<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1996
REGISTRATION NO. 333-05949
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RENTAL SERVICE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7353 33-0569350
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
14505 N. HAYDEN ROAD, SUITE 322
SCOTTSDALE, ARIZONA 85260
(602) 905-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MARTIN R. REID
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
RENTAL SERVICE CORPORATION
14505 N. HAYDEN ROAD, SUITE 322
SCOTTSDALE, ARIZONA 85260
(602) 905-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
ELIZABETH A. BLENDELL, ESQ. LARRY A. BARDEN, ESQ.
LATHAM & WATKINS SIDLEY & AUSTIN
633 WEST FIFTH STREET ONE FIRST NATIONAL PLAZA
SUITE 4000 SUITE 4400
LOS ANGELES, CALIFORNIA 90071 CHICAGO, ILLINOIS 60603
(213) 485-1234 (312) 853-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 22, 1996
PROSPECTUS
4,929,000 SHARES
[LOGO OF RSC(SM)
RENTAL SERVICE CORPORATION
COMMON STOCK
Of the 4,929,000 shares of Common Stock offered hereby, 4,659,000 are being
sold by Rental Service Corporation ("RSC" or the "Company") and 270,000 are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for information
relating to the determination of the initial public offering price. Subject to
notice of issuance, the Common Stock offered hereby has been approved for
quotation and trading on the Nasdaq National Market under the symbol "RSVC."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per share........................ $ $ $ $
Total(3)......................... $ $ $ $
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and certain Selling Stockholders have granted the Underwriters
a 30-day option to purchase up to an additional 739,350 shares of Common
Stock solely to cover over-allotments, if any. See "Underwriting." If all
such shares are purchased, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively.
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates
for the shares of Common Stock will be made on or about , 1996.
WILLIAM BLAIR & COMPANY DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[MAP SHOWING RENTAL LOCATIONS IN TEXAS, ARKANSAS, TENNESSEE, LOUISIANA,
MISSISSIPPI, ALABAMA, SOUTH CAROLINA, GEORGIA & FLORIDA]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
auditors and with quarterly reports for each of the first three quarters of
each fiscal year containing unaudited consolidated financial statements.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information in this Prospectus (i) gives effect to a 45 for 1 stock split of
the Company's outstanding shares of Common Stock effective August 21, 1996,
(ii) assumes no exercise of the Underwriters' over-allotment option and (iii)
reflects the repurchase of the outstanding warrant (the "Citicorp Warrant")
owned by Citicorp USA, Inc. ("Citicorp") contemporaneously with the closing of
the offering.
THE COMPANY
The Company is a leading equipment rental company serving the needs of a wide
variety of industrial, manufacturing, construction, government and homeowner
markets. RSC rents a broad selection of equipment ranging from small items such
as pumps, generators, welders and electric hand tools, to larger equipment such
as backhoes, forklifts, air compressors, scissor lifts, aerial manlifts and
skid-steer loaders. The Company also sells parts, supplies and used rental
equipment, and acts as a distributor for new equipment on behalf of certain
national equipment manufacturers. Depending upon market needs, RSC also offers
its customers 24 hours-a-day, seven days-a-week support services, including on-
site maintenance and repair.
RSC's strategy is to expand its presence in existing markets and capitalize
on opportunities to enter new geographic markets through a combination of
acquisitions and start-up locations. From July 1992, through August 22, 1996,
the Company has acquired 16 businesses comprised of 65 locations and has opened
27 start-up locations. The Company has also focused on increasing revenues
across its locations through investments in fleet expansion, the implementation
of sophisticated information systems designed to improve asset utilization and
targeted marketing efforts. As a result, the Company's total revenues have
increased from $25.6 million in the year ended December 31, 1993 to $65.9
million in the year ended December 31, 1995. During the same period, operating
income increased from $578,000 to $9.4 million.
The Company believes that the rental equipment industry offers substantial
consolidation opportunities for large, well-capitalized equipment rental
companies such as RSC. The equipment rental industry is highly fragmented and
primarily consists of a large number of relatively small, independent
businesses typically serving discrete local markets within 30 to 50 miles of
the store location, and a small number of multi-location regional or national
operators. Relative to smaller companies with only one or two rental locations,
the Company believes that national operators such as RSC benefit from several
competitive advantages, including sophisticated management information systems,
volume purchasing, professional management, the ability to transfer equipment
among rental locations to satisfy customer demand, the ability to service
national accounts and national brand identity. As a result of consolidation and
industry growth, 1995 rental revenues of the top 100 rental equipment companies
increased over 1994 rental revenues by approximately 22%, to $2.5 billion,
according to estimates by the Rental Equipment Register (the "RER"), an
industry trade magazine. In spite of this growth, these top 100 companies
accounted for less than one-fifth of the estimated $15 billion in industry
rental revenues in 1995.
Management believes that the equipment rental industry benefits from the
trend among businesses to outsource non-core operations in order to reduce
capital investment and minimize the downtime, maintenance, repair and storage
associated with equipment ownership. According to recent surveys conducted by
The CIT Group, contractors intend to increase the percentage of equipment they
rent without a purchase option to an estimated 8% of their total equipment
requirements in 1996 from less than 5% in 1994.
3
<PAGE>
The Company focuses on operating rental locations in underserved small- to
medium-sized rental markets where the Company can capitalize on its competitive
advantages relative to small, local equipment rental businesses and equipment
dealers who have traditionally served such markets. RSC has developed a cluster
strategy, whereby the Company establishes a comprehensive pool of rental
equipment at a central, readily-accessible "hub" location and surrounds the hub
with smaller "satellite" locations 30 to 50 miles away, which draw on this
equipment pool to serve local customers. The Company believes that this
strategy increases fleet utilization and gives it a competitive advantage in
serving markets with populations as small as 25,000 by allowing the Company to
bring the benefits of a large, high-quality and diversified rental equipment
fleet to markets where a full-scale rental facility might not otherwise be
justified.
The Company has made substantial investments in its state-of-the-art, real-
time management information systems in order to improve asset utilization and
financial performance. Every rental location has on-line access to centralized
computer systems which allow an employee at any location to identify and
reserve a specific piece of equipment anywhere in a region, and schedule
delivery (generally within 24 hours) to a customer's job site. These
information systems have also enabled the Company to implement a decentralized
management structure, whereby RSC's region managers are responsible for local
management, customer service, local marketing strategies and business growth in
their regions. A small corporate staff at the Company's headquarters focuses on
corporate planning, financial reporting and analysis and overseeing the
execution of the Company's growth strategy.
THE OFFERING
<TABLE>
<C> <S>
Shares Offered by the Company..................... 4,659,000
Shares Offered by the Selling Stockholders........ 270,000
Shares Outstanding Immediately After the Offering. 10,006,665(1)
Use of Proceeds to the Company.................... To redeem all outstanding
shares of the Company's 6%
Cumulative Preferred Stock,
par value $.01 per share
(the "Redeemable Preferred
Stock"), and repay certain
indebtedness. See "Use of
Proceeds."
