
[Intentionally Omitted].
10.7 Simultaneous Closing. The transactions contemplated by (i)
-------------------the MI Agreement and (ii) the Grey Fox Agreement shall be consummated
simultaneously with the transactions consummated by this Agreement.
10.8 Reports. The Sellers shall have received copies of the
------Phase I Assessment and Phase II Assessment reports as contemplated by
Article 8 and, to the extent required by Article 8, the Independent
Consultant's Report.
10.9 Escrow Agreement. The Sellers shall have received a copy
---------------of the Escrow Agreement, executed by each of the Buyer and the Escrow
Agent.
10.10 Legal Opinion. The Sellers shall have received the
------------opinion of Weil, Gotshal & Manges LLP, counsel to the Buyer, addressed to
the Sellers in form and substance reasonably acceptable to the Sellers.
10.11 Certificate. Sellers shall have received a certificate of
----------good standing of the Buyer issued by the Secretary of State of the State of
Delaware.
11. Survival of Representations, Warranties and Covenants.
----------------------------------------------------11.1 General Survival. Except as otherwise provided in this
---------------Article 11, all representations, warranties, covenants, agreements and
obligations of each party contained herein, shall expire twenty-four (24)
months after the Closing Date, except for (i) covenants or obligations
(including covenants to indemnify) which by their terms shall be performed
after the Closing which shall survive the Closing and not expire
69
unless otherwise provided in this Agreement, (ii) the representations and
warranties contained in Sections 3.1 and 4.7 shall survive the Closing Date
until the expiration of any applicable statute of limitations, including
extensions thereof, (iii) the representations and warranties contained in
Section 4.21 shall survive the Closing Date and expire thirty-six (36)
months after the Closing Date, and (iv) the representations and warranties
in Section 4.10(a) and the first sentence of Section 4.10(c) shall not
survive the Closing.
12.
12.1
General Indemnification.
Indemnification of the Buyer.
(a) Indemnification with Respect to Representations. Subject
----------------------------------------------to Sections 12.1(c), 12.4 and 14.2, the Sellers hereby agree to, jointly
and severally, indemnify and hold harmless the Buyer, its directors,
officers, employees, agents, Affiliates, successors and assigns, the
Company and its Subsidiaries (the "Buyer Indemnitees") from and against
----------------all losses, liabilities, obligations, damages, costs (including costs of
investigation) and expenses (including reasonable attorneys' and other
professionals' fees and expenses) (collectively, the "Losses") actually
-----incurred as a result of, or attributable to any inaccuracy in, or breach
of, any representation, warranty, covenant or agreement of the Sellers
in this Agreement; provided that this Section 12.1(a) shall not apply to
-------any obligation of the Sellers to indemnify with respect to (i) Taxes,
which shall be governed exclusively by Article 7, (ii) Losses relating
to matters referred in Article 8, which shall be governed exclusively by
such Article and (iii) Losses relating to the noncollection of accounts
receivable which shall be governed exclusively by Section 12.1(b).
(b) Indemnification for Accounts Receivable. From and after
--------------------------------------the Closing Date, the Buyer shall use its commercially reasonable best
efforts to cause the Company and its Subsidiaries to collect payment of
all trade accounts receivable of the Company and its Subsidiaries. In
the event that the Buyer and the
70
Company, after using their commercially reasonable best efforts
consistent with the past practices of the Company and its Subsidiaries
to collect payment in full of any Reimbursable Trade Account Receivable
(as defined below), has not received payment in full (net of bad debt
reserves and credit memo reserves reflected on the Audited Closing
Balance Sheet (as increased or decreased, as the case may be, by the
Resolved Objections and the CPA--Determined Differences)) on or before
the Due Date (as defined below), the Buyer shall notify the Sellers'
Representative of such event (which notice shall set forth the amount of
such Reimbursable Trade Account Receivable, the name of the customer and
the Due Date with respect thereto). Upon receipt of any such notice from
the Buyer, the Sellers' Representative shall review the information set
