November 14, 1997
Electro Rent Corporation
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Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Re: Acquisition Agreement dated September 21, 1997 by
and among General Electric Capital Technology
Management Services Corporation, General Electric
Capital Corporation and Electro Rent Corporation
Gentlemen:
The undersigned are parties, with you, to the
Acquisition Agreement dated September 21, 1997 (the
"Agreement") by and among General Electric Capital
Technology Management Services Corporation ("Seller"),
General Electric Capital Corporation ("GECC") and Electro
Rent Corporation ("Purchaser"). Subsequent to the date of
the Agreement, we have jointly decided that at the Closing
referred to therein, Seller shall retain certain accounts
receivable and finance leases, and certain personnel and
assets associated therewith, which would otherwise have been
included within the Purchased Assets and have agreed upon
certain other matters. This letter (the "Amendment") is to
set forth our agreement that the above-referenced agreement
(the "Agreement") shall be amended as set forth herein, and
except as so set forth, shall continue in full force and
effect. Capitalized terms which are defined in the
Agreement shall have the meanings therein set forth, when
such terms are used herein.
1. Revisions to the Agreement.
Section 1.1(b). The Purchased Assets, as described in
Section 1.1(b) of the Agreement and in Exhibit A, attached
thereto, shall not include either of the following: (i)
accounts receivable for which customers of Seller have been
billed prior to the Closing Date, or which represent
unbilled accruals that are not for rentals and operating
leases where the period of performance began within the 32
days prior to the Closing; or (ii) equipment leases
classified as finance leases and direct financing leases on
the books and records of the Business, including the
equipment, deferred income and salvage value associated
therewith. The receivables to be excluded from the
Purchased Assets pursuant hereto are hereafter referred to
as "Retained Receivables" and the finance leases and direct
financing leases so excluded are hereafter referred to as
the "Finance Leases." Annex 1 sets forth all of the
Retained Receivables known to Seller as of March 31, 1997.
The book value as of March 31, 1997 of the Retained
Receivables is estimated at $45,513,000, net of allowance
for losses, and the book value of the Finance Leases as of
such date is estimated to be $29,892,000. In addition, the
Purchased Assets shall not include: (i) taxes receivable; or
(ii) vendor receivables.
Section 1.1(c). The Assumed Liabilities, as described
in Section 1.1(c) of the Agreement and in Exhibit B,
attached thereto, shall not include any amounts for employee
compensation or benefits, including payroll, sick leave,
vacation, bonus, commission or other incentive compensation
accruing prior to the Closing.
Section 1.1 (e). Section 1.1 is hereby amended by
adding a new subsection (e) as follows:
(e) In the event that the assignment to Purchaser
of any lease or other contract or agreement pursuant
hereto would constitute a breach or default thereunder,
or result in a loss of rights by Seller or Purchaser
thereunder, then this Agreement shall not constitute an
assignment of such lease or other contract or
agreement. From and after the Closing, Seller and
Purchaser shall cooperate in such sublease, agency,
subcontract or other arrangement as Purchaser may
reasonably request in order that Purchaser shall
receive the benefits of each such lease or other
contract or agreement and Purchaser shall discharge the
obligations of Seller thereunder. Following the
Closing, Seller shall use commercially reasonable
efforts to obtain such consent as may be required in
order that the assignment of each such lease or other
contract or agreement may be completed; provided that
as an alternative to obtaining the consent of the
landlord to assign any facilities lease, Seller may
elect to sublease the facility to Purchaser for the
same rent and on the same terms and conditions as the
lease to Seller and Purchaser shall accept any such
sublease. Seller agrees that it shall reimburse
Purchaser for any loss, cost or expense that may be
incurred by Purchaser by reason of the failure of
Seller to obtain any required consent to assignment of
any facility lease to Purchaser at the Closing
hereunder.
Section 1.2(a). The Purchase Price, as set forth in
Section 1.2(a) of the Agreement, shall be the sum of (i)
$240,773,000 subject to the adjustments referred to therein
and (ii) the assumption of the Assumed Liabilities.
Section 2.5. The amount deposited with the Escrow
Agent at the Closing shall be $7 million instead of $15
million.