Nasdaq National Market Symbol..................... RSVC
</TABLE>
- --------
(1) Excludes (i) 168,750 shares subject to options outstanding on the date
hereof pursuant to the Company's Stock Option Plan at a weighted average
exercise price of $6.28 per share and (ii) 121,860 shares reserved for
issuance pursuant to the Company's Stock Option Plan. See "Management--
Stock Option Plan."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT SELECTED OPERATING DATA AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------------------
7/17/92 PRO PRO
(INCEPTION) FORMA FORMA
THROUGH AS ADJUSTED AS ADJUSTED
STATEMENT OF OPERATIONS 12/31/92 1993 1994 1995 1995(1) 1995 1996 1996(1)
DATA: ----------- ------- ------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $2,145 $17,238 $27,775 $47,170 $87,051 $16,587 $42,530 $46,564
Sales of parts,
supplies and
equipment............. 2,042 8,394 14,040 18,747 30,934 7,948 15,934 18,278
------ ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 4,187 25,632 41,815 65,917 117,985 24,535 58,464 64,842
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 1,153 11,405 16,284 27,854 57,075 9,543 26,000 29,286
Depreciation, equipment
rentals .............. 245 2,161 4,020 7,691 14,053 2,875 7,789 8,413
Cost of sales of parts,
supplies and
equipment............. 1,898 5,959 10,298 12,617 20,532 5,233 10,869 12,006
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 3,296 19,525 30,602 48,162 91,660 17,651 44,658 49,705
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 891 6,107 11,213 17,755 26,325 6,884 13,806 15,137
Selling, general and
administrative
expense................ 341 2,683 4,747 6,421 10,193 2,256 5,762 6,200
Depreciation and
amortization, excluding
equipment rental
depreciation........... 11 211 504 1,186 1,906 352 1,178 1,261
Amortization of
intangibles(2)......... 321 2,635 2,078 718 1,898 312 1,161 977
Other charges(3)........ -- -- -- -- 956 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 218 578 3,884 9,430 11,372 3,964 5,705 6,699
Interest expense, net... 77 407 731 3,314 4,533 811 3,684 2,486
------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and non-recurring
and extraordinary
items.................. 141 171 3,153 6,116 6,839 3,153 2,021 4,213
Provision for income
taxes.................. 81 465 1,177 2,401 2,688 1,235 794 1,656
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
non-recurring and
extraordinary items.... 60 (294) 1,976 3,715 $ 4,151 1,918 1,227 $ 2,557
======= =======
Extraordinary item(4)... -- -- -- (478) -- --
------ ------- ------- ------- ------- -------
Net income (loss)....... 60 (294) 1,976 3,237 1,918 1,227
Redeemable Preferred
Stock accretion ....... 133 1,013 1,646 1,717 846 1,119
------ ------- ------- ------- ------- -------
Net income (loss)
available to common
stockholders........... $ (73) $(1,307) $ 330 $ 1,520 $ 1,072 $ 108
====== ======= ======= ======= ======= =======
Income (loss) before
non-recurring and
extraordinary items per
common share........... $ (.01) $ (.23) $ .06 $ .40 $ .41 $ .21 $ .02 $ .25
======= =======
Extraordinary item per
common share........... -- -- -- (.10) -- --
------ ------- ------- ------- ------- -------
Net income (loss) per
common share........... $ (.01) $ (.23) $ .06 $ .30 $ .21 $ .02
====== ======= ======= ======= ======= =======
Weighted average common
shares(5).............. 5,552 5,594 5,390 5,050 10,150 5,053 5,502 10,111
SELECTED OPERATING DATA:
Beginning locations .... -- 11 21 25 25 50
Locations acquired .... 11 11 1 26 2 16
Locations opened....... -- -- 3 10 1 14
Locations closed or
sold.................. -- (1) -- (2) -- --
Ending locations held
for sale(6)........... -- -- -- (9) -- --
------ ------- ------- ------- ------- -------
Ending locations ....... 11 21 25 50 28 80
====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
----------------------------------- ------------------------
PRO FORMA
1992 1993 1994 1995 ACTUAL AS ADJUSTED(1)
------- ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment.............. $ 8,591 $16,223 $24,138 $ 52,818 $ 89,909 $ 92,415
Total assets............ 18,360 35,877 48,098 137,832 199,837 207,739
Total debt (including
capital leases)........ 5,024 4,411 12,752 68,555 100,475 81,604
Redeemable Preferred
Stock (net of treasury
stock)................. 10,144 25,956 26,684 28,401 37,020 --
Common Stockholders' eq-
uity (deficit)......... 24 (1,281) (1,474) 46 7,523 71,316
</TABLE>
5
<PAGE>
- --------
(1) Gives effect to (i) all of the acquisitions and proposed acquisitions
described in "Unaudited Pro Forma Consolidated Financial Information,"
(ii) the sale by the Company of 4,659,000 shares of Common Stock in the
offering at an assumed initial public offering price of $15.00 per share,
(iii) a reduction in interest expense as a result of reductions in
indebtedness upon application of a portion of the net proceeds to the
Company from the offering, (iv) the repurchase of the Citicorp Warrant, (v)
the redemption of the Company's Redeemable Preferred Stock upon application
of a portion of the net proceeds to the Company from the offering (and
related elimination of Redeemable Preferred Stock accretion), (vi) the
elimination of a $235,000 annual monitoring fee paid to an affiliate of the
Company and (vii) the reduction of interest expense and amortization of
intangibles expense resulting from the Company's restated revolving credit
facility, in each case as if such transactions had occurred on the first
day of the period presented in the case of statement of operations data or
at June 30, 1996 in the case of balance sheet data. See "Use of Proceeds,"
"Capitalization," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Certain Relationships and Related Transactions" and the
Company's Consolidated Financial Statements and the Notes thereto.
(2) 1993 data includes $781,000 for the write-off of costs in excess of net
assets acquired.
(3) Represents the expenses associated with the relocation of the corporate
office of Acme Holdings Inc. ("Holdings") from Irvine, California to
Scottsdale, Arizona in May 1995. Expenses include remaining lease costs,
severance and relocation costs.
(4) The Company's 1995 extraordinary item represents the loss on extinguishment
of debt related to the $30.0 million revolving credit facility paid off
September 12, 1995. The 1995 Pro Forma As Adjusted data excludes the
following items related to the Holdings Acquisition (as defined) and
Holdings' prepackaged bankruptcy:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gain on extinguishment of debt............................. $52,079
Fresh start accounting adjustment.......................... (4,500)
Reorganization items....................................... (2,209)
-------
$45,370
=======
</TABLE>
(5) See Note 1 to the Company's Consolidated Financial Statements.
(6) In connection with the acquisition of Holdings, the Company decided to
sell, close or dispose of Holdings' California locations. As of August 22,
1996, six of such locations continued to be held for sale and are included
in "assets held for sale" in the Company's Consolidated Financial
Statements. The Company has executed letters of intent to sell five such
remaining locations and to sell the rental, service and delivery fleets of
the sixth location.
----------------
The Company operates through subsidiaries and, unless the context otherwise
requires, references in this Prospectus to the "Company" or "RSC" include
Rental Service Corporation, a Delaware corporation, and its direct and indirect
subsidiaries. The Company's principal executive offices are located at 14505 N.
Hayden Road, Suite 322, Scottsdale, Arizona 85260, and its telephone number is
(602) 905-3300.
6
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information set forth in this Prospectus, in
evaluating an investment in the shares of Common Stock offered hereby.
USE OF PROCEEDS TO BENEFIT EXISTING STOCKHOLDERS
Approximately $37.9 million of the net proceeds of the offering to the
Company will be used to redeem all of the Redeemable Preferred Stock, most of
which is held by persons who are also significant beneficial holders of Common
Stock and are affiliated with members of the Company's Board of Directors. Of
the approximately $37.9 million to be used to redeem the Redeemable Preferred
Stock, Brentwood RSC Partners, L.P. will receive $23.4 million and Nassau
Capital Partners, L.P. will receive $5.0 million. In addition, $13.0 million
of the net proceeds to the Company will be used to repay in full the Company's
senior secured term loan (the "Citicorp Loan") due to Citicorp and repurchase
the Citicorp Warrant. See "Use of Proceeds," "Capitalization" and "Description
of Capital Stock."
