FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
Commission File No. 0-13292
McGRATH RENTCORP
(Exact name of registrant as specified in its Charter)
CALIFORNIA 94-2579843
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5700 LAS POSITAS ROAD
LIVERMORE, CALIFORNIA 94550
(Address of principal executive offices)
Registrant's telephone number: (510) 606-9200
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
______ _______
At November 11, 1997, 15,021,918 shares of Registrant's Common Stock
were outstanding.
_________________________
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 1
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
--------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
REVENUES:
Rental operations-
Rental $16,067,741 $12,321,796 $ 45,138,552 $35,573,650
Rental related services 3,608,892 3,920,071 8,892,168 7,672,245
----------- ----------- ------------ -----------
19,676,633 16,241,867 54,030,720 43,245,895
Sales and related services 25,675,496 9,255,338 51,621,927 19,598,040
----------- ----------- ------------ -----------
Total revenues 45,352,129 25,497,205 105,652,647 62,843,935
----------- ----------- ------------ -----------
COSTS & EXPENSES:
Direct costs of rental operations-
Depreciation 3,649,571 3,108,151 10,537,344 9,188,972
Rental related services 1,991,688 2,048,185 5,606,739 4,227,682
Other direct rental costs 2,296,141 2,671,884 6,763,243 6,231,218
----------- ----------- ------------ -----------
7,937,400 7,828,220 22,907,326 19,647,872
Cost of sales and related services 17,878,601 6,064,184 35,533,649 13,257,615
----------- ----------- ------------ -----------
25,816,001 13,892,404 58,440,975 32,905,487
----------- ----------- ------------ -----------
Gross margin 19,536,128 11,604,801 47,211,672 29,938,448
Selling and administrative expenses 5,429,859 3,729,591 12,970,953 9,576,391
----------- ----------- ------------ -----------
Income from operations 14,106,269 7,875,210 34,240,719 20,362,057
Interest expense 1,042,716 744,275 2,905,047 2,061,701
----------- ----------- ------------ -----------
Income before provision
for income taxes 13,063,553 7,130,935 31,335,672 18,300,356
----------- ----------- ------------ -----------
Provision for income taxes 5,361,199 2,667,070 12,632,183 7,110,824
----------- ----------- ------------ -----------
Net income $ 7,702,354 $ 4,463,865 $ 18,703,489 $11,189,532
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Net income per share $ 0.51 $ 0.29 $ 1.23 $ 0.73
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 2
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
------------ ------------
ASSETS
Cash $ 1,341,998 $ 686,333
Accounts receivable, less allowance for
doubtful accounts of $650,000 in 1997
and $605,000 in 1996 25,849,843 19,919,954
Rental equipment, at cost:
Relocatable modular offices 179,968,456 158,376,950
Electronic test instruments 48,867,451 43,335,413
------------ ------------
228,835,907 201,712,363
Less - Accumulated depreciation (70,142,706) (64,419,888)
------------ ------------
158,693,201 137,292,475
Land 20,167,647 20,167,647
Land improvements, furniture and equipment,
at cost, less accumulated depreciation of
$2,934,896 in 1997 and $3,376,803 in 1996 25,416,597 19,572,015
Prepaid expenses and other assets 6,494,117 2,396,935
------------ ------------
$237,963,403 $200,035,359
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable $ 65,800,000 $ 53,850,000
Accounts payable and accrued liabilities 22,757,765 15,280,543
Deferred income 7,313,239 5,226,803
Deferred income taxes 37,627,123 36,869,734
------------ ------------
Total liabilities 133,498,127 111,227,080
------------ ------------
Shareholders' equity:
Common stock, no par value -
Authorized - 4O,OOO,OOO shares
Outstanding - 15,015,918 shares in 1997
and 14,797,918 in 1996 7,718,062 7,161,168
Retained earnings 96,747,214 81,647,111
------------ ------------
Total shareholders' equity 104,465,276 88,808,279
------------ ------------
$237,963,403 $200,035,359
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash
(Unaudited)
Nine months ended
September 30,
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 18,703,489 $ 11,189,532
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,191,451 9,787,419
Gain on sale of rental equipment (5,453,700) (3,606,691)
Change in:
Accounts receivable (5,929,889) (5,380,276)
Prepaids and other assets (4,097,182) (428,495)
Accounts payable and accrued liabilities 7,313,283 3,931,629
Deferred income 2,086,436 (341,885)
Deferred income taxes 757,389 1,826,972
------------ ------------
Net cash provided by operating activities 24,571,277 16,978,205
------------ ------------
Cash flows from investing activities:
Purchase of rental equipment (41,240,592) (17,598,298)
Purchase of land --- (678,347)
Purchase of land improvements, furniture
and equipment (6,498,689) (4,277,225)
Proceeds from sale of rental equipment 14,756,222 9,511,633
------------ ------------
Net cash used in investing activities (32,983,059) (13,042,237)