forth therein. If the Sellers' Representative so requests, the Buyer
shall make available to the Sellers' Representative such additional
information which is in the possession and control of either the Buyer,
the Company or any of their respective Subsidiaries with respect to such
Reimbursable Trade Account Receivable as the Sellers' Representative may
reasonably require. Subject to Sections 12.1(c), 12.4 and 14.2, within
fifteen (15) days of the receipt by the Sellers' Representative of such
notice (or such later date as is reasonably required for the Sellers'
Representative to review any additional information received from the
Buyer at the request of the Sellers' Representative), the Sellers shall
pay to the Buyer, an amount equal to the excess of (A) the amount of
such Reimbursable Trade Account Receivable that remains past due and
unpaid after the Due Date over (B) any amount for which a reserve with
respect to such Reimbursable Trade Account Receivable has been
established on the Audited Closing Balance Sheet (either as a bad debt
reserve or a credit memo reserve); provided that the Sellers shall have
-------no obligation to pay (i) any amount under this Section if the Buyer (x)
fails to keep and maintain the collection operation of the Company and
its Subsidiaries in its present location under the supervision of Ernest
Pierson or, in the case Mr. Pierson is not employed
71
by MI or its subsidiaries and was not terminated without cause (as
determined under Mr. Pierson's Employment Agreement), his replacement,
and (y) reduces the size or the salary level of the staff below the
present level or changes (adversely) the commission basis for salesmen
or (z) reduces the collection expense budget below that which is
consistent with past practice or (ii) to the extent the Buyer takes any
action which would reduce such Reimbursable Trade Account Receivable or
otherwise interfere with its collection in full. From time to time at
the request of the Sellers' Representative, the Buyer shall supply the
Sellers with such information as the Sellers' Representative may
reasonably request concerning the aging of the Reimbursable Trade
Accounts Receivable of the Company and its Subsidiaries and any
conversion of the Company's computer system referred to below. As used
herein, the term "Reimbursable Trade Account Receivable" shall mean
------------------------------------any trade account receivable of the Company (i) reflected in the Audited
Closing Balance Sheet, (ii) for which payment has not been withheld or
disputed as a result of any right of setoff or other claim against the
Buyer, the Company or any Subsidiary of the Company in respect of
transactions arising after the Closing Date and (iii) which does not
reflect any other concession made after the Closing Date by the Buyer,
the Company or any Subsidiary of the Company to the customer in respect
of such trade account receivable. Except as specified in respect of any
payment received, all payments received from a customer shall be applied
first against the oldest receivables with respect to such customer. As
used herein, the term "Due Date" with respect to the Reimbursable Trade
--------Account Receivables shall mean 180 days after the Closing Date;
provided, however that in the event that it is necessary for the Buyer
-------to undertake a conversion of the Company's computer system, the Due Date
shall be extended for the period to be agreed by the Buyer and the
Sellers' Representative; provided that if such Persons fail to agree
-------then the Due Date shall be 240 days after the Closing Date. To the
extent that the Buyer has not collected the full amount of any
Reimbursable Trade Account
72
Receivable and the Buyer has been compensated therefor as set forth in
this Section 12.1(b), the Buyer shall transfer and assign all right,
title and interest in an any such Reimbursable Trade Account Receivable
to the Sellers, free of any Liens. It is agreed and understood that in
exercising "commercially reasonable best efforts" in connection with the
collection of accounts receivable pursuant to this Section, the Buyer
and the Company shall have no obligation to take any action out of the
ordinary course of business consistent with past practice of the
Business; provided that the Buyer agrees that it shall (consistent with
-------past practice of the Business) commence or threaten any litigation or
prepare or file any proof of claim in any bankruptcy or similar
proceeding or incur such expenses (consistent with past practice of the
Business) to collect such receivables.
