1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 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, CA 94550
(Address of principal executive offices)
Registrant's telephone number: (925) 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 May 11, 1998, 14,144,730 shares of Registrant's Common Stock were
outstanding.
================================================================================
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
McGRATH RENTCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- ---------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------
1998 1997
- ---------------------------------------------------------------------------------------
REVENUES
Rental $16,980,893 $14,327,001
Rental Related Services 2,222,709 2,640,842
----------- -----------
Rental Operations 19,203,602 16,967,843
Sales 7,952,147 9,601,497
Other 194,392 272,170
----------- -----------
Total Revenues 27,350,141 26,841,510
----------- -----------
COSTS AND EXPENSES
Direct Costs of Rental Operations
Depreciation 3,846,691 3,423,441
Rental Related Services 1,664,022 1,923,973
Other 3,025,471 2,641,926
----------- -----------
Total Direct Costs of Rental Operations 8,536,184 7,989,340
Costs of Sales 5,249,373 6,261,196
----------- -----------
Total Costs 13,785,557 14,250,536
----------- -----------
Gross Margin 13,564,584 12,590,974
Selling and Administrative 3,704,663 3,357,564
----------- -----------
Income from Operations 9,859,921 9,233,410
Interest 1,450,846 872,885
----------- -----------
Income Before Provision for Income Taxes 8,409,075 8,360,525
Provision for Income Taxes 3,313,176 3,307,367
----------- -----------
Income Before Minority Interest 5,095,899 5,053,158
Minority Interest in Income of Subsidiary 128,200 133,670
----------- -----------
Net Income $ 4,967,699 $ 4,919,488
=========== ===========
Earnings Per Share:
Basic $ 0.34 0.33
=========== ===========
Diluted $ 0.34 0.33
=========== ===========
Shares Used in Per Share Calculation:
Basic 14,435,790 14,976,518
Diluted 14,634,560 15,123,004
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
1
3
McGRATH RENTCORP
CONSOLIDATED BALANCE SHEETS
(unaudited)
- ---------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
---------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
ASSETS
Cash $ 1,442,839 $ 537,875
Accounts Receivable, less allowance for doubtful
accounts of $650,000 in 1998 and 1997 20,323,911 21,794,028
Rental Equipment, at cost:
Relocatable Modular Offices 200,067,260 196,132,895
Electronic Test Instruments 52,341,460 50,350,777
------------- -------------
252,408,720 246,483,672
Less Accumulated Depreciation (74,405,307) (72,398,374)
------------- -------------
Rental Equipment, net 178,003,413 174,085,298
------------- -------------
Land, at cost 20,495,975 20,495,975
Buildings, Land Improvements, Equipment and Furniture,
at cost, less accumulated depreciation of $3,500,913
in 1998 and $3,177,213 in 1997 29,350,043 28,921,513
Prepaid Expenses and Other Assets 7,351,873 6,557,534
------------- -------------
Total Assets $ 256,968,054 $ 252,392,223
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 97,746,987 $ 82,000,000
Accounts Payable and Accrued Liabilities 16,535,976 27,047,173
Deferred Income 7,900,279 6,928,532
Minority Interest in Subsidiary 1,651,258 1,523,058
Deferred Income Taxes 39,546,912 36,247,956
------------- -------------
Total Liabilities 163,381,412 153,746,719
------------- -------------
Shareholders' Equity:
Common Stock, no par value -
Authorized -- 40,000,000 shares
Outstanding -- 14,107,890 shares in 1998 and
14,521,790 shares in 1997 7,697,531 7,756,054
Retained Earnings 85,889,112 90,889,450
------------- -------------
Total Shareholders' Equity 93,586,643 98,645,504
------------- -------------
Total Liabilities and Shareholders' Equity $ 256,968,055 $ 252,392,223
============= =============
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
2
4
McGRATH RENTCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- -------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------------
1998 1997
------------ ------------
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,967,699 $ 4,919,488
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 4,201,698 3,657,614
Gain on Sale of Rental Equipment (1,390,658) (1,513,842)
Proceeds from Sale of Rental Equipment 3,496,525 3,542,735
Change In:
Accounts Receivable 1,470,117 2,224,004
Prepaid Expenses and Other Assets (794,339) (1,642,300)
Accounts Payable and Accrued Liabilities (10,635,727) 1,364,540
Deferred Income 971,747 (213,330)
Deferred Income Taxes 3,298,956 2,524,553
------------ ------------
Net Cash Provided by Operating Activities 5,586,018 14,863,462
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Rental Equipment (9,870,673) (9,980,850)
Purchase of Buildings, Land Improvements,
Equipment and Furniture (783,537) (1,782,391)
------------ ------------
Net Cash Used in Investing Activities (10,654,210) (11,763,241)
------------ ------------
Cash Flow from Financing Activities:
Net Borrowings Under Lines of Credit 15,746,987 (1,850,000)
Net Proceeds from the Exercise of Stock Options 183,175 478,057
Repurchase of Common Stock (8,795,263) --
Payment of Dividends (1,161,743) (1,037,814)
------------ ------------
Net Cash Provided (Used) by Financing
Activities 5,973,156 (2,409,757)
------------ ------------
Net Increase in Cash 904,964 690,464
Cash Balance, Beginning of Period 537,875 686,333
------------ ------------
Cash Balance, End of Period $ 1,442,839 $ 1,376,797
============ ============
Interest Paid During the Period $ 3,302,380 $ 892,867
============ ============
Income Taxes Paid During the Period $ 14,220 $ 731,200
============ ============
Dividends Declared but not yet Paid $ 1,414,473 $ 1,200,681
============ ============
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
3
5
McGRATH RENTCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1. CONSOLIDATED FINANCIAL INFORMATION
The consolidated financial information for the three months ended March
31, 1998 has not been audited, but in the opinion of management, all adjustments
(consisting of only 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 three months ended
March 31, 1998 should not be considered as necessarily indicative of the
consolidated 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.