Section 2.6.
a. Notwithstanding their inclusion in Schedule 4.2(a)
none of: (i) the Retained Receivables, the Finance Leases,
and any reserves applicable thereto; (ii) taxes receivable;,
(iii) vendor receivables; nor (iv) the accruals for
employee compensation or benefits, including payroll, sick
leave, vacation, bonus, commission or other incentive
compensation referred to above in Section 1.1(c) shall be
included in the Closing Date Balance Sheet prepared pursuant
to Section 2.6. Thirty seven percent of the Oracle
capitalized software cost shall be reflected on the Closing
Balance Sheet, and the remainder of such capitalized cost
shall not be so reflected. No amounts representing
capitalized software costs after the implementation date of
the new billing system shall be reflected on the Closing
Balance Sheet. The Deferred Income account number 401-210-
000 referred to in Schedule 4.2(a), exclusive of amounts
pertaining to Finance Leases, will be reflected as a
liability on the Closing Balance Sheet and Statement of Net
Tangible Assets, notwithstanding any of the other agreements
set forth herein. Also, in Section 2.6(b), the amount
$279,250,000, to be used in computing any Balance Sheet
Shortfall or Balance Sheet Excess, shall be changed to
$203,845,000.
b. By way of clarification, the parties have agreed
on the following accounting policies to be followed in the
preparation of the Closing Balance Sheet:
(i) the depreciation start date concept heretofore
utilized by Seller;
(ii) the freight-in capitalization policy
heretofore utilized by Seller;
(iii) no reserve shall be required for
equipment in Status 24; and
(iv) the lease billing start dates that have
been used since Seller's new billing system was
implemented in June 1997.
Section 6.5.
(a) The employees identified on Annex 2 attached
hereto, who are engaged in the collection of the Retained
Receivables and rents under Finance Leases shall be Retained
Employees, for the purpose of Section 6.5, in addition to
the up to 37 persons designated or to be designated by
Purchaser as provided in Section 6.5(b). Purchaser shall
(except as otherwise provided in Section 2.A.(v) below)
reimburse Seller the actual out-of-pocket costs incurred
following the Closing for those Retained Employees engaged
in the collection and administration of the Retained
Receivables and Finance Leases, and the costs allocable to
their use of the Duluth and Hayward Facilities as provided
below, up to a maximum aggregate amount of $425,000, within
30 days of receipt of Seller's statement therefor
accompanied by reasonably detailed supporting documentation.
(b) The 7 employees identified on Annex 2A attached
hereto shall not be offered employment by Purchaser pursuant
to Section 6.5 and shall remain in the employ of Seller
following the Closing. Electro Rent shall reimburse Seller
for the cost of all severance payments for these employees,
including "lack of work" benefits, upon the termination of
their employment with Seller prior to March 30, 1998.
Section 6.9. Section 6.9 shall be amended to require
the delivery of audited financial statements of the Business
as of the Closing Date instead of October 31, 1997, in
addition to the other audited financial statements of the
Business referred to therein. All of the audited financial
statements referred to in Section 6.9 shall be delivered to
Purchaser not later than 60 days following the Closing Date,
rather than December 31, 1997.
Section 6.11. The second sentence of Section 6.11
shall be deleted.
Section 6.12. Section 6.12, amended to read in its
entirety as follows:
6.12 Repurchase of Certain Equipment.
(a) For a period of one hundred eighty (180) days
after the Closing, each of Purchaser and Seller shall
each use commercially reasonable efforts, consistent
with the level of effort, procedures and expenditures
made by Purchaser and Seller, respectively, with
respect to others of its receivables, to collect those
accounts receivable owned by it which constitute
"Subject Receivables" as defined below. For a period
of thirty (30) days following the expiration of such
180-day period, Purchaser shall have the option of
transferring title to any equipment subject to the same
rental agreement as a Subject Receiveable and which is
described in (c) below, for an amount equal to the book
value of such equipment as of the Closing Date, plus
interest on such amount from the Closing Date at the
90-day Treasury rate in effect on the Closing Date plus
1%. The option provided herein shall be exercised by
notice in writing to Seller, accompanied by reasonable
supporting detail. Payment for equipment transferred
to Seller hereunder shall be due within thirty (30)
business days following delivery of the notice and
supporting detail referred to in the preceding
sentence.
(b) As used herein, the term "Subject
Receivables" shall mean accounts receivable which arise
under the same equipment rental agreements as Retained
Receivables and that (i) were, as of the Closing Date,
unpaid thirty-one (31) days or more from the invoice
date, or (ii) are billed on other than a monthly basis
and were, as of the Closing Date, outstanding more than
sixty (60) days past the beginning of the rental or
lease period of performance ( i.e. the beginning of the
billing period).