RISKS RELATING TO GROWTH STRATEGY
A principal component of the Company's growth strategy is to continue to
expand through additional acquisitions and start-up locations which complement
the Company's business in new or existing markets. Since its formation in
1992, the Company has pursued an aggressive expansion strategy and has
acquired 16 businesses comprised of 65 locations and has opened 27 start-up
locations through August 22, 1996. The Company's future growth will be
dependent upon a number of factors including, among others, the Company's
ability to identify acceptable acquisition candidates and suitable start-up
locations, consummate acquisitions and obtain sites for start-up locations on
favorable terms, promptly and successfully integrate acquired businesses and
start-up locations with the Company's existing operations, expand its customer
base and obtain financing to support expansion. There can be no assurance that
the Company will successfully expand or that any expansion will result in
profitability. The failure to effectively identify, evaluate and integrate
acquired businesses and start-up locations could adversely affect the
Company's operating results, possibly causing adverse effects on the market
price of the Common Stock. In addition, the results achieved to date by the
Company may not be indicative of its prospects or ability to penetrate new
markets, many of which may have different competitive conditions and
demographic characteristics than the Company's current markets.
In connection with prospective acquisitions and start-up locations, the
Company anticipates experiencing growth in the number of its employees, the
scope of its operating and financial systems and the geographic area of its
operations. The Company believes this growth will increase the operating
complexity of the Company and the level of responsibility for both existing
and new management personnel. To manage this expected growth, the Company
intends to invest further in its operating and financial systems and to
continue to expand, train and manage its employee base. There can be no
assurance that the Company will be able to attract and retain qualified
management and employees or that the Company's current operating and financial
systems and controls will be adequate as the Company grows or that any steps
taken to improve such systems and controls will be sufficient. See "Business--
Growth Strategy."
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: large national companies (such as Hertz
Equipment Rental Corporation, Prime Equipment and BET Plant Services U.S.A.);
regional competitors which operate in one or two states; small, independent
businesses with one or two rental locations; and equipment vendors and dealers
who both sell and rent equipment directly to customers. Some of the Company's
competitors have greater financial resources, are more geographically diverse
and have greater name recognition than the Company. There can be no assurance
that the Company will not encounter increased competition from existing
competitors or new market entrants that may be significantly
7
<PAGE>
larger and have greater financial and marketing resources. In addition, to the
extent existing or future competitors seek to gain or retain market share by
reducing prices, the Company may be required to lower its prices, thereby
impacting operating results. Existing or future competitors also may seek to
compete with the Company for acquisition candidates which could have the
effect of increasing the price for acquisitions or reducing the number of
suitable acquisition candidates. In addition, such competitors may also
compete with the Company for start-up locations, thereby limiting the number
of attractive locations for expansion. See "Business--Competition."
GENERAL ECONOMIC CONDITIONS
The Company believes that the equipment rental industry is sensitive to
economic and competitive conditions, including national, regional and local
slowdowns in construction, industrial and/or petrochemical
activity. While RSC operates in nine states (Alabama, Arkansas, Florida,
Georgia, Louisiana, Mississippi, South Carolina, Tennessee and Texas), the
Company's operating results may be adversely affected by events or conditions
in a particular region, such as regional economic slowdowns, adverse weather
and other factors. In addition, the Company's operating results may be
adversely affected by increases in interest rates that may lead to a decline
in economic activity, while simultaneously resulting in higher interest
payments by the Company under its variable rate credit facilities. There can
be no assurance that economic slowdowns or adverse economic or competitive
conditions will not have a material adverse effect on the Company's operating
results and financial condition. See "Business--Locations."
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's revenues and operating results have varied from
quarter to quarter and are expected to continue to fluctuate in the future.
These fluctuations have been due to a number of factors, including: general
economic conditions in the Company's markets; the timing of acquisitions and
start-up locations and related costs; the effectiveness of integrating
acquired businesses and start-up locations; the timing of fleet expansion
capital expenditures; the realization of targeted equipment utilization rates;
seasonal rental patterns of the Company's customers; and price changes in
response to competitive factors. The Company incurs various costs in
establishing or integrating newly acquired locations or start-ups, and the
profitability of a new location is generally expected to be lower in the
initial period of its operation than in subsequent periods. These factors,
among others, make it likely that in some future quarter the Company's results
of operations may be below the expectations of securities analysts and
investors, which could have a material adverse effect on the market price of
the Common Stock. In addition, operating results historically have been
seasonally lower during the first and fourth fiscal quarters than during the
other quarters of the fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Seasonality and Selected
Quarterly Operating Results."
HOLDINGS' BANKRUPTCY
The Company acquired Acme Holdings Inc. ("Holdings") in September 1995.
Prior to this acquisition, as a result of a downturn in business conditions
combined with its highly leveraged capital structure, Holdings and its
subsidiaries filed a prepackaged bankruptcy case under Chapter 11 of the
United States Bankruptcy Code. If the Company increases its indebtedness in
the future, a similar downturn in business could have a material adverse
effect on the Company. See "Background of the Company," "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance and development will depend, in large part,
upon the efforts and abilities of certain members of senior management,
particularly Martin R. Reid, Chairman of the Board and Chief Executive
Officer, and Douglas A. Waugaman, Vice President and Chief Financial Officer.
The loss of service of one or more members of senior management could have a
material adverse effect on the Company's business. The Company's future
success also will depend on its ability to attract, train and retain skilled
personnel in all areas of its business. See "Management."
8
<PAGE>
CONTROL BY EXISTING STOCKHOLDERS
After the sale of the shares of Common Stock offered hereby, the Company's
executive officers and directors, and investors currently represented on its
Board of Directors, will in the aggregate beneficially own approximately 47.0%
of the Company's outstanding Common Stock (43.6% if the Underwriters' over-
allotment option is exercised in full). Accordingly, such persons, if they
choose to act together, generally will be able to elect a majority of the
directors and exercise significant control over the business, policies and
affairs of the Company. Similarly, such persons, acting together, would be in
a position to prevent a takeover of the Company by one or more third parties,
which could deprive the Company's stockholders of a control premium that might
otherwise be realized by them in connection with an acquisition of the
Company. See "Principal and Selling Stockholders."
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company and its operations are subject to various federal, state and
local laws and regulations governing, among other things, worker safety, air
emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances. There can be no assurance
that acquired or leased locations have been operated in compliance with
environmental laws and regulations or that future uses or conditions will not
result in the imposition of environmental liability upon the Company or expose
the Company to third-party actions such as tort suits. In addition, the
Company dispenses petroleum products from underground and above-ground storage
tanks located at certain rental locations that it owns or leases. The Company
maintains an environmental compliance program that includes the implementation
of required technical and operational activities designed to minimize the
potential for leaks and spills, maintenance of records and the regular testing
and monitoring of tank systems for tightness. There can be no assurance,
however, that these tank systems have been or will at all times remain free
from leaks or that the use of these tanks has not or will not result in spills
or other releases. The Company incurs ongoing expenses associated with the
removal of older underground storage tanks and the performance of appropriate
remediation at certain of its locations. The Company also uses hazardous
materials such as solvents to clean and maintain its rental equipment fleet.
In addition, the Company generates and disposes waste such as used motor oil,
radiator fluid and solvents, and may be liable under various federal, state
and local laws for environmental contamination at facilities where its waste
is or has been disposed. See "Business--Government and Environmental
Regulation."