NOTE 2. NOTES PAYABLE
In April 1998, the Company entered into a loan agreement (the
"Agreement") with one of its banks to borrow $15,000,000 on a short-term basis.
The loan is required to be repaid on the earlier of July 31, 1998 or the funding
date of a contemplated private offering of debt securities. The Agreement
requires the Company to pay interest at prime minus one-half percent or, at the
Company's election, other rate options available under the Agreement.
4
6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Rental revenues for the three months ended March 31, 1998 increased
$2,653,892 (19%) over the comparative period in 1997, with Mobile Modular
Management Corporation ("MMMC") contributing $1,922,046 and electronics
contributing $731,846. The significant rental revenue increase by MMMC resulted
from the large quantities of equipment shipped to schools in the latter part of
1997. Average utilization for electronics during the first quarter increased
from 53.9% in 1997 to 56.4% in 1998 and declined for modulars from 79.3% in 1997
to 76.6% in 1998. Modular utilization declined as a result of a substantial
increase in the level of inventory through the addition of new equipment.
Rental related services revenues for the first quarter of 1998 declined
$418,133 (16%) as compared to the same period in 1997 as a result of less
shipments and site requirements in 1998. Gross margins declined from 27% in 1997
to 25% in 1998.
Sales for the three months ended March 31, 1998 declined $1,649,350
(17%) as compared to the same period in 1997 due to fewer new equipment sales by
MMMC to school districts. Electronics and Enviroplex sales volumes were
consistent with the 1997 comparative period. However, Enviroplex's deferred
income increased $1,614,262 as it experienced delays in shipment to school
districts as a result of the inclement weather in California. Gross margin on
sales declined slightly for the quarter from 35% in 1997 to 34% in 1998. Sales
continue to occur routinely as a normal part of the Company's rental business;
however, these sales can fluctuate from quarter to quarter and year to year
depending on customer demands and requirements.
Depreciation on rental equipment for the three months ended March 31,
1998 increased $423,250 (12%) over the comparative period in 1997 due to the
additional rental equipment purchased during 1997. Rental equipment, at cost,
increased 21% between March 31, 1997 and March 31, 1998. Other direct costs of
rental operations increased $383,545 (15%) over the first quarter in 1997. This
increase primarily resulted from more customers requesting that certain lease
costs be charged to them in the rental rate rather than as a one-time charge
resulting in higher amortization expense of lease costs ($256,748) for items
recovered in the customer's rental rate.
Selling and administrative expenses increased $347,099 (10%) for the
three months ended March 31, 1998 compared to the same period in 1997 due to
higher personnel costs. Personnel costs increased $318,095 over the comparative
quarter in 1997 resulting from additional staff for sales and support, including
the addition of electronics sales people on the East Coast.
Interest expense increased $577,961 (66%) in 1998 over 1997 as a result
of a corresponding 66% higher average borrowing level in 1998. The debt increase
funded part of the significant rental equipment purchases made during 1997.
Income before provision for taxes, net income and basic earnings per
share increased slightly in 1998 as compared to 1997 and amounted to $8,409,075,
$4,967,699 and $0.34 per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a total liabilities to equity ratio of 1.75 to 1 and
1.56 to 1 as of March 31, 1998 and December 31, 1997, respectively. The debt
(notes payable) to equity ratio was 1.04 to 1 and 0.83 to 1 as of March 31, 1998
and December 31, 1997, respectively.