------------ ------------
Cash flows from financing activities:
Net borrowings 11,950,000 8,645,000
Payment of dividends (3,439,447) (3,048,133)
Repurchase of common stock --- (8,778,775)
Net proceeds from the exercise of stock options 556,894 92,101
------------ ------------
Net cash provided (used) by financing activities 9,067,447 (3,089,807)
------------ ------------
Net increase (decrease) in cash 655,665 846,161
Cash balance, beginning of period 686,333 221,075
------------ ------------
Cash balance, end of period $ 1,341,998 $ 1,067,236
------------ ------------
------------ ------------
Interest paid during period $ 2,859,790 $ 2,028,226
------------ ------------
------------ ------------
Income taxes paid during period $ 8,274,674 $ 5,256,506
------------ ------------
Dividends declared but not yet paid $ 1,201,753 $ 1,035,854
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
__________________________________________
1. The consolidated financial information for the nine months ended
September 30, 1997 has not been audited, but in the opinion of management,
all adjustments (consisting only of normal recurring accruals,
consolidation and eliminating entries) necessary for the fair presentation
of the consolidated results of operations, financial position, and cash
flows of McGrath RentCorp (the "Company") have been made. The consolidated
results of the nine months ended September 30, 1997 should not be
considered as necessarily indicative of the results for the entire year.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Form 10-K.
2. The number of outstanding shares and equivalent shares used in the
earnings per common share calculations were as follows:
Primary Fully Diluted
---------- -------------
Three months ended: September 30, 1997 15,242,764 15,250,148
September 30, 1996 15,172,408 15,194,300
Nine months ended: September 30, 1997 15,192,887 15,235,692
September 30, 1996 15,403,986 15,468,252
3. The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share", which modifies the
way in which earnings per share (EPS) is calculated and disclosed effective
for periods ending after December 15, 1997. Primary EPS will be replaced by
basic EPS which is computed by dividing reported net income by the weighted
average number of shares of common stock outstanding during the period. Fully
diluted EPS will be replaced with diluted EPS which is computed by dividing
reported net income by the weighted average number of shares of common stock
and dilutive common equivalent shares outstanding during the period. Common
stock equivalents result from dilutive stock options computed using the
treasury stock method with the average share price for the reported period.
When implemented, the effect of this accounting change on previously reported
EPS data is not significant.
4. In July 1997, the Company entered into a new credit agreement amending
and restating it's unsecured line of credit (the "Agreement") with its
banks which expires June 30, 1999 and permits it to borrow up to
$70,000,000. The Agreement requires the Company to pay interest at prime
or, at the Company's election, other rate options available under the
Agreement. In addition, the Company pays a commitment fee on the daily
average unused portion of the available line. Among other terms, the
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
__________________________________________
Agreement requires (i) the Company to maintain shareholders' equity of not
less than $77,800,000 plus 50% of all net income generated subsequent to June
30, 1997, (ii) a debt-to-equity ratio (excluding deferred income taxes) of
not more than 3 to 1, (iii) interest coverage (income from operations
compared to interest expense) of not less than 2 to 1, and (iv) debt service
coverage of not less than 1.15 to 1. If the Company does not amend or
renegotiate this Agreement for an additional time period prior to its
expiration date, the principal amount outstanding at that time will be
converted to a two-year term loan with the principal due and payable in eight
(8) quarterly installments. In addition to the $70,000,000 unsecured line of
credit, the Company has a $3,000,000 committed line of credit related to its
cash management services and has $10,000,000 of uncommitted optional advance
facilities all of which expire June 30, 1998.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Three and Nine Months Ended September 30, 1997 and 1996
McGrath RentCorp (the "Company") is engaged in the business of renting
and selling relocatable modular offices and classrooms under its trade name
"Mobile Modular," and electronic test and measurement instruments under the
names "McGrath RentCorp" and "Rentelco". Although the Company's primary
emphasis is on rentals, both modulars and electronics are sold to direct-use
customers. The Company also manufactures portable classrooms through its
majority owned (73.2%) subsidiary, Enviroplex, Inc., for direct sale to
school districts.