(c) Limitation on Indemnification Obligations. The
----------------------------------------indemnification provided for in Article 8 and Article 12 shall be
subject to the following limitations:
(i) Anything in this Agreement to the contrary
notwithstanding, no indemnification payment shall be made pursuant to
this Agreement (other than pursuant to Sections 1.2, 6.4, 6.11 and 6.14
and Article 7 hereof) except to the extent that the amounts which would
otherwise be payable under this Agreement (other than pursuant to
Sections 1.2, 6.4, 6.11 and 6.14 and Article 7 hereof) would
collectively aggregate at least $450,000 (the "Minimum Amount") and such
-------------Minimum Amount shall be deducted from the aggregate amount payable under
such provisions;
(ii) In no event shall the Sellers have any obligation or
liability to pay any amounts pursuant this Agreement (other than
pursuant to Sections 1.2, 6.4 and 6.11 and Article 7 hereof) in excess
of $40,500,000; provided that in no event shall the Sellers be obligated
-------to pay more than $16,200,000 with respect to claims made under this
Agreement (other than pursuant
73
to Sections 1.2 and 6.4 and Article 7 hereof) by a Buyer Indemnitee on
or after 180 days after the Closing Date;
(iii) Notwithstanding anything herein to the contrary, the
Buyer shall have no right to any indemnification under this Article 12
for any matter to the extent (i) the Net Worth of the Company was
reduced because of such matter and either Buyer did not dispute the
amount of the reduction in the Audited Closing Balance Sheet or the
dispute as to the amount of the reduction was resolved pursuant to
Section 1.2, or (ii) the matter relates to whether any item of Equipment
was Rental Ready or missing or the fair market value or cost of repair
or replacement of any item of Equipment and such matter was not disputed
or was disputed in determining the amounts payable under Section 6.14
and resolved as contemplated by Section 6.14;
(iv) In no event shall the Sellers be liable for loss of
profits or consequential damages; and
(v) Notwithstanding anything in this Agreement to the
contrary, the Sellers shall not be obligated to indemnify the Buyer
Indemnities with respect to any Losses to the extent of (A) any proceeds
received in connection with such Losses by the Company or any Subsidiary
of the Company under any insurance policy of the Company or any
Subsidiary of the Company in effect on the Closing Date (including,
without limitation, the insurance policy described in Section 6.12 to
be purchased pursuant to such Section 6.12 (each, a "Company Insurance
----------------Policy")); (B) any proceeds recoverable in connection with such Losses
-----by the Company or any Subsidiary of the Company under any applicable
warranty claim, which claims the Buyer hereby undertakes to pursue using
its commercially reasonable best efforts; and (C) any amounts
recoverable by the Buyer, the Company or any of its Subsidiaries from
customers or other third parties who are, in whole or in part,
responsible for such Losses, and the Buyer hereby undertakes
74
to use its commercially reasonable best efforts to pursue such claims;
it being agreed that the Buyer shall use commercially reasonable best
efforts (including threatening or instituting proceedings) to recover
amounts referred to in clause (A), (B) or (C) of this clause (v) but the
Buyer shall have no obligation to threaten or institute proceedings
against any insurance carrier; provided, that this clause (v) shall
-------not be applicable with respect to any amounts described in (A), (B) or
(C) above which are not received by the Company or the Buyer following
the exercise of the Buyer's undertakings therein and only if, upon
payment of the relevant indemnification claims by the Sellers, all of
the Buyer's or the Company's right, title and interest in and to all
claims for such amounts are transferred and assigned to the Sellers.
(d) Any amounts payable to any Buyer Indemnitee pursuant to
Article 7, 8 or 12 or Sections 6.4, 6.11 or 6.14 shall be paid by the
Escrow Agent to such Buyer Indemnitee from the Escrow Amount in
accordance with the Escrow Agreement until the Escrow Amount (including
interest thereon at the Reference Rate since the Closing Date) is
exhausted. After the earlier of (i) the time that the Escrow Amount
(and any interest thereon) has been exhausted or (ii) the date of the
termination of the Escrow Agreement in accordance with its terms and the
return of the remaining Escrow Amount, if any, to the Sellers in
accordance with the Escrow Agreement, any amounts payable to any Buyer
Indemnitee pursuant to Article 7, 8 or 12 or Sections 6.4, 6.11 or 6.14,
subject to the limitations set forth in Sections 12.1(c), 12.4 and 14.2,
shall be paid by the Sellers to such Buyer Indemnitee.
12.2 Indemnification of the Sellers. The Buyer hereby agrees to
-----------------------------indemnify and hold harmless each of the Sellers, any trustee of any Seller
in his or her capacity as trustee and any beneficiary or trustee of any
Seller in his or her capacity as such, and their respective successors,
assigns, agents and Affiliates (collectively, the "Seller Indemnitees")
-----------------against all Losses actually incurred as a result of, or attributable
75
to (i) any inaccuracy in, or breach of, any representation, warranty,
covenant or agreement made by the Buyer in this Agreement or (ii) by reason
of any act or failure to act by the Buyer, its Affiliates its successors or
assigns or, after the Closing Date, by the Company or any Subsidiary, in
connection with the ownership of the Company or any Subsidiary or the
operation of the Business after the Closing Date; provided that in no event
-------shall the Buyer be liable for loss of profits or consequential damages.