5
7
The Company has made purchases of shares of its common stock from time
to time in the over-the-counter market (NASDAQ) and/or through privately
negotiated, large block transactions under an authorization of the Board of
Directors. Shares repurchased by the Company are cancelled and returned to the
status of authorized but unissued stock. During the three months ended March 31,
1998, the Company has repurchased 439,450 shares of its outstanding common stock
for an aggregate purchase price of $8,795,263 (or an average price of $20.01 per
share). On March 26, 1998, the Board of Directors authorized the repurchase of
up to an additional 1,000,000 shares of its common stock; no repurchases have
been made to date under this new authorization.
The Company believes that its needs for working capital and capital
expenditures through 1998 and beyond will adequately be met by cash flow and
bank borrowings.
PART II OTHER INFORMATION
ITEM 3. OTHER INFORMATION
On March 26, 1998, the Company declared a quarterly dividend on its
Common Stock; the dividend was $0.10 per share. Subject to its continued
profitability and favorable cash flow, the Company intends to continue the
payment of quarterly dividends.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NUMBER DESCRIPTION METHOD OF FILING
------ ----------- ----------------
4.1 Third Amendment to the Restated Credit Agreement Filed herewith.
4.2 $15,000,000 Short-Term Business Loan Agreement Filed herewith.
27.1 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
No reports on form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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: May 11, 1998 MCGRATH RENTCORP
by: /s/ Delight Saxton
-------------------
Delight Saxton
Senior Vice President, Chief
Financial Officer (Chief Accounting
Officer) and Secretary
6
8
INDEX TO EXHIBITS
NUMBER DESCRIPTION
- ------ -----------
4.1 Third Amendment to the Restated Credit Agreement
4.2 $15,000,000 Short-Term Business Loan Agreement
27.1 Financial Data Schedule
1
Exhibit 4.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Amendment") dated as of the 8th day
of April, 1998 is entered into by and among McGRATH RENTCORP, a California
corporation, as "Borrower," the banks listed on the signature pages hereof
(individually a "Bank" and collectively "Banks"), and UNION BANK OF CALIFORNIA,
NATIONAL ASSOCIATION, as agent for Banks (in such capacity, "Agent").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of July 10, 1997, as
amended from time to time ("Agreement"), among Borrower, the Banks and
Agent, credit facilities have been made available to Borrower in a maximum
aggregate principal amount of $90,000,000, consisting of a Basic
Commitment Amount of $50,000,000 and a Reserve Commitment Amount of
$40,000,000.
B. Borrower has requested that the Agent and the Banks amend the Agreement as
set forth below. The Agent and the Bank's are willing to effect such an
amendment upon the terms and subject to the conditions set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
1. Unless otherwise defined herein, capitalized terms used in this Amendment
shall have the respective meanings given to those terms in the Agreement.
2. Section 8.4(b) of the Agreement is hereby deleted and replaced with the
following:
"(b) Outside Debt which in the aggregate exceeds Fifty-five Million
Dollars ($55,000,000)."
3. Borrower hereby represents and warrants to the Agent and the Banks as
follows:
a. Each of the representations and warranties set forth in Article 6 of
the Agreement is true and correct on the date hereof and, after giving effect to
the amendments effected hereby on the Effective Date, will be true and correct
on the Effective Date; and
b. No Default or Event of Default has occurred and is continuing or exists
under the Agreement on the date hereof and, after giving effect to the
amendments effected hereby on the Effective Date, No Default or Event of Default
will have occurred and be continuing or will exist under the Agreement on the
Effective Date.
4. The amendment set forth in Section 2 above shall become effective on April
8, 1998 (the "Effective Date"), subject to receipt by the Agent on or prior to
the Effective Date of counterparts of this Amendment, duly executed by Borrower,
the Agent and each of the Banks.
5. On and after the Effective Date, all references in the Agreement or other
Loan Documents to the Agreement shall mean the Agreement as amended hereby, and
the term "Loan Documents" shall include this Amendment. Except as specifically
provided herein, all
Page 1
2
terms and conditions of the Agreement remain in full force and effect, without
waiver or modification, and this Amendment and the Agreement shall be read
together as one document.
6. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute on and the same agreement. This Amendment shall be governed by,
and construed in accordance with, the laws of the state of California.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by as of the date and year first written above.
BORROWER:
McGRATH RENTCORP
By: ______________________________
Its _________________________
BANKS:
UNION BANK OF CALIFORNIA,
NATIONAL ASSOCIATION,
individually and as Agent
By: ______________________________
Its _________________________
Page 2
3
FLEET BANK, N.A.