Rental revenues for the three and nine months ended September 30, 1997
increased $3,745,945 (30%) and $9,564,902 (27%), respectively, over the same
periods in 1997. Modulars contributed 71.2% and 75.8% of the rental revenue
increase in 1997 for the three and nine months ended September 30, 1997.
Average utilization during the first nine months increased for Modulars, from
70.5% to 80.0%, and slightly declined for Electronics, from 55.2% to 55.0% as
compared to the same period in 1996. The increase in utilization for Modulars
is primarily the result of rentals to implement the class size reduction
program in California schools.
Rental related service revenues for the three months ended September 30,
1997 decreased $311,179 (8%) and for the nine months ended September 30, 1997
increased $1,219,923 (16%), respectively, compared to the same periods in
1996. The three month comparative revenue decline resulted from many schools
opting in 1997 to include the normal upfront charges in the rental rate. The
nine month comparative increase was primarily due to one commercial project
with significant site work requirements which occurred in the first quarter
of 1997. The gross margins for rental related services declined for the nine
month comparative period from 45% in 1996 to 37% in 1997 partially as a
result of the project noted above being performed at a lower gross margin.
Sales and related services for the three and nine months ended September
30, 1997 increased $16,420,158 (177%) and $32,023,887 (163%), respectively,
over the same periods in 1996. The table below indicates the sales and
related services contribution for Modulars, Enviroplex and Electronics for
nine months ended September 30, 1997 compared with the nine months ended
September 30, 1996.
Nine months ended September 30,
------------------------------- Increase Over
1997 1996 Prior Period
----------- ----------- -------------
Modulars $29,156,007 $ 9,216,794 $19,939,213
Enviroplex 16,755,733 6,150,920 10,604,813
Electronics 5,710,187 4,230,326 1,479,861
----------- ----------- ------------
$51,621,927 $19,598,040 $32,023,887
----------- ----------- ------------
----------- ----------- ------------
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 7
The significant increase in sales and related services for Modulars and
Enviroplex is directly related to the higher demand by school districts in
conjunction with the class size reduction program in California. Sales and
related service revenues from school districts comprised 77% and 33% of the
Modulars sales and related services revenues for the nine months ended
September 30, 1997 and 1996, respectively, while Enviroplex sells
substantially all of its product to school districts. Future sales under the
class size reduction program for the Company are subject to the state's
funding of the program, the requirements of the various school districts and
available supplies. Management believes the present sales and related
services revenue levels for Modulars, and to a lesser degree Enviroplex, may
not be sustainable in the future. Management continues to believe that sales
and related services from quarter to quarter and year to year fluctuate based
on customer requirements. Gross margins on sales and related services
declined slightly for the nine month period from 32.4% in 1996 to 31.2% in
1997.
Depreciation on rental equipment for the three and nine months ended
September 30, 1997 increased $541,420 (17%) and $1,348,372 (15%),
respectively, over the same periods in 1996 due to the additions of both
modular and electronic rental equipment.