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
Expansion of the Company through acquisitions, start-up locations and
internal growth will require significant capital expenditures. The Company
must continue to reinvest in ongoing capital expenditures to maintain the age
and condition of its rental equipment fleet in order to remain competitive and
provide its customers with high-quality equipment. The Company historically
has financed capital expenditures, acquisitions and start-up locations
primarily through the issuance of equity securities, secured bank borrowings
and internally generated cash flow. To implement its growth strategy and meet
its capital needs, the Company may in the future issue additional equity
securities (which could result in dilution to the purchasers of Common Stock
offered hereby) or may incur additional indebtedness. Such additional
indebtedness would increase RSC's leverage, may make the Company more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures. There can be no assurance that additional capital, if
and when required, will be available on terms acceptable to the Company, or at
all. Failure by the Company to obtain sufficient additional capital in the
future could have a material adverse effect on the Company's operating results
and financial condition. See "Business--Growth Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
9
<PAGE>
LIABILITY AND INSURANCE
The Company's business exposes it to possible claims for personal injury or
death resulting from the use of equipment rented or sold by the Company and
from injuries caused in motor vehicle accidents in which Company delivery and
service personnel are involved. The Company carries comprehensive insurance
subject to a deductible. There can be no assurance that existing or future
claims will not exceed the level of the Company's insurance, or that such
insurance will continue to be available on economically reasonable terms, if
at all. In addition, certain types of claims, such as claims for punitive
damages or for damages arising from intentional misconduct, are generally not
covered by the Company's insurance. See "Business--Legal Proceedings."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws ("Bylaws")
include provisions that may delay, defer or prevent a takeover attempt that
may be in the best interest of stockholders. These provisions include the
ability of the Board of Directors to issue up to 500,000 shares of preferred
stock without any further stockholder approval, a provision under which only
the Board of Directors may call meetings of stockholders and certain advance
notice procedures for nominating candidates for election to the Board of
Directors. Issuance of preferred stock could also discourage bids for the
Common Stock at a premium as well as create a depressive effect on the market
price of the Common Stock. In addition, under certain conditions, Section 203
of the Delaware General Corporation Law (the "DGCL") would prohibit the
Company from engaging in a "business combination" with an "interested
stockholder" (in general, a stockholder owning 15% or more of the Company's
outstanding voting stock) for a period of three years. See "Description of
Capital Stock."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop as a result of this offering or, if a trading market does develop,
that it will be sustained or that the shares of Common Stock could be resold
at or above the initial public offering price. After completion of this
offering, the market price of the Common Stock could be subject to significant
variation due to fluctuations in the Company's operating results, changes in
earnings estimates by investment analysts, the degree of success the Company
achieves in implementing its business and growth strategies, changes in
business or regulatory conditions affecting the Company, its customers or its
competitors, and other factors. In addition, the Nasdaq National Market
historically has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of
companies. These fluctuations, as well as general economic, political and
market conditions, may adversely affect the market price of the Common Stock.
The initial public offering price of the Common Stock offered hereby will be
determined through negotiations between the Company and the representatives
(the "Representatives") of the Underwriters and may not be indicative of the
market price of the Common Stock after this offering. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the offering, the Company will have outstanding an
aggregate of 10,006,665 shares of Common Stock (10,718,828 shares if the
Underwriters' over-allotment option is exercised in full). Future sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of stock options) by the Company's current stockholders after the offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock. In addition, the Company has the authority to issue
additional shares of Common Stock and shares of one or more series of
preferred stock. The issuance of such shares could result in the dilution of
the voting power of the shares of Common Stock purchased in the offering and
could have a dilutive effect on earnings per share. No prediction can be made
as to the effect, if any, that future sales of shares, or the availability of
shares for future sale, will have on the market price of the Common Stock. The
Company currently has no plans to designate and/or issue any shares of
preferred stock.
The holders of all outstanding shares of Common Stock not sold in the
offering are entitled to certain registration rights under the Securities Act
of 1933, as amended (the "Securities Act"), at the expense of the
10
<PAGE>
Company. Such shares may also be sold under Rule 144 of the Securities Act,
depending on the holding period of such securities and subject to significant
restrictions in the case of shares held by persons deemed to be affiliates of
the Company. The Company, the Selling Stockholders, the Company's directors
and executive officers, and certain of the Company's other current
stockholders have, subject to certain exceptions in the case of the Company
described in "Underwriting," agreed not to directly or indirectly offer, sell,
contract to sell or otherwise dispose of or transfer any capital stock of the
Company, or any security convertible into, or exercisable or exchangeable for,
such capital stock, for a period of 180 days after the date of this
Prospectus, without the prior written consent of the Representatives. See
"Description of Capital Stock," "Principal and Selling Stockholders," "Shares
Available for Future Sale" and "Underwriting."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price is substantially higher than the pro forma
net tangible book value per share of Common Stock. Investors purchasing shares
of Common Stock in the offering will be subject to immediate dilution in net
tangible book value of $10.88 per share (based on an assumed initial public
offering price of $15.00 per share). See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including
in particular, the integration of acquisitions and start-up locations into the
Company's existing operations. Such statements are subject to various risks
and uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified under "Risk
Factors" and elsewhere in this Prospectus.
11
<PAGE>
BACKGROUND OF THE COMPANY
The Company was formed in June 1992 by Brentwood Associates, a private
investment firm specializing in growth-oriented private equity and venture
capital investments. Funded primarily with approximately $23 million of equity
provided by a partnership organized by Brentwood Associates, the Company
commenced a growth strategy focusing on the acquisition and expansion of
rental equipment operations primarily in the Southeast. Between July 1992 and
September 1995, the Company acquired eight businesses with 25 rental
locations. These acquisitions included The Air & Pump Company, Inc., acquired
in July 1992 with one location in Texas; Walker Jones Equipment, Inc.,
acquired in October 1992 with four locations in Mississippi; Tri-W Rental,
acquired in December 1992 with six locations in Florida; Wilson Equipment Co.,
Inc., acquired in June 1993 with two locations in Alabama; and Rental Service
Company, acquired in August 1993 with seven locations in Georgia and two
locations in Alabama. The Company also completed three acquisitions totalling
three locations from June 1994 through September 1995. In addition, between
July 1992 and September 1995, the Company opened eight start-up locations in
Mississippi, Alabama, Georgia and Tennessee to complement its business in new
or existing markets.
In September 1995, the Company acquired Acme Holdings Inc. ("Holdings"), an
equipment rental business with 22 locations, primarily serving Florida, the
Texas/Louisiana Gulf Coast and California. Between 1986 and 1990, Holdings had
acquired nine equipment rental businesses financed primarily with debt. In
1993, Holdings refinanced its debt through the public sale of $78.0 million of
senior notes (the "Senior Notes"). In 1994, due to a downturn in business
conditions, combined with Holdings' highly leveraged capital structure,
Holdings faced liquidity constraints and was unable to service its debt. In
response, Holdings brought in a new management team and hired Martin R. Reid,
the Company's current Chief Executive Officer, as Holdings' Chief Executive
Officer in June 1994. This new management team initiated restructuring
discussions with the holders of the Senior Notes in August 1994, culminating
in the prepackaged bankruptcy of Holdings and its subsidiaries. On September
12, 1995, the effective date of the prepackaged bankruptcy plan, the holders
of the Senior Notes received an aggregate of $35.4 million in cash from the
Company in exchange for the surrender of the Senior Notes and the release of
all claims against Holdings. In addition, in exchange for providing the
financing necessary for the consummation of Holdings' prepackaged bankruptcy
plan, the Company acquired Holdings through a stock merger. Prior to such
acquisition, the Company and Holdings shared certain common stockholders,
including members of Holdings' management and affiliates of Brentwood
Associates. In addition, from July 1992 to September 1995, Holdings provided
executive management services to the Company pursuant to a Management
Agreement. Holdings currently operates as a subsidiary of the Company under
the name RSC Holdings Inc.