(c) The equipment subject to transfer by
Purchaser to Seller pursuant to this Section 6.12 shall
be limited to such equipment as remains in possession
of the customer only (i) in the case of a customer's
inability to pay its obligations as they become due as
agreed to by Seller and Purchaser at the time, or in
the absence of such agreement, as determined by
Purchaser, together with the customer's documented
unwillingness to return the equipment, or (ii) in cases
where the customer and equipment cannot be located.
Section 6.13. All equipment subject to the Finance
Leases shall be excluded from the operation of Section 6.13.
Section 6.14. A new Section 6.14 shall be added,
reading as follows:
6.14 Invoicing and Collection for Accrued, Unbilled
Receivables. Following the Closing, Purchaser shall
invoice customers for all accrued, unbilled,
receivables existing as of the Closing Date, including
those accrued, unbilled, receivables which constitute
Retained Receivables and taxes receivable. Purchaser
shall use commercially reasonable efforts, consistent
with the level of effort, procedures and expenditures
made by Purchaser with respect to others of its
receiveables, to collect the foregoing receivables.
Purchaser shall have no liability or obligation to
Seller in the event of nonpayment by the customer of
any of such receivables. Further, Purchaser may, in
its sole discretion, at any time or from time to time
after 60 days following the Closing Date, elect to
cease further collection efforts with respect to any of
the foregoing receivables; provided that Purchaser: (i)
shall first have notified Seller in writing, not less
than 10 days prior to ceasing its collection efforts,
of its intention to do so (with any such notice to
identify the specific receivables involved); and (ii)
shall provide Seller with copies of such existing
documentation as shall be relevant and as Seller may
request for use in collecting such receivables.
Section 8.7. The initial amount of the Escrow Fund
shall be $7 million instead of $15 million. The amount to
be released from the Escrow Fund to the Seller upon
completion of the final settlements under the Closing Date
Balance Sheet shall be $3 million minus the amount, if any,
paid to the Purchaser pursuant to Section 2.6 instead of $11
million minus such amount.
2. Additions to the Agreement.
A. Cooperation, Access and Use of Facilities.
(i) Purchaser and Seller shall cooperate following the
Closing so that, without disrupting the normal business
operations of Purchaser, Seller shall have such access to
the relevant books, records, computer files and data,
invoices, bills, correspondence and other information,
included within the Purchased Assets, as it may reasonably
require for the purpose of collection, administration and
servicing of the Retained Receivables and Finance Leases.
(ii) For a period of 6 months following the Closing,
Purchaser shall make space, and necessary telephones, desks
and other office equipment, available for those Retained
Employees engaged in the collection of Retained Receiveables
and rents under Finance Leases at the facilities operated in
the Business at Duluth, Georgia (the "Duluth Facility") and
Hayward, California (the "Hayward Facility") including
parking places for such persons in the parking lot at such
facility. The premises to be occupied by the Retained
Employees are identified on Annex 3. During such period,
Purchaser shall provide or arrange access, utility services,
security, janitorial, refuse collection and other services
for the premises occupied by the Retained Employees on a
basis reasonably comparable to that provided for employees
of Purchaser working in the Duluth and Hayward Facilities.
All costs properly allocable to Seller's use of the Duluth
and Hayward Facilities, including base rent at the rate of
$1,512 and $284 , respectively, per month, fire and casualty
insurance, amortization of leaseholds, property taxes,
common area maintenance, utilities, telephone charges and
security, janitorial, refuse collection and other services
shall be paid by Seller to Purchaser monthly within 30 days
following submission by Purchaser to Seller of a statement
therefore, with reasonably detailed supporting
documentation.
(iii) For the period from the Closing through
December 31, 1997, Purchaser shall make space, and necessary
telephones, desks and other office equipment, available for
Seller's employees engaged in the conduct of its service
business (unrelated to the Business) at the Duluth Facility
and at the facility operated in the Business at Hayward,
California (the "Hayward Facility"), including parking
places for such persons in the parking lot at such facility.