By: ______________________________
Its _________________________
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: ______________________________
Its _________________________
Page 3
1
Exhibit 4.2
BUSINESS LOAN AGREEMENT
This Agreement dated as of April 16, 1998, is between Bank of
America National Trust and Savings Association (the "Bank") and McGrath RentCorp
(the "Borrower").
1. SHORT-TERM LOAN AMOUNT AND TERMS
1.1 Loan Amount. The Bank agrees to provide a short-term loan to
the Borrower in the amount of Fifteen Million Dollars ($15,000,000) (the
"Commitment").
1.2 Availability Period. The loan is available in one
disbursement from the Bank between the date of this Agreement and April 30,
1998, unless the Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate
as described below, the interest rate is the Bank's Reference Rate minus
one-half (0.5) percentage point.
(b) The Reference Rate is the rate of interest publicly
announced from time to time by the Bank in San Francisco, California, as
its Reference Rate. The Reference Rate is set by the Bank based on
various factors, including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at,
above, or below the 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 a change in the Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay all accrued but unpaid interest
on May 1, 1998, and then on the first day of each month thereafter until
payment in full of the principal of the loan.
(b) The Borrower will repay in full any principal,
interest or other outstanding charges on the loan on the earlier of (i)
July 31, 1998, or (ii) the day that is 3 banking days after the date on
which the Borrower receives the net proceeds of that certain pending
private offering of debt securities of the Borrower in the total amount
of Forty Million Dollars ($40,000,000).
(c) The Borrower may prepay the loan in full or in part at
any time in an amount not less than Five Hundred Thousand Dollars
($500,000).
1.5 Optional Interest Rates. Instead of the interest rate based
on the Bank's Reference Rate, the Borrower may elect the optional interest rates
listed below during interest periods agreed to by the Bank and the Borrower. The
optional interest rates shall be subject to the terms and conditions described
later in this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion." The following optional
interest rates are available:
(a) the IBOR Rate plus seven-tenths (0.7) percentage
point.
(b) the LIBOR Rate plus seven-tenths (0.7) percentage
point.
1
2
2. OPTIONAL INTEREST RATES
2.1 Optional Rates. Each optional interest rate is a rate per
year. Interest will be paid on the last day of each interest period, and, if the
interest period is longer than one month, then on the first day of each month
during the interest period. At the end of any interest period, the interest rate
will revert to the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the Portion. No Portion will be
converted to a different interest rate during the applicable interest period.
Upon the occurrence of an event of default under this Agreement, the Bank may
terminate the availability of optional interest rates for interest periods
commencing after the default occurs.
2.2 IBOR Rate. The election of IBOR Rates shall be subject to
the following terms and requirements:
(a) The interest period during which the IBOR Rate will be
in effect will be no shorter than 7 days and will end no later than July
31, 1998. The last day of the interest period will be determined by the
Bank using the practices of the offshore dollar inter-bank market.
(b) Each IBOR Rate Portion will be for an amount not less
than One Million Dollars ($1,000,000).
(c) The Borrower may not elect a IBOR Rate with respect to
any principal amount which is scheduled to be repaid before the last day
of the applicable interest period.
(d) The "IBOR Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
IBOR Rate = IBOR Base Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "IBOR Base Rate" means the interest rate at
which the Bank's Grand Cayman Branch, Grand Cayman, British West
Indies, would offer U.S. dollar deposits for the applicable interest
period to other major banks in the offshore dollar inter-bank
market.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and
other reserve percentages.
(e) Each prepayment of an IBOR Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid, and a prepayment fee
as described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if any)
by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it not
been prepaid, exceeds
(ii) the interest which would have been recoverable
by the Bank by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other appropriate money market selected by the Bank for a
2
3
period starting on the date on which it was prepaid and ending on
the last day of the interest period for such Portion (or the
scheduled payment date for the amount prepaid, if earlier).
(f) The Bank will have no obligation to accept an election
for an IBOR Rate Portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and
for periods equal to the interest period, of an IBOR Rate Portion
are not available in the offshore dollar inter-bank market; or
(ii) the IBOR Rate does not accurately reflect the
cost of an IBOR Rate Portion.
2.3 LIBOR Rate. The election of LIBOR Rates shall be subject to
the following terms and requirements:
(a) The interest period during which the LIBOR Rate will
be in effect will be one, two or three weeks, or one, two, or three months
but will end no later than July 31, 1998. The first day of the interest
period must be a day other than a Saturday or a Sunday on which the Bank is
open for business in California, New York and London and dealing in
offshore dollars (a "LIBOR Banking Day"). The last day of the interest
period and the actual number of days during the interest period will be
determined by the Bank using the practices of the London inter-bank market.