Since September 1995, the Company has acquired seven additional businesses
with eighteen rental locations. These acquisitions have included CVM Inc. ("U-
Rent-M") acquired in January 1996 with six locations in Texas; Sun
Construction ("Sun") acquired in February 1996 with two locations in Florida;
B&S Rental Company, Inc. ("B&S") acquired in May 1996 with five locations in
Arkansas; and Equipment Rental & Supply Inc. ("ERS") acquired in June 1996
with two locations in South Carolina; and three acquisitions totalling three
locations. In addition, since September 1995, the Company has opened 19 start-
up locations in eight states. In connection with its acquisition of Holdings
and Holdings' 22 locations, the Company determined to dispose of Holdings' 11
California rental locations, as they did not meet the Company's financial
performance criteria. As of August 22, 1996, the Company had sold four of
these California locations and closed another and currently anticipates
selling, closing or otherwise disposing of the remaining six California
locations by September 30, 1996 which are classified as "assets held for sale"
in the Company's consolidated financial statements. The Company has executed
letters of intent to sell five such remaining locations and to sell the
rental, service and delivery fleets of the sixth location. See "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the Notes
thereto.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Common Stock
offered hereby, after deducting the estimated underwriting discount and
offering expenses payable by the Company, are estimated to be $63.8 million
($73.7 million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $15.00 per share.
The Company intends to use the estimated net proceeds of the offering as
follows: (i) approximately $37.9 million will be used to redeem all of the
Company's Redeemable Preferred Stock at the redemption price of $100 per
share, plus accrued and unpaid dividends to the redemption date; (ii) $13.0
million will be used to repay in full the Citicorp Loan which debt is due on
September 15, 2005 and bears interest at the annual rate of 13% and repurchase
the Citicorp Warrant; and (iii) the remaining net proceeds, estimated to be
$12.9 million, will be used to reduce the Company's indebtedness under its
revolving credit facility. Proceeds from the Citicorp Loan were used to, among
other things, refinance the Company's prior revolving credit facility and fund
certain equipment financing of the Company. Proceeds from the revolving credit
facility, under which approximately $88.0 million principal amount of
indebtedness was outstanding at August 21, 1996, were used to, among other
things, fund capital expenditures, acquisitions and start-up locations and
meet seasonal fluctuations in working capital. See "Description of Capital
Stock," "Risk Factors--Use of Proceeds to Benefit Existing Stockholders" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company will not receive any of the proceeds from the sale of shares by
the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation and does not currently intend to pay cash dividends in the
foreseeable future. Management anticipates that all earnings and other cash
resources of the Company, if any, will be retained by the Company for the
operation and expansion of its business and for general corporate purposes.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, results of operations, level of indebtedness,
capital requirements, general business conditions and contractual restrictions
on payment of dividends, if any, as well as such other factors as the Board of
Directors may deem relevant. The Company is effectively restricted by the
terms of the revolving credit facility from paying cash dividends on its
Common Stock, and may in the future enter into loan or other agreements or
issue debt securities or preferred stock that restrict the payment of cash
dividends on Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the total debt and total capitalization of
the Company at June 30, 1996 on (i) an historical basis, (ii) a pro forma
combined basis to reflect the proposed acquisition of five equipment rental
businesses with an aggregate of seven locations in Alabama, Arkansas, Georgia
and Florida pursuant to letters of intent (the "1996 Proposed Acquisitions")
and (iii) a pro forma as adjusted basis to give effect to the sale by the
Company of 4,659,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $15.00 per share and the application of the
estimated net proceeds to the Company therefrom. This table should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Information,"
"Selected Consolidated Financial Information and Operating Data" and the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
PRO
FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Bank debt..................................... $ 87,282 $ 93,122 $ 80,295
Notes payable................................. 12,297 12,297 413(1)
Capital leases................................ 316 316 316
Equipment contracts payable................... 580 580 580
-------- -------- --------
Total debt.................................. 100,475 106,315 81,604
Redeemable Preferred Stock, cumulative par value
$.01 per share; 350,000 shares authorized,
319,805 shares outstanding, actual; $37,363,000
aggregate liquidation preference, actual;
30,195 authorized and none outstanding, pro
forma as adjusted.............................. 37,020 37,020 --
Stockholders' equity:
Preferred Stock, par value $.01 per share;
150,000 authorized and none outstanding,
actual; 500,000 authorized (of which 30,195
are designated Redeemable Preferred Stock)
and none outstanding, pro forma as
adjusted(2)..................................
Common Stock, par value $.01 per share;
20,000,000 authorized and 5,314,275
outstanding, actual; 20,000,000 authorized
and 9,973,275 outstanding, pro forma as
adjusted(2)(3)............................... 53 53 100
Additional paid-in capital.................... 7,398 7,398 71,144
Retained earnings............................. 72 72 72
-------- -------- --------
Total stockholders' equity.................. 7,523 7,523 71,316
-------- -------- --------
Total capitalization...................... $145,018 $150,858 $152,920
======== ======== ========
</TABLE>
- --------
(1) The Company will apply $13.0 million of the net proceeds from this
offering to repay the Citicorp Loan and repurchase the Citicorp Warrant.
See "Management's Discussion of Financial Condition and Results of
Operations."
(2) Actual authorized share numbers give retroactive effect to the increase in
authorized capital which became effective August 21, 1996.
(3) Excludes (i) 168,750 shares subject to options outstanding on the date
hereof pursuant to the Company's Stock Option Plan at a weighted average
exercise price of $6.28 per share, (ii) 121,860 shares reserved for
issuance pursuant to the Company's Stock Option Plan and (iii) 33,390
shares issued upon exercise of options subsequent to June 30, 1996. See
"Management--Stock Option Plan."
14
<PAGE>
DILUTION
At June 30, 1996, the Company had a net tangible book deficiency of $(22.7)
million, or $(4.26) per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing net tangible book value (total
tangible assets less total liabilities and redeemable preferred stock) by the
number of shares of Common Stock outstanding at June 30, 1996. Without taking
into account any changes in the net tangible book value after June 30, 1996,
other than to give effect to (i) the sale by the Company of the 4,659,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $15.00 per share, and (ii) the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company's
Common Stock at June 30, 1996, would have been $41.1 million, or $4.12 per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $8.38 per share to existing stockholders and an
immediate dilution of $10.88 per share to new investors. The following table
illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Net tangible book deficiency per share before the offering.. (4.26)
Increase attributable to new investors...................... 8.38
-----
Pro forma net tangible book value per share after the
offering..................................................... 4.12
------
Dilution per share to new investors........................... $10.88
======
</TABLE>
The following table summarizes, as of August 22, 1996, the differences
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price paid per share (assuming an initial public offering
price $15.00 per share and before deducting the underwriting discount and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 5,347,665 53.4% $ 7,586,838 9.8% $ 1.42
New investors(1)............... 4,659,000 46.6 69,885,000 90.2 15.00
---------- ----- ----------- -----
Total........................ 10,006,665 100.0% $77,471,838 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in the offering will reduce the number
of shares held by existing stockholders to 5,077,665 or 50.7% (5,050,478
or 47.1% if the Underwriters' over-allotment option is exercised in full)
of the total number of shares of Common Stock outstanding after the
offering, and will increase the number of shares to be purchased by the
new public investors to 4,929,000 or 49.3% (5,668,350 or 52.9% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock outstanding after the offering. See
"Principal and Selling Stockholders."
As of August 22, 1996 there were options outstanding to purchase a total of
168,750 shares of Common Stock at a weighted average exercise price of $6.28
per share. To the extent that any of these options are exercised, there will
be further dilution to the new public investors. See "Capitalization" and
"Management--Stock Option Plan."