12.3 Notice and Opportunity to Defend.
-------------------------------(a) Notice of Asserted Liability. The party making a claim
---------------------------under this Article 12 is referred to as the "Indemnitee," and the party
---------against whom such claims are asserted under this Article 12 is referred
to as the "Indemnifying Party." All claims by any Indemnitee under this
-----------------Article 12 shall be asserted and resolved as follows: promptly after
receipt by the Indemnitee of notice of any claim or circumstances which,
with the lapse of time, would or might give rise to a claim or the
commencement (or threatened commencement) of a claim including any
action, proceeding or investigation (an "Asserted Liability") that may
-----------------result in a Loss, the Indemnitee shall give notice thereof (the "Claims
-----Notice") to the Indemnifying Party; provided that no delay on the part
------------of the Indemnitee in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation under this Article
unless (and then solely to the extent) the Indemnifying Party thereby is
actually prejudiced. The Claims Notice shall describe the Asserted
Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary and to the extent feasible) of the Loss that
has been or may be suffered by the Indemnitee.
(b) Opportunity to Defend. The Indemnifying Party may elect
--------------------to compromise or defend, at its own expense and by its own counsel which
shall be reasonably acceptable to the Indemnitee, any Asserted
Liability; provided that in the event that under then applicable
-------standards of professional conduct the
76
Indemnitee is required to be represented by separate counsel and the
Indemnitee elects to be represented by separate counsel, the
Indemnifying Party shall pay the fees and expenses of one law firm
incurred by the Indemnitee in the compromise of, or defense against,
such matter; and provided further that if the Asserted Liability
-------- ------includes only a request for injunctive relief, the Indemnitee may
control the defense thereof (at the Indemnifying Party's expense) and if
the Asserted Liability includes a request for injunctive relief and
other remedies, the Indemnitee may (at its own expense) share control of
the defense thereof to the extent of the injunctive relief claims. If
the Indemnifying Party elects to compromise or defend such Asserted
Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of its intent to
do so, and the Indemnitee shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such
Asserted Liability. If the Indemnifying Party elects not to compromise
or defend the Asserted Liability or fails to notify the Indemnitee of
its election as herein provided, or otherwise fails to timely assume
such defense the Indemnitee may pay, compromise or defend such Asserted
Liability at the Indemnifying Party's expense. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnitee may settle
or compromise any Asserted Liability over the objection of the other;
provided, however, consent to settlement or compromise shall not be
-------- ------unreasonably withheld or delayed. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense
of such Asserted Liability. If the Indemnifying Party chooses to defend
any Asserted Liability, the Indemnitee shall make available to the
Indemnifying Party any books, records or other documents within its
control that are necessary or appropriate for such defense.
12.4 Exclusive Remedies. Notwithstanding anything in this
-----------------Agreement to the contrary, the remedies provided in this Agreement shall be
the sole and exclusive remedies for any inaccuracy and for any breach of
any representation,
77
warranty, covenant or agreement of, or obligation or liability of, the
Buyer or the Sellers, contained herein or in any certificate or instrument
delivered pursuant to this Agreement or otherwise relating hereto or
thereto; provided, however, that nothing in this Section 12.4 shall be
-------- ------construed to limit any right or remedy that the Buyer or the Sellers may
have with respect to fraud.