(b) Each LIBOR Rate Portion will be for an amount not less
than One Million Dollars ($1,000,000).
(c) The "LIBOR Rate" means the interest rate determined by
the following formula, rounded upward to the nearest 1/100 of one percent.
(All amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Inter-Bank Offered Rate" means the
interest rate at which the Bank's London Branch, London, Great
Britain, would offer U.S. dollar deposits for the applicable
interest period to other major banks in the London inter-bank market
at approximately 11:00 a.m. London time two (2) London Banking Days
before the commencement of the interest period. A "London Banking
Day" is a day on which the Bank's London Branch is open for business
and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the
maximum reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and will include, but
not be limited to, marginal, emergency, supplemental, special, and
other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate
Portion no later than 12:00 noon San Francisco time on the LIBOR Banking
Day preceding the day on which the London Inter-Bank Offered Rate will be
set, as specified above. For example, if there are no intervening holidays
or weekend days in any of the relevant locations, the request must be made
at least three days before the LIBOR Rate takes effect.
3
4
(e) The Borrower may not elect a LIBOR Rate with respect
to any principal amount which is scheduled to be repaid before the last
day of the applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether
voluntary, by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid and a prepayment fee
as described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if any)
by which:
(i) the additional interest which would have been
payable during the interest period on the amount prepaid had it not
been prepaid, exceeds
(ii) the interest which would have been recoverable
by the Bank by placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market, or
other appropriate money market selected by the Bank, for a period
starting on the date on which it was prepaid and ending on the last
day of the interest period for such Portion (or the scheduled
payment date for the amount prepaid, if earlier).
(g) The Bank will have no obligation to accept an election
for a LIBOR Rate Portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and
for periods equal to the interest period, of a LIBOR Rate Portion
are not available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the
cost of a LIBOR Rate Portion.
3. EXPENSES
The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement up to a maximum of Five Thousand Dollars ($5,000).
Expenses include, but are not limited to, reasonable attorneys' fees, including
any allocated costs of the Bank's in-house counsel.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit.
(a) Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
(b) Unless otherwise agreed by the Bank and the Borrower,
disbursement of the proceeds of the loan made under this Agreement shall
be made by wire transfer to such account with such financial institution
as may be designated by the Borrower and acceptable to the Bank. The
Borrower shall execute any standard Bank forms as may be required by the
Bank with respect to such wire transfer. The Bank may terminate its
willingness to disburse the proceeds of the loan by wire transfer
immediately upon any default under this Agreement or for other
reasonable cause.
4.2 Disbursements and Payments. Each disbursement by the Bank and
each payment by the Borrower will be:
4
5
(a) made at the Bank's branch (or other location) selected
by the Bank from time to time;
(b) made for the account of the Bank's branch selected by
the Bank from time to time;
(c) made in immediately available funds, or such other
type of funds selected by the Bank;
(d) evidenced by records kept by the Bank. In addition,
the Bank may, at its discretion, require the Borrower to sign one or
more promissory notes.
4.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions
for disbursement of the proceeds of the loan or for the designation of
optional interest rates given by any one of the individuals authorized
to sign loan agreements on behalf of the Borrower, or any other
individual designated by any one of such authorized signers. In the case
of telephone instructions for disbursement of the proceeds of the loan,
the Borrower shall provide to the Bank its standard agreement for oral
funds transfer services, including the designation of authorized
callers.
(b) The Bank may terminate its willingness to accept
telephone and telefax instructions upon 30 days notice to the Borrower
at any time in its discretion, or immediately upon any default under
this Agreement or for other reasonable cause.
(c) The Borrower indemnifies and excuses the Bank
(including its officers, employees, and agents) from all liability,
loss, and costs in connection with any act resulting from telephone or
telefax instructions the Bank reasonably believes are made by any
individual authorized by the Borrower to give such instructions. This
indemnity and excuse will survive this Agreement's termination.
4.4 Banking Days. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which the Bank is open
for business in California. For amounts bearing interest at an offshore rate (if
any), a banking day is a day other than a Saturday or a Sunday on which the Bank
is open for business in California and dealing in offshore dollars. All payments
and disbursements which would be due on a day which is not a banking day will be
due on the next banking day. All payments received on a day which is not a
banking day will be applied to the credit on the next banking day.
4.5 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used. Principal which is not
paid when due under this Agreement shall continue to bear interest until paid.