15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of the
Company presents the unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 and the six months ended June 30, 1996,
and the unaudited pro forma consolidated balance sheet at June 30, 1996. The
pro forma combined consolidated statements of operations for the year ended
December 31, 1995 have been adjusted to give effect to (i) the Company's
acquisition of Holdings (completed in September 1995), and the elimination of
the results of operations of Holdings' California locations, all of which have
been classified as "assets held for sale" in the Company's consolidated
financial statements (the "Holdings Acquisition"), (ii) the Company's
acquisition of Davis Equipment (completed in February 1995), a West Palm
Beach, Florida location (completed in March 1995), AA Rentals (completed in
December 1995) and a Sarasota, Florida location (completed in December 1995)
(collectively, the "1995 Other Acquisitions") and (iii) the Company's
acquisitions of U-Rent-M (completed in January 1996), B&S (completed in May
1996), ERS (completed in June 1996), Sun (completed in February 1996) and a
Naples, Florida location (completed in March 1996) and the 1996 Proposed
Acquisitions (collectively, the "1996 Acquisitions"), in each case as if such
transactions had occurred on January 1, 1995. The pro forma combined
consolidated statements of operations for the six months ended June 30, 1996
have been adjusted to give effect to the 1996 Acquisitions as if the 1996
Acquisitions had occurred on January 1, 1996. The pro forma consolidated
balance sheet gives effect to the 1996 Proposed Acquisitions as if the 1996
Proposed Acquisitions had occurred on June 30, 1996. There can be no assurance
that the 1996 Proposed Acquisitions will be consummated. Pro forma adjustments
relating to the Holdings Acquisition, the 1995 Other Acquisitions and the 1996
Acquisitions are referred to herein collectively as the "Pro Forma Acquisition
Adjustments."
The pro forma as adjusted consolidated statements of operations for the year
ended December 31, 1995 and for the six months ended June 30, 1996, give
additional effect to (i) the sale by the Company of 4,659,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $15.00 per
share, (ii) a reduction in interest expense as a result of reductions in
indebtedness upon application of a portion of the net proceeds to the Company
from the offering, (iii) the redemption of the Company's Redeemable Preferred
Stock upon application of a portion of the net proceeds to the Company from
the offering (and the related elimination of Redeemable Preferred Stock
accretion), (iv) the repurchase of the Citicorp Warrant, (v) the elimination
of a $235,000 annual monitoring fee paid to an affiliate of the Company and
(vi) the reduction of interest expense and amortization of intangibles expense
resulting from the Company's restated revolving credit facility, in each case
as if such transactions had occurred on the first day of the period presented.
The pro forma adjustments relating to the transactions referred to in clauses
(i) through (vi) are referred to herein collectively as the "Pro Forma
Offering Adjustments." The pro forma as adjusted consolidated balance sheet
gives additional effect to the Pro Forma Offering Adjustments as if they had
occurred at June 30, 1996. See "Use of Proceeds."
The Pro Forma Acquisition Adjustments and Pro Forma Offering Adjustments
represent the Company's determination of all adjustments necessary to present
fairly the Company's pro forma results of operations and financial position
and are based upon available information and certain assumptions considered
reasonable under the circumstances. The pro forma consolidated financial
information presented herein does not purport to present what the Company's
financial position or results of operations would actually have been had such
events leading to the Pro Forma Acquisition Adjustments and Pro Forma Offering
Adjustments in fact occurred on the date or at the beginning of the periods
indicated or to project the Company's financial position or results of
operations for any future date or period.
The unaudited pro forma consolidated financial information should be read in
conjunction with the historical Consolidated Financial Statements of the
Company and the Notes thereto and management's discussion thereof contained
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
HOLDINGS(1) HOLDINGS(1) FORMA PRO PRO FORMA
HISTORICAL ACQUISITION (LESS) 1995 OTHER 1996 ACQUISITION FORMA OFFERING
COMPANY GROSS CALIFORNIA ACQUISITIONS ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS
---------- ----------- ----------- ------------ ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment
rentals......... $47,170 $37,263 $(15,894) $1,270 $17,242 $ -- $87,051 $ --
Sales of parts,
supplies and
equipment....... 18,747 7,022 (2,350) 121 7,394 -- 30,934 --
------- ------- -------- ------ ------- ------- ------- ------
Total revenues... 65,917 44,285 (18,244) 1,391 24,636 -- 117,985 --
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 27,854 26,593 (10,918) 835 12,711 -- 57,075 --
Depreciation,
equipment
rentals......... 7,691 5,671 (2,704) 212 2,919 264 (5) 14,053 --
Cost of sales of
parts, supplies
and equipment... 12,617 5,308 (1,663) 99 4,171 -- 20,532 --
------- ------- -------- ------ ------- ------- ------- ------
Total cost of
revenues......... 48,162 37,572 (15,285) 1,146 19,801 264 91,660 --
------- ------- -------- ------ ------- ------- ------- ------
Gross profit..... 17,755 6,713 (2,959) 245 4,835 (264) 26,325 --
Selling, general
and
administrative
expense.......... 6,421 3,833 (1,615) 39 2,983 (1,233)(6) 10,428 (235)(10)
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 1,186 557 (204) 32 335 -- 1,906 --
Amortization of
intangibles...... 718 132 (2) 206 -- 1,023 (7) 2,077 (179)(11)
Other charges(2). -- 956 -- -- -- -- 956 --
------- ------- -------- ------ ------- ------- ------- ------
Operating income
(loss)........... 9,430 1,235 (1,138) (32) 1,517 (54) 10,958 414
Interest expense,
net.............. 3,314 7,636 (152) 7 478 (3,121)(8) 8,162 (3,629)(12)
------- ------- -------- ------ ------- ------- ------- ------
Income (loss)
before income
taxes and non-
recurring and
extraordinary
item............. 6,116 (6,401) (986) (39) 1,039 3,067 2,796 4,043
Provision for
income taxes..... 2,401 2,022 (387) -- 130 (3,067)(9) 1,099 1,589 (9)
------- ------- -------- ------ ------- ------- ------- ------
Income (loss)
before non-
recurring and
extraordinary
item(3).......... 3,715 (8,423) (599) (39) 909 6,134 1,697 2,454
Redeemable
Preferred Stock
accretion........ 1,717 -- -- -- -- -- 1,717 (1,717)(13)
------- ------- -------- ------ ------- ------- ------- ------
Income (loss)
available to
common
stockholders
before non-
recurring and
extraordinary
item............. $ 1,998 $(8,423) $ (599) $ (39) $ 909 $ 6,134 $ (20) $4,171
======= ======= ======== ====== ======= ======= ======= ======
Income before
non-recurring and
extraordinary
item per common
share............ $ .00
Weighted average
common shares(4). 5,550(14)
<CAPTION>
PRO FORMA
AS ADJUSTED
--------------
<S> <C>
Revenues:
Equipment
rentals......... $ 87,051
Sales of parts,
supplies and
equipment....... 30,934
--------------
Total revenues... 117,985
Cost of revenues:
Cost of
equipment
rentals,
excluding
equipment rental
depreciation.... 57,075
Depreciation,
equipment
rentals......... 14,053
Cost of sales of
parts, supplies
and equipment... 20,532
--------------
Total cost of
revenues......... 91,660
--------------
Gross profit..... 26,325
Selling, general
and
administrative
expense.......... 10,193
Depreciation and
amortization,
excluding
equipment rental
depreciation..... 1,906
Amortization of
intangibles...... 1,898
Other charges(2). 956
--------------
Operating income
(loss)........... 11,372
Interest expense,
net.............. 4,533
--------------
Income (loss)
before income
taxes and non-
recurring and
extraordinary
item............. 6,839
Provision for
income taxes..... 2,688
--------------
Income (loss)
before non-
recurring and
extraordinary
item(3).......... 4,151
Redeemable
Preferred Stock
accretion........ --
--------------
Income (loss)
available to
common
stockholders
before non-
recurring and
extraordinary
item............. $ 4,151
==============
Income before
non-recurring and
extraordinary
item per common
share............ $ .41
Weighted average
common shares(4). 10,150(15)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(1) In connection with the acquisition of Holdings, the Company decided to
sell, close or dispose of Holdings' California rental locations. All
financial data set forth in the table above with respect to Holdings
represents the results of Holdings for the period from January 1, 1995
through September 11, 1995, the date of its acquisition by the Company.