12.5 Sellers' Representative. Each Seller hereby irrevocably
----------------------appoints Terrance J. McClinch as Sellers' Representative (or his designee,
the "Sellers' Representative"), and the Sellers' Representative hereby
----------------------accepts such appointment and agrees to act as such Sellers' Representative,
who shall, in such capacity, have full power and authority to make, on
behalf of the Sellers, all decisions relating to the defense or settlement
of any claims for which any Buyer Indemnitee may claim to be entitled to
indemnity or payment pursuant to this Agreement and otherwise to act on
behalf of the Sellers in all respects with respect to this Agreement. All
decisions and actions by the Sellers' Representative shall be binding upon
all of the Sellers, and no Seller shall have the right to object to,
dissent from, protest or otherwise contest the same. The Buyer shall not
have the right to object to, protest or otherwise contest any matter
related to the procedures for action being taken by the Sellers'
Representative. By the execution of this Agreement by or on behalf of such
Seller, each Seller shall be deemed to have agreed that (i) the provisions
of this Section 12.5 are independent and severable, are irrevocable and
coupled with an interest and shall be enforceable notwithstanding any
rights or remedies any Seller may have in connection with the transactions
contemplated by this Agreement, (ii) the remedy at law for any breach of
the provisions of this Section 12.5 would be inadequate, (iii) the
provisions of this Section 12.5 shall be binding upon the successors and
assigns of each Seller and (iv) any references in this Agreement to a
Seller or the Sellers shall mean and include the successors to the Seller's
rights hereunder. In addition, by the execution of this Agreement by or on
behalf of such Seller, each Seller shall be deemed to have waived any
claims they may have or assert,
78
including those that may arise in the future, against the Sellers'
Representative for any action or inaction taken or not taken by the
Sellers' Representative except to the extent that such action or inaction
shall have been held by a court of competent jurisdiction to constitute
willful misconduct. In consideration for serving as the Sellers'
Representative, the Sellers' Representative shall be released by each
Seller from any liability for any action or inaction taken or not taken by
such Sellers' Representative except to the extent that such action or
inaction shall have been held by a court of competent jurisdiction to
constitute willful misconduct.
12.6 Nature of Payments. Any payment under this Article 12
-----------------shall be treated for tax purposes as an adjustment of the Purchase Price
given or received, as the case may be, with respect to the Shares to the
extent such characterization is proper and permissible under relevant Tax
authorities, including court decisions, statutes, regulations and
administrative promulgations.
13. Termination of Agreement.
-----------------------13.1 Termination. This Agreement may be terminated prior to the
----------Closing as follows:
(a) at the election of the Sellers' Representative, if any one
or more of the conditions to the obligation of the Sellers to close set
forth in Article 10 has not been fulfilled as of the Scheduled Closing;
(b) at the election of the Buyer, if any one or more of the
conditions to the obligation of the Buyer to close set forth in Article
9 has not been fulfilled as of the Scheduled Closing;
(c) at the election of the Buyer or the Sellers'
Representative, if the transactions contemplated by this Agreement have
not been consummated by November 15, 1998; provided, that the right to
-------terminate this Agreement pursuant to this Section 13.1(c) shall not be
available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in,
79
the failure of the consummation of the transactions contemplated by this
Agreement to occur on or prior to such date; or
(d) at the election of the Buyer if the aggregate remediation
costs set forth in the Phase I Assessment for the leased Properties and
the Phase I Assessments for the leased properties in the MI Agreement
and Grey Fox Agreement exceed a dollar amount equal to $1,000,000 less
the aggregate estimated remediation costs for the Owned Real Properties
set forth in the Assessments and the Assessments referred to in the MI
and Grey Fox Agreements (but in no event less than $0); provided,
-------however, Buyer shall not have any right of termination pursuant to this
------subsection (d) if the Sellers notify Buyer within 10 days of receipt of
the Phase I and II Assessments that the Sellers agree to amend the
indemnification provisions of Section 8.5 to include an indemnity in the
Buyer's favor covering the leased Properties in the same manner as the
Owned Real Properties, such that such indemnity will, among other
things, be subject to the same Minimum Amount as defined in Section
12.1(c)(i), it being understood that the Loss limitations for the leased
Properties will be the remediation estimates for the leased Properties
set forth in the Assessments;
(e) at the election of the Buyer if the aggregate remediation
estimates for the Properties set forth in the Phase I Assessment, Phase
II Assessment and the Phase I and Phase II Assessments referred to in
the MI Agreement and the Grey Fox Agreement exceed $51,600,000;
(f) at the election of the Sellers'
aggregate remediation costs for the
Assessment, Phase II Assessment and
referred to in the MI Agreement and
$2,300,000; and
Representative, if the
Properties set forth in the Phase I
the Phase I and Phase II Assessments
the Grey Fox Agreement exceed
(g) at any time on or prior to the Closing Date, by mutual
written consent of the Sellers' Representative and the Buyer.