The premises to be occupied by such employees are identified
on Annex 4. During such period, Purchaser shall provide or
arrange access, utility services, security, janitorial,
refuse collection and other services for the premises
occupied by such employees on a basis reasonably comparable
to that provided for employees of Purchaser working in the
Duluth and Hayward Facilities. All costs properly allocable
to Seller's use of such facilities, including base rent at
the rate of $3,631 and $270, respectively, per month, fire
and casualty insurance, amortization of leaseholds, property
taxes, common area maintenance, utilities, telephone charges
and security, janitorial, refuse collection and other
services shall be paid by Seller to Purchaser monthly within
30 days following submission by Purchaser to Seller of a
statement therefore, with reasonably detailed supporting
documentation.
(iv) For the period from the Closing through December
31, 1997, Seller shall make space, and necessary telephones,
desks and other office equipment, available for certain of
Purchaser's employees at Seller's facility at Norcross,
Georgia (the "Norcross Facility"), including parking places
for such persons in the parking lot at such facility. The
premises to be occupied by the Retained Employees are
identified on Annex 5. During such period, Seller shall
provide or arrange access, utility services, security,
janitorial, refuse collection and other services for the
premises occupied by such employees on a basis reasonably
comparable to that provided for employees of Seller working
in the Norcross Facility. All costs properly allocable to
Purchaser's use of the Facility, including base rent at the
rate of $6,562.50 per month, fire and casualty insurance,
amortization of leaseholds, property taxes, common area
maintenance, utilities, telephone charges and security,
janitorial, refuse collection and other services shall be
paid by Seller to Purchaser monthly within 30 days following
submission by Purchaser to Seller of a statement therefore,
with reasonably detailed supporting documentation.
(v) Seller agrees (a) to indemnify Purchaser for any
loss, cost, liability, claim, damage or expense, including
reasonable attorneys' fees, incurred by Purchaser in
connection with the use of the Duluth and Hayward Facilities
by employees of Seller, and (b) to provide public liability
insurance with respect to such employees through the self-
insurance program applicable to Seller and GECC, with
Purchaser to be provided benefits thereunder as an
additional insured. Seller agrees to instruct its employees
at the Duluth and Hayward Facilities to follow all rules and
regulations prescribed by Purchaser in connection with the
operation of such facilities. Seller acknowledges that the
rights granted to it hereunder are a mere license, and not a
lease, and that Purchaser shall have the right to revoke
such license at any time if the employees of Seller do not
adhere, in all material respects, to the rules and
regulations prescribed by Purchaser.
(vi) Purchaser agrees (a) to indemnify Seller for any
loss, cost, liability, claim, damage or expense, including
reasonable attorneys' fees, incurred by Seller in connection
with the use of the Norcross Facility by employees of
Purchaser, and (b) to provide public liability insurance
with respect to such employees through the insurance program
applicable to Purchaser, with Seller to be provided benefits
thereunder as an additional insured. Purchaser agrees to
instruct its employees at the Norcross Facility to follow
all rules and regulations prescribed by Seller in connection
with the operation of such facility. Purchaser acknowledges
that the rights granted to it hereunder are a mere license,
and not a lease, and that Seller shall have the right to
revoke such license at any time if the employees of
Purchaser do not adhere, in all material respects, to the
rules and regulations prescribed by Seller.
B. Purchaser's Right to Acquire Retained Receivables
and Finance Leases Following the Closing. Following the
Closing, at any time or from time to time, Purchaser shall
have the right to purchase from Seller the Retained
Receivables owing by any customer or group of customers for
an amount equal to the full face amount thereof as shown on
the books and records of the Business as of the Closing
Date, reduced by the amount of any payments thereon
received, and any credits or reductions applicable thereto
arising, following the Closing, or for such other amount as
Purchaser and Seller may agree. Upon any such purchase, the
accounts receivable or leases subject thereto shall no
longer constitute Retained Receivables or Finance Leases for
purposes of this agreement. Purchaser's right of purchase
may be exercised by notice in writing to Seller, which
notice shall specify the Retained Receivables to be
Purchased and the amount payable therefor (determined as set
forth above). Payment for the Retained Receivables so
purchased shall be made concurrently with delivery of the
foregoing notice, by wire transfer of immediately available
funds to such account as Seller shall specify. Any such
purchase shall be effective upon delivery of the foregoing
notice and payment as provided herein. In the event of any
disagreement between Purchaser and Seller with respect to
the amount payable for any Retained Receivables purchased by
Purchaser hereunder, if the parties are unable to resolve
such disagreement within 30 days following the purchase,
either Seller or Purchaser may cause such dispute to be
resolved as provided in Section 2.D. below. Any purchase of
Retained Receiveables hereunder shall be without recourse to
Seller.