Selling and administrative expenses for the three and nine months ended
September 30, 1997 increased $1,700,268 (46%) and $3,394,562 (35%),
respectively, over the same periods in 1996. The increased business activity
in the modular business for class size reduction has also translated into
higher personnel costs for the nine months ended September 30, 1997 over the
same nine month period in 1996. Personnel costs increased $1,580,152 over the
same period in 1996 and include additional staff for sales and support,
increased temporary contract labor, and increased sales and performance
bonuses. Additionally, selling and administrative expenses for Enviroplex
increased $908,894 during the nine month comparative period due to increased
sales activity and includes the reduction of net income by the portion of
earnings of Enviroplex related to the minority shareholder's interest.
Interest expense for the three and nine months ended September 30, 1997
increased $298,441 (40%) and $843,346 (41%), respectively, over the same
periods in 1996 as a result of 47% higher average borrowing levels during the
comparative period.
Income before provision for income taxes for the three and nine months
ended September 30, 1997 increased $5,932,618 (83%) and $13,878,662 (68%),
respectively, over the same periods in 1996. Net income increased $3,238,489
(73%) for the three month period and $7,513,957 (67%) for the nine month
period over the same periods in 1996. Earnings per share for the three and
nine months ended September 30, 1997 increased 76%, from $0.29 to $0.51, and
68%, from $0.73 to $1.23.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 8
Liquidity and Capital Resources.
The debt (notes payable) to equity ratio was 0.63 to 1 at September 30,
1997 compared to 0.61 to 1 at December 31, 1996. The debt (total liabilities)
to equity ratio at the end of the current period was 1.28 to 1 as compared to
1.25 to 1 as of December 31, 1996.
The Company has made purchases of shares of its common stock from time
to time in the over-the-counter market (NASDQ) and/or through privately
negotiated, large block transactions under an authorization of the Board of
Directors. Shares repurchased by the Company will be cancelled and returned
to the status of authorized but unissued stock. The Company has not
repurchased any of its common stock during 1997 and currently is authorized
to purchase up to 1,000,000 shares.
The Company's primary use of funds is to purchase rental equipment and
sales inventory, and funds will continue to be used for this purpose in the
future. The Company also pays quarterly dividends, which will constitute an
additional use of cash in 1997.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 9
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In September 1997, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.08 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Index to exhibits filed herewith as part of this report:
Exhibit
Number Title
4.1 $3,000,000 Committed Credit Facility dated July 29, 1997
between the Company and Union Bank of California, N.A.
4.2 $5,000,000 Optional Advance Facility Extension dated July
29, 1997 between the Company and Union Bank of California,
N.A.
4.3 $5,000,000 Optional Advance Facility Extension dated
August 13, 1997 between the Company and Fleet Bank, N.A.
(b) REPORTS ON FORM 8-K. No reports on form 8-K have been filed during the
quarter for which this report is filed.
McGrath RentCorp
Third Quarter 1997 Form 10-Q
Page 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1997 McGRATH RENTCORP
By:/s/ Delight Saxton
----------------------------------
Delight Saxton, Chief Financial
Officer and Senior Vice President
EXHIBIT 4.1
[LETTERHEAD]
July 24, 1997
(415) 765-2614
Ms. Delight Saxton
Chief Financial Officer and
Vice President of Administration
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580
Re: $3,000,000.00 Committed Credit Facility
Dear Ms. Saxton:
Union Bank of California, N.A. ("Bank") is pleased to offer McGrath RentCorp,
a California corporation ("Borrower") a committed credit facility
("Facility") under which the Bank will make advances to the Borrower from
time to time up to and including June 30, 1998, not to exceed at any time the
maximum principal amount of Three Million Dollars ($3,000,000), to be
governed by the terms of the enclosed Credit Line Note ("Credit Line Note")
in favor of Bank, and subject to the conditions and agreements set forth
below.
1. This Facility is made available only in connection with Borrower's use of
the Bank's sweep service for management of its checking account balances
("Sweep Service"). Therefore, this Facility shall commence on the date
("Effective Date") Borrower becomes a Sweep Service customer and this
Facility shall terminate, if not earlier terminated, on the date Borrower
ceases to continue as a Sweep Service customer. Upon such termination Bank
shall have no further obligation to fund advances under this Facility, and
all amounts owing under the Credit Line Note shall become immediately due and
payable.