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If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 13.2.
13.2 Survival After Termination. If this Agreement terminates
-------------------------pursuant to Section 12.1 and the contemplated transactions are not
consummated, this Agreement shall become null and void and have no further
force or effect, except that any such termination shall be without
prejudice to the rights of any party on account of the nonsatisfaction of
the conditions set forth in Articles 9 and 10 resulting from the
intentional or willful breach or violation of the representations,
warranties, covenants or agreements of another party under this Agreement
or the breach of the representation and warranty set forth in clause (ii)
of third sentence of Section 5.2 with respect to the bank consent.
Notwithstanding anything in this Agreement to the contrary, (i) the
provisions of Section 6.2 relating to the obligation of the Buyer to keep
confidential and not to use certain information and data obtained by it
from the Company, and to return documents to the Company and (ii) the
provisions of Sections 6.4, this Section 13.2 and Article 14 shall survive
any termination of this Agreement.
14. Miscellaneous.
------------14.1 Certain Definitions. As used in this Agreement, the
------------------following terms have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
--------controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of, such Person.
"Applicable Law" means with respect to any Person, any domestic or
-------------foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, policy, guidance, judgment, decree or other requirement of any
Governmental Entity applicable to such Person or its properties, business,
operations or assets.
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"Benefit Plan" means any employee benefit plan, arrangement, policy
-----------or commitment (whether or not an employee benefit plan within the meaning of
section 3(3) of ERISA), including any employment, consulting or deferred
compensation agreement, executive compensation, retention, change in control,
bonus, incentive, pension, profit-sharing, savings, retirement, stock option,
stock award, stock purchase or severance pay plan or arrangement, any life,
health, disability or accident insurance plan, any fringe benefit plan or
arrangement or any holiday or vacation practice, as to which the Company or
any Subsidiary has or in the future would have any direct or indirect, actual
or contingent liability.
"Business Day" means any day of the year (other than a Saturday or
-----------Sunday) on which national banking institutions in Greenwich, Connecticut are
open to the public for conducting business and are not required or authorized
to close.
"Closing Balance Sheet Tax Reserve" means the portion of the
--------------------------------deferred tax reserve shown on the Audited Closing Balance Sheet (and
reflected in the Audited Closing Adjusted Net Worth, as increased or
decreased, as the case may be, by the Resolved Objections and the CPA-Determined Differences) that does not relate to timing differences between
book and tax accounting.
"Code" means the Internal Revenue Code of 1986, as amended.
---"DOL" means the United States Department of Labor.
--"Employee" means any individual employed by the Company or any
-------Subsidiary of the Company.
"Environmental Laws" means all applicable laws relating to
-----------------Hazardous Substances, the environment or natural resources, including the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), the Clean
Air Act, the Water Pollution Control Act, the Safe Drinking Water Act, and
the Toxic Substances Control Act
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("TSCA"), and any requirements promulgated pursuant to these applicable laws
or any analogous state or local applicable laws.
"Environmental Liabilities" means all Liabilities of a Person
------------------------(whether such Liabilities are owed by such Person to Governmental
Authorities, third parties or otherwise) which arise under or relate to any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974,
----as amended.
"GAAP" means generally accepted accounting principles in the United
---States applied in a consistent basis during the relevant periods.
"Governmental Entity" means any foreign, domestic, federal,
------------------territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory
organization, commission, tribunal or organization or any regulatory,
administrative or other agency or any political or other subdivision,
department or branch of the any of the foregoing.
"Hazardous Substance" means any substance, material or waste: (i)
------------------the presence of which in the environment requires investigation or
remediation under any applicable law; or (ii) that is defined characterized
or otherwise classified as a "hazardous waste," "hazardous substance," "toxic
--------------------------------material" or "toxic waste" or words of similar connotation under any
Environmental Law; or (iii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and
is regulated pursuant to any Environmental Law; (iv) the presence of which
causes a nuisance, trespass or other tortious condition; or (v) without
limitation, that contains gasoline, diesel fuel or other petroleum
hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
"IRS" means the Internal Revenue Service.
--"Knowledge of Sellers" shall have the meaning assigned to it in
-------------------that certain letter agreement among the parties hereto and others of even
date herewith.