Results of Holdings subsequent to the date of its acquisition are
included in the Historical Company's results for the year ended December
31, 1995. The financial data set forth in the column entitled Holdings
California represents the results of operations of the California
locations for the period from January 1, 1995 through September 11, 1995.
(2) Represents the expenses associated with the relocation of the corporate
office of Holdings from Irvine, California to Scottsdale, Arizona in May
1995. Expenses include remaining lease costs, severance and relocation
costs.
(3) The Historical Company 1995 data excludes an extraordinary item
representing the loss on extinguishment of debt of $478,000 (net of tax)
related to the $30.0 million revolving credit facility paid off
September 12, 1995. The 1995 Pro Forma As Adjusted data excludes the
following items related to the Holdings Acquisition and Holdings'
prepackaged bankruptcy (in thousands):
<TABLE>
<S> <C>
Gain on extinguishment of debt................................... $52,079
Fresh start accounting adjustment................................ (4,500)
Reorganization items............................................. (2,209)
-------
$45,370
=======
</TABLE>
(4) See Note 1 to the Company's Consolidated Financial Statements.
(5) Represents the elimination of the historical carrying value rental
depreciation of $6,098,000 and the Company's estimate of $6,362,000 for
rental depreciation assuming the rental fleet acquired was stepped-up to
fair market value at the beginning of the period. As a result, pro forma
depreciation increased by $264,000.
(6) Represents the elimination of certain officers' salaries associated with
the 1995 Other Acquisitions and 1996 Acquisitions as these officers will
not be employed by the Company.
(7) Represents the elimination of the historical amortization of goodwill and
covenants not to compete of $336,000 for the Holdings Acquisition, 1995
Other Acquisitions and 1996 Acquisitions and the Company's estimate of
amortization of goodwill and covenants not to compete for the above
acquisitions of $1,359,000 as if the transactions were consummated at the
beginning of the period presented. As a result, pro forma amortization
expense increased by $1,023,000.
(8) Represents the elimination of historical interest expense of $7,969,000
for the Holdings Acquisition, 1995 Other Acquisitions and 1996
Acquisitions and the effects on interest expense from borrowing to fund
the above acquisitions of $4,848,000 as if the transactions were
consummated at the beginning of the period presented. As a result, pro
forma interest expense decreased by $3,121,000.
(9) Represents the adjustment to effect pro forma adjustments for the
Company's effective tax rate of 39.3%.
(10) Represents elimination of a $235,000 annual monitoring fee paid to an
affiliate of the Company.
(11) Represents the elimination of the amortization of capitalized debt
issuance costs associated with the Citicorp Loan and the net reduction of
amortization of capitalized debt issuance costs associated with the
Company's restated revolving credit facility.
(12) Represents the elimination of historical interest expense on the Citicorp
Loan and a portion of the revolving credit facility assuming the
repayment of such indebtedness at the beginning of the period presented
with a portion of the net proceeds from the sale of Common Stock offered
hereby, and the effect of the reduction of interest expense resulting
from the Company's restated revolving credit facility.
(13) Represents the elimination of historical accretion of dividends on
Redeemable Preferred Stock assuming the redemption of the Redeemable
Preferred Stock at the beginning of the period presented.
(14) Reflects the issuance of capital stock on January 4, 1996, as if the
stock was sold at the beginning of the period presented. See Note 1 to
the Company's Consolidated Financial Statements.
(15) Gives additional effect to the repurchase and elimination of the Citicorp
Warrant and issuance of shares in the offering as if such transactions
were consummated at the beginning of the period presented. See Note 1 to
the Company's Consolidated Financial Statements.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL 1996 ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS(1) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals..... $42,530 $4,034 $ -- $46,564 $ -- $ 46,564
Sales of parts,
supplies and
equipment............ 15,934 2,344 -- 18,278 -- 18,278
------- ------ ----- ------- ------- --------
Total revenues.......... 58,464 6,378 -- 64,842 -- 64,842
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation......... 26,000 3,286 -- 29,286 -- 29,286
Depreciation,
equipment rentals.... 7,789 577 47 (2) 8,413 -- 8,413
Cost of sales of
parts, supplies and
equipment............ 10,869 1,137 -- 12,006 -- 12,006
------- ------ ----- ------- ------- --------
Total cost of revenues.. 44,658 5,000 47 49,705 -- 49,705
------- ------ ----- ------- ------- --------
Gross profit............ 13,806 1,378 (47) 15,137 -- 15,137
Selling, general and
administrative expense. 5,762 727 (172)(3) 6,317 (117)(7) 6,200
Depreciation and
amortization,
excluding equipment
rental depreciation.... 1,178 83 -- 1,261 -- 1,261
Amortization of
intangibles............ 1,161 -- 232 (4) 1,393 (416)(8) 977
------- ------ ----- ------- ------- --------
Operating income........ 5,705 568 (107) 6,166 533 6,699
Interest expense, net... 3,684 76 444 (5) 4,204 (1,718)(9) 2,486
------- ------ ----- ------- ------- --------
Income before income
taxes.................. 2,021 492 (551) 1,962 2,251 4,213
Provision for income
taxes.................. 794 (59) 36 (6) 771 885 (10) 1,656
------- ------ ----- ------- ------- --------
Net income.............. 1,227 551 (587) 1,191 1,366 2,557
Redeemable preferred
stock accretion........ 1,119 -- -- 1,119 (1,119)(11) --
------- ------ ----- ------- ------- --------
Net income available to
common stockholders.... $ 108 $ 551 $(587) $ 72 $ 2,485 $ 2,557
======= ====== ===== ======= ======= ========
Net income per common
share.................. $ .01 $ .25
Weighted average common
shares................. 5,511(12) 10,111(13)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(1) Represents the results of the 1996 Acquisitions prior to their
acquisition by the Company. Results of the 1996 Acquisitions subsequent
to the dates of their acquisition are included in the Historical
Company's results for the six months ended June 30, 1996.
(2) Represents the elimination of the historical carrying value rental
depreciation of $577,000 and the Company's estimate of $624,000 for
rental depreciation assuming the rental fleet acquired was recorded to
fair market value at the beginning of the period presented. As a result,
pro forma depreciation increased by $47,000.
(3) Represents the elimination of certain officers' salaries associated with
the 1996 Acquisitions as these officers will not be employed by the
Company.
(4) Represents the Company's estimate of amortization of goodwill and
covenants not to compete for the 1996 Acquisitions of $232,000, as if the
1996 Acquisitions were consummated at the beginning of the period
presented.
(5) Represents the elimination of 1996 Acquisitions' interest expense of
$76,000 and the effects on interest expense from borrowing to fund the
1996 Acquisitions of $520,000, as if the transactions were consummated at
the beginning of the period presented. As a result, pro forma interest
expense increased by $444,000.
(6) Represents the elimination of the 1996 Acquisitions' benefit for income
taxes of $59,000 and the establishment of the Company's effective income
tax rate which created an additional provision of $95,000 as if the
transactions were consummated at the beginning of the period presented.
As a result, pro forma benefit for income taxes increased by $36,000.
(7) Represents half year effect of the elimination of a $235,000 annual
monitoring fee paid to an affiliate of the Company.
(8) Represents the elimination of the amortization of capitalized debt
issuance costs associated with the Citicorp Loan and the net reduction of
amortization of capitalized debt issuance costs associated with the
Company's restated revolving credit facility.