2. As provided in the Credit Line Note, the occurrence of an Event of
Default under the Multibank Agreement shall be a default under this Facility.
The term "Multibank Agreement" as used herein means that certain Credit
Agreement dated as of July 10, 1997, by and among Borrower, Bank, Fleet Bank,
N.A. and Bank of America, National Trust & Savings Association, and shall
include any amendments thereto as are consented to by Bank as set forth
herein. Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Multibank Agreement.
3. Borrower shall comply with, and repeats as if fully set forth herein as
of the date hereof, all of the representations, covenants and obligations of
Borrower set forth under Articles 6, 7, 8, and 11 (and including any
definitions and related provisions) of the Multibank Agreement. In the event
the Multibank Agreement terminates or expires prior to the termination or
expiration of this Facility the foregoing representations, covenants and
obligations of Borrower shall nevertheless survive as between Borrower and
Bank with respect to this Facility and shall continue in effect until this
Facility terminates or expires. No amendment or waiver of any provision of
the Multibank Agreement after the date hereof shall be effective with respect
to this Facility unless the Bank consents thereto in writing.
4. Borrower acknowledges that any amount outstanding under the Credit Line
Note is included within the definition of "Debt" and "Outside Debt" under
the Agreement.
5. Borrower shall pay to Bank a non-refundable commitment fee for this
Facility for the period of time during which this Facility is available. Such
fee shall be payable in arrears in quarterly installments on the last day of
each March, June, September, and December, and on the last day this Facility
is
Ms. Delight Saxton
July 24, 1997
Page 2
available, to be computed at the rate per annum equal to 0.125% on the
average unused amount of the Facility during such period.
6. This Facility letter will be governed by the laws of the State of
California.
Enclosed is the original Credit Line Note and a copy of the this Facility
letter together with an Authorization to Pay Proceeds of Note and Loan
Disbursement Instructions, and any other contract, instrument or document Bank
requires to be executed and delivered in connection with this Facility (each
a "Loan Document"). The Borrower's executing the Loan Documents and returning
them to Bank together with an appropriate corporate resolution and incumbency
certificate acceptable to Bank constitutes its agreement to the terms and
conditions of this Facility.
BORROWER AND BANK HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS FACILITY LETTER, THE
CREDIT LINE NOTE OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND
ANY SUCH CLAIM, DEMAND ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY. BORROWER OR BANK MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THIS CONSENT OF
BORROWER AND BANK TO WAIVE THEIR RIGHT TO TRIAL BY JURY.
This offer expires on August 8, 1997, unless the executed Loan Documents and
the corporate resolution and incumbency certificate are returned to the Bank
by then. If the Effective Date has not occurred by October 30, 1997, this
Facility letter and the Credit Line Note shall terminate and be of no further
force and effect on such date.
We look forward to serving you.
Yours truly,
Union Bank of California, N. A.
By: /s/ Robert John Vernagallo
------------------------------
Robert John Vernagallo,
Vice President
ACCEPTED AND AGREED:
MCGRATH RENTCORP, a
California Corporation
By: /s/ Delight Saxton
------------------------------
Title: VICE PRESIDENT OF ADMIN
------------------------------
By: /s/ Thomas J. Sauer
------------------------------
Title: VICE PRESIDENT
------------------------------
Date: July 29, 1997
-----------
RV/da/11095
CREDIT LINE NOTE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Borrower Name
McGrath RentCorp, a California corporation
- ---------------------------------------------------------------------------
Borrower Address Office Loan Number
2500 Grant Avenue ------------ --------------
San Lorenzo, California 94580 Maturity Date Amount
June 30, 1998 $3,000,000
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Date July 24, 1997 $3,000,000
FOR VALUE RECEIVED, on June 30, 1998, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank") as indicated
below, the principal sum of THREE MILLION DOLLARS ($3,000,000), or so much
thereof as is disbursed, together with interest on the balance of such
principal sum from time to time outstanding, at a per annum rate equal to the
Reference Rate, such per annum rate to change as and when the Reference Rate
shall change. Debtor may borrow, repay and reborrow under this note.