4.6 Default Rate. Upon the occurrence and during the continuation
of any default under this Agreement, principal amounts outstanding under this
Agreement will at the option of the Bank bear interest at a rate which is 2.0
percentage points higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
4.7 Interest Compounding. At the Bank's sole option in each
instance, any interest, fees or costs which are not paid when due under this
Agreement shall bear interest from the due date at the Bank's Reference Rate
minus one-half (0.5) percentage point. This may result in compounding of
interest.
5
6
5. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrower under this Agreement:
5.1 Authorizations. Evidence that the execution, delivery and
performance by the Borrower of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
5.2 Governing Documents. A copy of the Borrower's articles of
incorporation.
5.3 Other Items. Any other items that the Bank reasonably
requires.
6. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is
repaid in full, the Borrower makes the following representations and warranties.
Each request for an extension of credit constitutes a renewed representation:
6.1 Authorization. This Agreement, and any instrument or
agreement required hereunder, are within the Borrower's powers, have been duly
authorized, and do not conflict with any of its organizational papers.
6.2 Enforceable Agreement. This Agreement is a legal, valid and
binding agreement of the Borrower, enforceable against the Borrower in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable, except as the enforceability thereof may be affected by (a)
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally, (b) the availability of certain equitable remedies or
limitations imposed by certain equitable principles of general applicability and
(c) limitations based on statutes or on public policy limiting a person's right
to waive the benefits of statutory provisions or common law rights.
6.3 No Conflicts. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
6.4 Financial Information. All financial and other information
that has been or will be supplied to the Bank, including the Borrower's
financial statement dated as of December 31, 1997, is:
(a) sufficiently complete to give the Bank accurate
knowledge of the Borrower's financial condition, including all material
contingent liabilities.
(b) in compliance with all government regulations that
apply.
6.5 No Event of Default. There is no event which is, or with
notice or lapse of time or both would be, a default under this Agreement.
6.6 Insurance. The Borrower has obtained, and maintained in
effect, the insurance coverage required in the "Covenants" section of the
Syndicated Credit Agreement (as defined below).
6.7 Location of Borrower. The Borrower's place of business (or,
if the Borrower has more than one place of business, its chief executive office)
is located at the address listed under the Borrower's signature on this
Agreement.
6
7
6.8 Environmental Matters. The Borrower (a) is not in violation
of any health, safety, or environmental law or regulation regarding hazardous
substances and (b) is not the subject of any claim, proceeding, notice, or other
communication regarding hazardous substances. "Hazardous substances" means any
substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas.
6.9 Year 2000 Compliance. The Borrower has conducted a
comprehensive review and assessment of the Borrower's computer applications [and
made inquiry of the Borrower's key suppliers, vendors and customers] with
respect to the "year 2000 problem" (that is, the risk that computer applications
may not be able to properly perform date-sensitive functions after December 31,
1999) and, based on that review and inquiry, the Borrower does not believe the
year 2000 problem will result in a material adverse change in the Borrower's
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
6.10 Representations and Warranties (the Syndicated Credit
Agreement). The representations and warranties contained in Article 6 of the
Syndicated Credit Agreement (the "Article 6 Reps and Warranties") are true as of
the date of this Agreement as if made on the date of this Agreement. The
Borrower acknowledges and agrees that each request for an extension of credit
under this Agreement shall be deemed to further represent and warrant that the
Article 6 Reps and Warranties remain true as of the date of such request (except
to the extent such representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date).
"Syndicated Credit Agreement" means that certain Credit Agreement dated as of
July 10, 1997, among the Borrower, the banks listed on the signature pages
thereof (collectively, the "Syndicate Banks," individually, a "Syndicate Bank"),
and Union Bank of California, National Association, as agent for the Syndicate
Banks, together with all schedules and exhibits thereto, as such credit
agreement, schedules, and exhibits are now in effect and as from time to time
amended, renewed, restated, or superseded. The Syndicated Credit Agreement and
the First Amendment and the Second Amendment thereto are attached to this
Agreement as Exhibits B, B-1, and B-2, respectively. Any future amendments to
the Syndicated Credit Agreement shall also be attached hereto and shall be
designated accordingly, commencing with Exhibit B-3.
7. COVENANTS
The Borrower agrees, so long as credit is available under this
Agreement and until the Bank is repaid in full:
7.1 Use of Proceeds. To use the proceeds of the credit only to
repay amounts outstanding under the Syndicated Credit Agreement.
7.2 Cooperation. To take any action reasonably requested by the
Bank to carry out the intent of this Agreement.