C. Cash Receipts.
(i) Following the Closing, Purchaser and Seller shall
report to each other, with reasonable supporting detail,
within 3 business days following the end of each calendar
week, of all funds received in respect of the Retained
Receivables and Finance Leases during such month. Purchaser
shall promptly pay over to Seller any amounts received by it
which are properly allocable to Retained Receivables or
Finance Leases owned by Seller; and Seller shall promptly
pay over to Purchaser any amounts received by it which are
properly allocable to accounts receivable or leases not
constituting Retained Receivables or Finance Leases. All
amounts payable pursuant to this Section 2.C. shall be paid
within 3 days following the end of the calendar week
referred to above, and thereafter shall bear interest at the
90-day Treasury Rate in effect as of such calendar month
end, plus 1%.
(ii) Any amounts received by Purchaser or Seller from a
customer which has outstanding amounts owing pursuant to
both one or more Retained Receivables and/or Finance Leases,
as well as receivables or leases owned by Purchaser, shall
be handled as follows if they are not designated for, and
cannot otherwise be designated to, a specific invoice: Such
amounts shall be applied on a proportional basis over all of
the obligations of such customer (with such amounts applied,
as to each contract, first to the earliest claim under each
rental or lease agreement). Any amounts received by
Purchaser or Seller which constitute partial payment of an
invoice which reflects both one or more Retained Receivables
and/or Finance Leases, as well as receivables or leases
owned by Purchaser, shall be applied to the amounts owed to
Purchaser and Seller on a basis proportional to the amounts
due to each on the invoice.
(iii) Seller and Purchaser shall each make prompt
reimbursement to the other, as may be required to correct a
payment previously made, in the event: (a) any amount is
required by law to be refunded to the customer or its legal
representative, after the relevant receipt has been paid
over to Purchaser or Seller pursuant to the foregoing; or
(b) any incorrect payment is made between them as the result
of a computational error.
D. Resolution of Disagreements. In the event of any
disagreement between Purchaser and Seller in respect of any
amount owing pursuant to this Amendment, each of the parties
shall make available to the other for inspection all books,
records and documents in its possession which contain
relevant information; and the parties shall endeavor to
resolve their disagreement. If, at the end of 30 days, the
parties shall be unable to do so, the parties will submit
the unresolved issue to Price Waterhouse LLP, or such other
accounting firm acceptable to the parties, to resolve the
issue and make a determination binding on the parties;
provided that this dispute resolution procedure shall not be
available to the parties unless the aggregate cumulative
amount of all such disputes shall exceed $25,000. In making
such determination, said accounting firm shall follow such
procedures as it reasonably deems appropriate, it being the
desire of the parties that any disagreement with respect to
the calculation be resolved expeditiously and as
economically as practicable. The fees and expenses charged
by Price Waterhouse LLP, or such other accounting firm
acceptable to the parties, shall be shared one-half by
Seller and one-half by the Purchaser. Promptly following
any determination by Price Waterhouse LLP, or such other
accounting firm acceptable to the parties, Seller or
Purchaser (as the case may be) shall make payment as
aforesaid of any additional amount owing to it hereunder
based upon such determination.
E. Software License. Effective from and after the
Closing, Purchaser hereby grants to Seller a perpetual,
worldwide, royalty free, non-exclusive license to use the
computer programs identified below in the conduct of its
business. Such license does not include the right to sub-
license or assign, except that Seller may grant one or more
sub-licenses for the use of such software to any person
controlled by or under common control with Seller, or to any
purchaser of all or any substantial part of its business;
provided that any such sub-license shall expressly prohibit
the use of the licensed software in connection with any
activities involving the rental of computers or other
electronic equipment. The computer programs covered by this
license are as follows:
Central invoice processing system
Sales analysis system (SAS)
▇▇▇▇ accounts receivable
Demand billing (DSBS)
Finance lease billing (CMS
If the foregoing is in accordance with your
understanding of our agreement, please sign in the space
provided below, whereupon this letter shall evidence our
legally enforceable agreement.
Sincerely yours,
General Electric Capital
Technology Management Services
Corporation
by__________________________
General Electric Capital
Corporation
by__________________________
Accepted and agreed as set forth above
Electro Rent Corporation
by______________________