As used herein, the term "Reference Rate" shall mean the rate announced by
Bank from time to time at its corporate headquarters as its "Reference Rate."
The Reference Rate is an index rate determined by Bank from time to time as a
means of pricing certain extensions of credit and is neither directly tied to
any external rate of interest or index nor necessarily the lowest rate of
interest charged by Bank at any given time. All computations of interest
under this note shall be made on the basis of a year of 360 days, for actual
days elapsed.
1. PAYMENTS.
1.1 INTEREST PAYMENTS. Debtor shall pay interest on the last day of each
month commencing July, 1997. Should interest not be so paid, it shall become
a part of the principal and thereafter bear interest as herein provided.
1.2 PRINCIPAL PAYMENTS. All principal outstanding on this note is due
and payable on the earlier of June 30, 1998 or any accelerated maturity date.
Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's San Francisco Office or such other office as may be
designated by Bank from time to time.
2. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option
of Bank, and, to the extent permitted by law, interest shall be payable on
the outstanding principal under this note at a per annum rate equal to two
percent (2%) in excess of the interest rate specified in the initial
paragraph of this note, calculated from the date of default until all amounts
payable under this note are paid in full.
Page 1
3. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach
misrepresentation or other default by Debtor, any guarantor, co-maker
endorser, or any person or entity other than Debtor providing security for
this note (hereinafter individually and collectively referred to as the
"Obligor") under any security agreement, guaranty or other agreement between
Bank and any Obligor; (c) the insolvency of any Obligor or the failure of any
Obligor generally to pay such Obligor's debts as such debts become due; (d)
the commencement as to any Obligor of any voluntary or involuntary proceeding
under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief; (e) the assignment by any
Obligor for the benefit of such Obligor's creditors; (f), the appointment, or
commencement of any proceedings for the appointment, of a receiver, trustee,
custodian or similar official for all or substantially all of any Obligor's
property; (g) the commencement of any proceeding for the dissolution or
liquidation of any Obligor; (h) the termination of existence or death of any
Obligor; (i) the failure of any Obligor to comply with any order, judgment,
injunction, decree, writ or demand of any court or other public authority;
(j) the filing or recording against any Obligor, or the property of any
Obligor of any notice of levy, notice to withhold, or other legal process for
taxes other than property taxes; (k) the default by any Obligor liable for
amounts owed hereunder on any obligation concerning the borrowing of money;
(i) the issuance against any Obligor or the property of any Obligor, of any
writ of attachment, execution or other; judicial lien; (m) the deterioration
of the financial condition of any Obligor which results in Bank deeming
itself, in good faith, insecure, (n) Debtor's failure to comply with any
provision of the Multibank Agreement (as defined in the facility letter
between Debtor and Bank executed in connection herewith), or (o) Debtor's
failure to comply with any provision of the facility letter between Debtor
and Bank executed in connection herewith. Upon the occurrence of any such
default, Bank, in its discretion, may cease to advance funds hereunder and
may declare all obligations under this note immediately due and payable;
however, upon the occurrence of an event of default under d, e, f, g, or n
all principal and interest shall automatically become immediately due and
payable.
4. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note
are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorney's fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note, for the
maximum period of time and the full extent permitted by law (a) waive
diligence, presentment, demand notice of nonpayment, protest, notice of
protest, and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
'Debtor" includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. The receipt of
any check or other item of payment by Bank, at its option, shall not be
considered a payment on account until such check or
Page 2
other item of payment is honored when presented for payment at the drawee
bank. Bank may delay the credit of such payment based upon Bank's schedule of
funds availability, and interest under this note shall accrue until the
funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any endorser of this note, including their successors
and assigns, hereby consents to the jurisdiction of any competent court
within the State of California, except as provided in any alternative dispute
resolution agreement executed between Debtor and Bank, and consents to
service of process by any means authorized by said state law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note is subject to the terms of the facility letter between
Debtor and Bank executed in connection herewith but in the event of any
conflict between the terms of such facility letter and this note the terms of
this note shall prevail.
MCGRATH RENTCORP, a
California corporation
By: /s/ Delight Saxton
------------------------------
Title: Vice President of Admin.