7.3 Affirmative and Negative Covenants (the Syndicated Credit
Agreement). Unless the Bank waives compliance in writing, to comply with the
affirmative covenants set forth in Sections 7.1 through 7.12 of the Syndicated
Credit Agreement and the negative covenants set forth in Sections 8.1 through
8.9 of the Syndicated Credit Agreement. The Borrower further agrees that with
respect to Section 7.3 of the Syndicated Credit Agreement, the Borrower will, at
the request of the Bank, furnish directly to the Bank any one or more of the
financial statements required thereunder at the same time as the Borrower
furnishes such statements to the Agent under the Syndicated Credit Agreement.
7
8
8. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under
Section 9.1(f) or Section 9.1(g) of the Syndicated Credit Agreement, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 Failure to Pay. The Borrower fails to make any payment of
principal under this Agreement when due or any payment of interest under this
Agreement within 5 days after the date when due.
8.2 False Information. The Borrower has given the Bank
information or representations that are materially false, incorrect, incomplete
or misleading when made.
8.3 Material Adverse Change. A material adverse change occurs, or
is reasonably likely to occur, in the Borrower's business condition (financial
or otherwise), operations, properties or prospects, or ability to repay this
credit.
8.4 Default under Syndicated Credit Agreement. Any Event of
Default (as defined therein) occurs under the Syndicated Credit Agreement.
8.5 Other Bank Agreements. The Borrower fails to meet the
conditions of, or fails to perform any obligation under any agreement the
Borrower has with the Bank or any affiliate of the Bank other than this
Agreement and the Syndicated Credit Agreement. If, in the Bank's opinion, the
breach is capable of being remedied, the breach will not be considered an event
of default under this Agreement for a period of ten (10) days after the date on
which the Bank gives written notice of the breach to the Borrower; provided,
however, that the Bank will not be obligated to extend any additional credit to
the Borrower under this Agreement during that period.
8.6 Other Breach Under Agreement. The Borrower fails to meet the
conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. This includes any
failure or anticipated failure by the Borrower to comply with any financial
covenants incorporated by reference into this Agreement, whether such failure is
evidenced by financial statements delivered to the Bank or is otherwise known to
the Borrower or the Bank. If, in the Bank's opinion, the breach is capable of
being remedied, the breach will not be considered an event of default under this
Agreement for a period of ten (10) days after the date on which the Bank gives
written notice of the breach to the Borrower; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrower during
that period.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied.
9.2 California Law. This Agreement is governed by California law.
9.3 Successors and Assigns. This Agreement is binding on the
Borrower's and the Bank's successors and assignees. The Borrower agrees that it
may not assign this Agreement without the Bank's prior consent. The Bank may
sell participations in or assign this loan, and may exchange financial
information about the Borrower with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrower.
8
9
9.4 Arbitration.
(a) This paragraph concerns the resolution of any
controversies or claims between the Borrower and the Bank, including but
not limited to those that arise from:
(i) This Agreement (including any renewals,
extensions or modifications of this Agreement);
(ii) Any document, agreement or procedure related
to or delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any
business conducted between the Borrower and the Bank, including
claims for injury to persons, property or business interests
(torts).
It is provided, however, that this paragraph does not concern the
resolution of any controversies or claims between the Borrower and the
Bank that arise from the Syndicated Credit Agreement.
(b) At the request of the Borrower or the Bank, any such
controversies or claims will be settled by arbitration in accordance
with the United States Arbitration Act. The United States Arbitration
Act will apply even though this Agreement provides that it is governed
by California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject to its commercial
rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this paragraph is
the equivalent of the filing of a lawsuit, and any claim or controversy
which may be arbitrated under this paragraph is subject to any
applicable statute of limitations. The arbitrators will have the
authority to decide whether any such claim or controversy is barred by
the statute of limitations and, if so, to dismiss the arbitration on
that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to resolve any such
dispute.
(f) The decision that results from an arbitration
proceeding may be submitted to any authorized court of law to be
confirmed and enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed submission to
arbitration, arises from or relates to an obligation to the Bank secured
by real property located in California. In this case, both the Borrower
and the Bank must consent to submission of the claim or controversy to
arbitration. If both parties do not consent to arbitration, the
controversy or claim will be settled as follows:
(i) The Borrower and the Bank will designate a
referee (or a panel of referees) selected under the auspices of
the American Arbitration Association in the same manner as
arbitrators are selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided in California
Code of Civil Procedure Section 638 and the following related
sections;
9
10
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired judge; and
(iv) The award that results from the decision of
the referee (or the panel) will be entered as a judgment in the
court that appointed the referee, in accordance with the
provisions of California Code of Civil Procedure Sections 644 and
645.