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"Lien" means any lien, pledge, mortgage, deed of trust, security
---interest, claim, lease, license, charge, option, right of first refusal,
easement, servitude or transfer restriction and, with respect to the Shares,
voting trusts, proxies, stockholder or similar agreements, encumbrances or
restrictions of any nature whatsoever.
"Material Adverse Effect" means material adverse effect on the
----------------------properties, business, results of operations or financial condition of the
Company and its Subsidiaries, taken as a whole, or on their ability to
consummate the transactions contemplated by this Agreement on the terms set
forth herein.
"Pension Plan" means any Benefit Plan which is a pension plan
-----------within the meaning of ERISA section 3(2) (regardless of whether the plan is
covered by ERISA).
"Permitted Liens" means (i) Liens for Taxes or governmental
--------------assessments, charges or claims the payment of which is not yet due, or for
Taxes the validity of which is being contested in good faith by appropriate
proceedings and for which adequate reserves are reflected on the Balance
Sheet; (ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other similar Persons and other Liens imposed by
applicable law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith; (iii) Liens relating to deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar
agreements; (iv) Liens specifically identified on the Balance Sheet; (v)
Liens securing executory obligations under any lease that constitutes an
"operating lease" under GAAP; and (vi) other Liens set forth on Schedule
----------------------14.1(b) hereto.
------"Person" means any individual, corporation, partnership, limited
-----liability company, firm, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Entity or other entity.
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"property" or "properties" means real, personal or mixed property,
----------------tangible or intangible.
"Reference Rate" means the per annum rate of interest publicly
-------------announced from time to time by Chase Manhattan Bank as its prime rate (or
reference rate). Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"Release" means any release, spill, emission, leaking, pumping,
------pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration of Hazardous Materials on or into the
environment.
"Remedial Action" has the meaning ascribed to it on the
--------------definitional provisions of CERCLA and also means such actions as are
necessary to cause fixtures and operations on the Properties (not including
movable equipment leased by the Company and its Subsidiaries in the ordinary
course) to be in compliance with Environmental Laws, assuming use of such
fixtures and operations in a manner consistent with past practices of the
Company and its Subsidiaries.
"Restricted Business" means, collectively, (a) any business in
------------------which the Company, MI, Grey Fox and/or their respective Subsidiaries are
engaged on the Closing Date and (b) the business of renting, leasing, acting
as a dealer or distributor for, repairing, servicing or selling light to
heavy construction and industrial equipment (including, without limitation,
aerial lifts (including boom and scissor lifts), cranes, backhoes, digging
equipment, forklifts, tractors, skid-steer loaders, scaffolding, compressors,
pumps and generators), and/or general tools and equipment (including, without
limitation, power tools, hand tools, high-pressure washers, paint sprayers,
gardening and landscaping equipment and roto tillers) and, in each case, any
related merchandise, accessories or parts.
85
"Subsidiary" means any Person of which a majority of the
---------outstanding voting securities or other voting equity interests are owned,
directly or indirectly, by the Company.
"Tax" means all taxes of any nature including any United States
--federal, state, local or foreign income, sales and use, excise, franchise,
real and personal property, transfer, gross receipts, license, payroll,
employment, withholding, estimated or other tax or charge imposed by any
governmental entity, together with any interest and penalties related thereto
or to the nonpayment thereof and any loss in connection with the
determination, settlement or litigation of any tax liability.
14.2 Nature of Obligations.
--------------------(a) The representations, warranties, and covenants of the
Sellers in this Agreement are joint and several obligations.
Notwithstanding the foregoing, the aggregate amount a Seller shall be
required to pay to the Buyer or any Buyer Indemnitee hereunder shall not
exceed such Seller's Pro Rata Portion of the Purchase Price.
14.3 Notices. Any notice or other communication required or
------permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission sent by overnight courier or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, or sent by facsimile
transmission or if sent by overnight courier, one Business Day after the
date so sent, or, if mailed, five Business Days after the date of deposit
in the United States mails, as follows:
(i)
If to Buyer or, after the Closing Date, the Company:
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, CT 06830
Attention: Mr. John N. Milne
Facsimile: (203) 622-6080
with copies to:
86
Oscar D. Folger, Esq.
521 Fifth Avenue, 24th Floor
New York, NY 10175
Facsimile: (212) 697-9570
and
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Stephen M. Besen, Esq.