---------------------------
Page 3
EXHIBIT 4.2
[LETTERHEAD]
July 24, 1997
(415) 765-2614
Ms. Delight Saxton
Chief Financial Officer and
Vice President of Administration
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580
Re: Credit available (at Bank's discretion) pursuant to that certain
$5,000,000.00 Optional Advance Facility Letter ("Facility Letter") from Union
Bank of California, N.A., formerly The Bank of California, N.A. ("Bank") to
McGrath RentCorp, a California corporation ("Borrower") dated October 16,
1996, as extended by an extension letter dated June 27, 1997, and further
evidenced by that certain Optional Advance Note dated October 16, 1996,
executed by Borrower to the order of Bank, as extended by an extension letter
dated June 27, 1997 ("Optional Advance Note").
Dear Ms. Saxton:
Pursuant to the Facility Letter the Bank expressed its general willingness to
extend credit to the Borrower. Capitalized terms used herein shall have the
meanings given them in the Facility Letter and Optional Advance Note.
Bank and Borrower mutually desire to amend the Facility Letter and the
Optional Advance Note in certain respects, and hereby agree as follows:
The date "June 30, 1997" which appears in the first unnumbered paragraph
of the Facility Letter, in the first unnumbered paragraph of the
Optional Advance Note, and in paragraph 2.b. of the Optional Advance
Note (as extended by the extension letter described above) is hereby
amended to "June 30, 1998".
The second sentence of the first unnumbered paragraph of the Facility
Letter is hereby amended to read as follows: "The term 'Agreement' as
used herein shall mean the Credit Agreement dated as of July 10, 1997,
between Borrower, Bank, Bank of America, National Trust & Savings
Association, and Fleet Bank, N.A., and shall include any amendments
thereto as are agreed to by Bank as set forth below."
The following phrase in the first sentence of section (iii) of the
Facility Letter: "under Articles 6, 7, and 8 of the Agreement is
hereby deleted and replaced with the following: under Articles 6, 7, 8
and 11 of the Agreement (and including any definitions and related
provisions) of the Agreement."
Ms. Delight Saxton
7/24/97
Page 2
The second and third sentences of section (iii) of the Facility Letter
are deleted and replaced with the following: "Delivery to Bank of the
financial statements and other documents pursuant to Section 7.3 of the
Agreement shall be deemed delivery thereof to Bank for the purposes of
this Facility."
Section (b) of the first sentence of paragraph 5 of the Optional Advance
Note is amended to read as follows: "(b) the occurrence of an Event of
Default as defined in the Agreement, or."
The following sentence is added at the end of paragraph 6 of the
Optional Advance Note: "The capitalized terms used but not defined in
this note shall have the meanings given them in such facility letter."
The following sentence is deleted from paragraph 6 of the Optional
Advance Note: "This note incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor
and Bank". The following is added as a new final paragraph to the
Facility Letter:
BORROWER AND BANK HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS FACILITY
LETTER, THE NOTE OR ANY OTHER LOAN DOCUMENT OR IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND ANY SUCH CLAIM, DEMAND ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY. BORROWER OR
BANK MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH
WITH ANY COURT AS WRITTEN EVIDENCE OF THIS CONSENT OF BORROWER AND
BANK TO WAIVE THEIR RIGHT TO TRIAL BY JURY.
Except as specifically provided herein, all terms and conditions of the
Facility Letter and Optional Advance Note remain in full force and effect,
without waiver or modification. Borrower hereby confirms all terms and
conditions contained in the Facility Letter. Further, Borrower certifies
that, as of the date of this letter, there exists neither (i) any material
adverse change to Borrower, its business, the property, or to any guarantor,
nor (ii) any material misrepresentation or omission in any of the information
or materials submitted by Borrower to Bank in connection with the Facility,
nor (iii) any condition, act or event which with the giving of notice or the
passage of time or both would constitute a material adverse change,
misrepresentation or omission.