(h) This provision does not limit the right of the
Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or
after the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit. However, if the
controversy or claim arises from or relates to an obligation to the Bank
which is secured by real property located in California at the time of
the proposed submission to arbitration, this right is limited according
to the provision above requiring the consent of both the Borrower and
the Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property
securing this Agreement, the Bank has the option to exercise the power
of sale under the deed of trust or mortgage, or to proceed by judicial
foreclosure.
9.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
9.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
9.7 Attorneys' Fees. The Borrower shall reimburse the Bank for
any reasonable costs and attorneys' fees incurred by the Bank in connection with
the enforcement or preservation of any rights or remedies under this Agreement
and any other documents executed in connection with this Agreement, and in
connection with any amendment, waiver, "workout" or restructuring under this
Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing
party is entitled to recover costs and reasonable attorneys' fees incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator. In the event that any case is commenced by or against the
Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar
or successor statute, the Bank is entitled to recover costs and reasonable
attorneys' fees incurred by the Bank related to the preservation, protection, or
enforcement of any rights of the Bank in such a case. As used in this paragraph,
"attorneys' fees" includes the allocated costs of the Bank's in-house counsel.
10
11
9.8 One Agreement. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between the Bank and the Borrower concerning this credit;
(b) replace any prior oral or written agreements between
the Bank and the Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the
final, complete and exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 Indemnification. The Borrower will indemnify and hold the
Bank harmless from any loss, liability, damages, judgments, and costs of any
kind relating to or arising directly or indirectly out of (a) this Agreement or
any document required hereunder, (b) any credit extended or committed by the
Bank to the Borrower hereunder, and (c) any litigation or proceeding related to
or arising out of this Agreement, any such document, or any such credit. This
indemnity includes but is not limited to attorneys' fees (including the
allocated cost of in-house counsel). This indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys, and assigns. This indemnity will survive repayment of the
Borrower's obligations to the Bank. All sums due to the Bank hereunder shall be
obligations of the Borrower, due and payable immediately without demand.
9.10 Notices. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing.
9.11 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
9.12 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
9.13 References to the Syndicated Credit Agreement.
(a) The Bank and the Borrower agree that the references to
certain provisions of the Syndicated Credit Agreement under Paragraphs
6.10, 7.3, and 8.4 of this Agreement are at all times deemed to be to
the most current versions of those provisions as then in effect.
(b) If the Syndicated Credit Agreement is at any time
terminated and no longer in effect, the Bank and the Borrower agree that
the references described in subparagraph (a) above shall be deemed to be
to the versions of those provisions as are in effect as of the
termination of the Syndicated Credit Agreement.
(c) Notwithstanding the foregoing subparagraphs (a) and
(b), the Borrower agrees that the Bank may, in its reasonable
discretion, determine at any time that any provision of the Syndicated
Credit Agreement referenced under Paragraphs 6.10, 7.3, and 8.4 hereof
shall no longer be applicable to this Agreement. In such event, the Bank
and the
11
12
Borrower shall memorialize the Bank's determination through an
appropriate amendment to this Agreement. Among the circumstances
(without limiting such circumstances) under which the Bank may
reasonably make such a determination would be the circumstances
resulting from the Bank's decision to no longer remain a party to the
Syndicated Credit Agreement or resulting from the execution of an
amendment to the Syndicated Credit Agreement to which the Bank does not
consent.
This Agreement is executed as of the date stated at the top of the first page.
Bank of America National McGrath RentCorp
Trust and Savings Association
By _____________________________ By ________________________________
Typed Name: Kenneth J. Beck Typed Name: Delight Saxton
Title: Vice President Title: Senior Vice President, Chief
Financial Officer and Secretary
Address where notices to Address where notices to
the Bank are to be sent: the Borrower are to be sent:
East Bay Regional Commercial 5700 Las Positas
Banking Office (1472) Livermore, CA 94550
300 Lakeside Drive, Suite 250 Attention: Ms. Delight Saxton
Oakland, CA 94612
Attention: Kenneth J. Beck
Vice President
12
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
1,443
0
20,973
(650)
0
0
305,755
(77,906)
256,968
0
0
0
0
7,698
85,889
256,968
27,350
27,350
13,786
13,786
3,704
0
1,451
8,409
3,313
5,096
0
0
0
4,968
0.34
0.34
INCLUDES RENTAL, EQUIPMENT, LAND, LAND IMPROVEMENTS, FURNITURE AND EQUIPMENT.
ACCUMULATED DEPRECIATION OF FOOTNOTE 1 ABOVE.
MINORITY INTEREST IN INCOME OF SUBSIDIARY IS INCLUDED IN NET INCOME.