Facsimile: (212) 310-8007
(ii) if to the Sellers or the Sellers' Representative, to
the addresses set forth beside the Sellers'
Representative's name on Annex C
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telephone: (212) 373-3000
Facsimile: (212) 757-3990
Any party may by notice given in accordance with this Section to the other
parties designate another address or Person for receipt of notices hereunder.
14.4 Entire Agreement. The Confidentiality Agreement, this
---------------Agreement and any other collateral agreements executed in connection with
the consummation of the transactions contemplated by this Agreement contain
the entire agreement among the parties with respect to the purchase of the
Shares and supersede all prior agreements, written or oral, with respect
thereto.
14.5 Waivers and Amendments; Non-Contractual Remedies. This
-----------------------------------------------Agreement may be amended, superseded, canceled, renewed or extended, and
the terms hereof may be waived, only by a written instrument signed by the
Buyer and the Sellers' Representative or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall
87
operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise
of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The
rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in
equity.
14.6 Governing Law. This Agreement shall be governed and
------------construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within such State.
14.7 Binding Effect; Assignment. This Agreement shall be
-------------------------binding upon and inure to the benefit of the parties and their respective
successors and legal representatives. This Agreement is not assignable;
provided, however, that the Buyer may assign this Agreement to a wholly-------owned subsidiary of the Buyer; and provided further, that no such
-------- ------assignment shall release the Buyer from any of its obligations hereunder.
14.8 Usage. All pronouns and any variations thereof refer to
----the masculine, feminine or neuter, singular or plural, as the context may
require. All terms defined in this Agreement in their singular or plural
forms have correlative meanings when used herein in their plural or
singular forms, respectively. Unless otherwise expressly provided, the
words "include," "includes" and "including" do not limit the preceding
words or terms and shall be deemed to be followed by the words "without
limitation."
14.9 Counterparts. This Agreement may be executed by the
-----------parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed
by all of the parties hereto.
88
14.10 Exhibits and Schedules. The Exhibits and Schedules are a
---------------------part of this Agreement as if fully set forth herein and all references to
this Agreement shall be deemed to include the Exhibits and Schedules. All
references herein to Sections, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall
otherwise require. Any matter disclosed on one Schedule hereto shall be
deemed to have been disclosed on any other Schedule provided the relevance
of such matter to such other Schedule is reasonably discernible from the
information provided in the Schedule on which such disclosure appears.
14.11 Headings. The headings in this Agreement are for
-------reference only, and shall not affect the interpretation of this Agreement.
14.12 Severability of Provisions.
-------------------------(a) If any provision or any portion of any provision of this
Agreement shall be held invalid or unenforceable, the remaining portion
of such provision and the remaining provisions of this Agreement shall
not be affected thereby; provided, that the material economic terms
-------provided for herein are not affected thereby in a manner adverse to the
Buyer or any Seller.
(b) If the application of any provision or any portion of any
provision of this Agreement to any Person or circumstance shall be held
invalid or unenforceable, the application of such provision or portion
of such provision to Persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby;
provided, that the material economic terms provided for herein are not
-------affected thereby in a manner adverse to the Buyer or any Seller.
14.13 Consent to Jurisdiction. Each of the parties hereto
----------------------hereby irrevocably submits to the exclusive jurisdiction of any U.S.
District Court for the District of Connecticut; and irrevocably agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such court. Each of the parties
89
hereto further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set
forth in Section 14.3 shall be effective service of process for any action,
suit or proceeding in the State of Connecticut with respect to any matters
to which it has submitted to jurisdiction as set forth above in the
immediately preceding sentence. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in the U.S. District Court for the District of
Connecticut, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any action, suit or
proceeding brought in any such court has been brought in an inconvenient
forum.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
UNITED RENTALS, INC.
By:
Name:
Title:
SELLERS:
-------
ANNEX A
Name of Shareholder
-------------------
Number of Shares
----------------
- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------TOTAL
- ---------------------------------------------------------------------------------------------------
ANNEX B
[Escrow Agreement]
ANNEX C
[Addresses for Notices ]
Sellers' Representative
Terrance J. McClinch
c/o Brody & Ober P.C.
135 Rennell Drive
Southport, Connecticut
06490