BORROWER ACKNOWLEDGES THAT THE FACILITY IS NOT A COMMITTED FACILITY. IN ITS
SOLE DISCRETION, FOR ANY REASON OR FOR NO REASON AND WITH OR WITHOUT NOTICE,
BANK MAY DECLINE TO MAKE ANY OR ALL REQUESTED
Ms. Delight Saxton
7/24/97
Page 3
ADVANCES UNDER THE FACILITY, MAY DECLINE TO CONTINUE OR FURTHER RENEW THE
FACILITY, AND MAY TERMINATE THE FACILITY AT ANY TIME.
Please indicate acceptance of the terms of this letter amendment by executing
the enclosed copy and returning it to me no later than the Bank's close of
business on July 25, 1997, at which time, unless the executed copy is
received, the amendments contained herein shall expire.
Yours truly,
Union Bank of California, N.A.
By: /s/ Robert John Vernagallo
-------------------------------
Robert John Vernagallo,
Vice President
ACCEPTED AND AGREED:
MCGRATH RENTCORP, a
California corporation
By: /s/ Delight Saxton
---------------------------------
Title: Vice President of Admin
------------------------------
By: /s/ Thomas J. Sauer
---------------------------------
Title: Vice President
------------------------------
Date: July 29 , 1997
-------------------------
EXHIBIT 4.3
[LETTERHEAD]
July 23, 1997
Ms. Delight Saxton, CFO
McGrath RentCorp
2500 Grant Avenue
San Lorenzo, CA 94580
Re: Requests for Loans
Dear Delight:
We are pleased to advise you that Fleet Bank, National Association (the
"Bank") hereby agrees to consider requests from McGrath RentCorp (the
"Company") for short-term loans from time to time. Please be advised that any
extension of credit will be available at the sole discretion of the Bank
subject to the following terms and conditions:
LOAN REQUESTS: Each request for a loan will be, at the Bank's option,
reviewed by the Bank and an independent credit option, reviewed by the Bank
and an independent credit analysis and assessment will be made each time a
request is received. HOWEVER, THE BANK SHALL BE UNDER NO OBLIGATION
WHATSOEVER TO MAKE ANY LOAN OR OTHERWISE EXTEND CREDIT TO THE COMPANY. The
Bank may respond to any request for a loan for stated amount with a loan for
a different amount, date or maturity, or may decline to respond entirely.
Please call Joanne Koska at 212-819-6355 with your request.
MAXIMUM AMOUNT OF LOANS: In no event shall the Company have more than
$5,000,000 of indebtedness outstanding at any one time.
INTEREST RATE: Loans shall bear interest at an agreed or negotiated rate for
the designated term of each loan. Interest rates on any loan will be
determined by the Bank if such loan is provided to the Company.
EXPIRATION AND MATURITY DATE: No loan shall mature later than June 30, 1998.
OTHER CONDITIONS; DOCUMENTATION: Each request for a loan will be subject to
the execution of a promissory note and such other documentation satisfactory
to the Bank and to such other terms and conditions as may be required in the
sole discretion of the Bank including, without limitation, satisfactory
collateral, further due diligence, and the Bank's satisfaction as to all
credit and legal matters.
If the terms of this letter are acceptable to you, please indicate your
acceptance by signing and returning the enclosed copy of this letter to the
Bank on or before the date of your first request.
Please contact me, at the above number, or Bill Derasmo at 212-819-6647, if
you have any questions or concerns.
Very truly yours,
FLEET BANK N.A.
By: /s/ Anthony C. Nocera, VP
-------------------------
Accepted and Agreed:
McGRATH RENTCORP
By: /s/ Delight Saxton
------------------
8/13/97
cc: Bill Derasmo
Joanne Koska
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1,342
0
26,499
(650)
0
0
277,353
(73,076)
237,963
0
0
0
0
7,718
96,747
237,963
105,653
105,653
58,441
58,441
12,971
0
2,905
31,336
12,632
18,703
0
0
0
18,703
1.23
0
INCLUDES RENTAL EQUIPMENT, LAND, LAND IMPROVEMENT, FURNITURE & EQUIPMENT.
ACCUMULATED DEPRECIATION RELATED TO FOOTNOTE 16 ABOVE.