(9) Represents the elimination of historical interest expense on the Citicorp
Loan and a portion of the revolving credit facility assuming the
repayment of such indebtedness at the beginning of the period presented
with a portion of the net proceeds from the sale of Common Stock offered
hereby, and the effect of the reduction of interest expense resulting
from the Company's restated revolving credit facility.
(10) Represents the adjustment to effect pro forma adjustments for the
Company's effective tax rate of 39.3%.
(11) Represents the elimination of historical accretion of dividends on
Redeemable Preferred Stock assuming the redemption of the Redeemable
Preferred Stock at the beginning of the period presented.
(12) Reflects the issuance of capital stock on January 4, 1996, as if the
stock were issued at the beginning of the period presented. See Note 1 to
the Company's Consolidated Financial Statements.
(13) Gives additional effect to the repurchase and elimination of the Citicorp
Warrant and issuance of shares in the offering as if such transactions
were consummated at the beginning of the period presented. See Note 1 to
the Company's Consolidated Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL 1996 PROPOSED ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS(1) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents.......... $ 1,865 $ 87 $ (87)(2) $ 1,865 $ 2,062 (7) $ 3,927
Accounts receivable,
net.................. 17,660 910 -- 18,570 -- 18,570
Other receivables and
prepaid expense...... 7,116 390 (390)(2) 7,116 -- 7,116
Parts and supplies
inventories, net..... 8,335 3,096 (2,400)(2) 9,031 -- 9,031
Assets held for sale.. 18,298 -- -- 18,298 -- 18,298
Deferred taxes........ 7,309 2 -- 7,311 -- 7,311
Rental equipment, net. 89,909 2,076 430 (3) 92,415 -- 92,415
Operating property and
equipment, at cost,
net.................. 16,283 578 -- 16,861 -- 16,861
Intangible assets..... 30,187 -- 1,148 (4) 31,335 -- 31,335
Other assets.......... 2,875 203 (203)(2) 2,875 -- 2,875
-------- ------ ------- -------- -------- --------
$199,837 $7,342 $(1,502) $205,677 $ 2,062 $207,739
======== ====== ======= ======== ======== ========
LIABILITIES, REDEEMABLE
PREFERRED STOCK AND
COMMON STOCKHOLDERS'
EQUITY:
Accounts payable...... $ 20,432 $ 916 $ (916)(2) $ 20,432 $ -- $ 20,432
Payroll and other
accrued expenses..... 23,956 307 (307)(2) 23,956 -- 23,956
Payables to related
parties.............. -- 462 (462)(2) -- -- --
Accrued interest
payable.............. 804 -- -- 804 -- 804
Income taxes payable.. (188) 65 (65)(2) (188) -- (188)
Deferred taxes........ 9,815 7 (7)(2) 9,815 -- 9,815
Bank debt and long
term obligations..... 100,159 2,614 3,226 (5) 105,999 (24,711)(7) 81,288
Obligations under
capital leases....... 316 347 (347)(2) 316 -- 316
-------- ------ ------- -------- -------- --------
Total liabilities..... 155,294 4,718 1,122 161,134 (24,711) 136,423
Redeemable preferred
stock................ 37,020 -- -- 37,020 (37,020)(7) --
Common stockholders'
equity
Common stock........ 53 830 (830)(6) 53 47 (8) 100
Additional paid-in
capital............ 7,398 16 (16)(6) 7,398 63,746 (8) 71,144
Accumulated
earnings........... 72 1,778 (1,778)(6) 72 -- 72
-------- ------ ------- -------- -------- --------
Total common
stockholders' equity. 7,523 2,624 (2,624) 7,523 63,793 71,316
-------- ------ ------- -------- -------- --------
$199,837 $7,342 $(1,502) $205,677 $ 2,062 $207,739
======== ====== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(1) The purchase method of accounting has been used in preparing the
Unaudited Pro Forma Consolidated Financial Statements of the Company with
respect to the 1996 Proposed Acquisitions. Purchase accounting values
have been assigned to the 1996 Proposed Acquisitions on a preliminary
basis.
(2) Represents assets not acquired or liabilities not assumed in the 1996
Proposed Acquisitions.
(3) Represents preliminary estimates of fair market value step-up for assets
acquired.
(4) Represents the estimated fair market value of covenants not-to-compete
and goodwill represented by the excess purchase price over the estimated
fair market value of net assets acquired.
(5) Represents borrowings under the Company's revolving credit facility to
fund the 1996 Proposed Acquisitions.
(6) Represents the elimination of equity accounts of the 1996 Proposed
Acquisitions.
(7) Represents the use of $12,827,000 of proceeds from the offering to
paydown the Company's revolving credit facility, the use of $11,884,000
of such proceeds to repay the outstanding balance of the Citicorp Loan as
of June 30, 1996, and the use of $37,020,000 of such proceeds to redeem
the Company's Redeemable Preferred Stock outstanding at June 30, 1996,
with the excess proceeds shown as additional cash that will be used to
redeem the expected additional balances related to the Citicorp Loan and
the Redeemable Preferred Stock at the closing date of the offering.
(8) To record the net proceeds to the Company from the sale of the 4,659,000
shares of Common Stock offered hereby.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA
(IN THOUSANDS, EXCEPT LOCATION DATA AND PER SHARE AMOUNTS)
The following selected consolidated statement of operations financial
information for the years ended December 31, 1993, 1994 and 1995, and selected
consolidated balance sheet data as of December 31, 1994 and 1995, has been
derived from the audited consolidated financial statements of the Company
appearing elsewhere in this Prospectus. The selected consolidated financial
information with respect to the Company's statement of operations data for the
period ending December 31, 1992 and with respect to the balance sheet as of
December 31, 1992 and 1993 has been derived from audited financial statements
of the Company that are not included in this Prospectus. The selected
consolidated financial information for the six months ended June 30, 1995 and
1996 has been derived from the unaudited consolidated financial statements of
the Company, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments), necessary to present fairly
the Company's results of operations and financial position at such dates and
for such periods. The results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for future periods
or for the year ending December 31, 1996. The selected operating data
presented below has not been audited. The selected consolidated financial
information and operating data presented below should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ---------------------------
7/17/92 PRO PRO
(INCEPTION) FORMA FORMA
THROUGH AS ADJUSTED AS ADJUSTED
STATEMENT OF OPERATIONS 12/31/92 1993 1994 1995 1995(1) 1995 1996 1996(1)
DATA: ----------- ------- ------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $2,145 $17,238 $27,775 $47,170 $87,051 $16,587 $42,530 $46,564
Sales of parts,
supplies and
equipment............. 2,042 8,394 14,040 18,747 30,934 7,948 15,934 18,278
------ ------- ------- ------- ------- ------- ------- -------
Total revenues.......... 4,187 25,632 41,815 65,917 117,985 24,535 58,464 64,842
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 1,153 11,405 16,284 27,854 57,075 9,543 26,000 29,286
Depreciation, equipment
rentals .............. 245 2,161 4,020 7,691 14,053 2,875 7,789 8,413
Cost of sales of parts,
supplies and
equipment............. 1,898 5,959 10,298 12,617 20,532 5,233 10,869 12,006
------ ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.. 3,296 19,525 30,602 48,162 91,660 17,651 44,658 49,705
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 891 6,107 11,213 17,755 26,325 6,884 13,806 15,137
Selling, general and
administrative
expense................ 341 2,683 4,747 6,421 10,193 2,256 5,762 6,200
Depreciation and
amortization, excluding
equipment rental
depreciation........... 11 211 504 1,186 1,906 352 1,178 1,261
Amortization of
intangibles(2)......... 321 2,635 2,078 718 1,898 312 1,161 977
Other charges(3)........ -- -- -- -- 956 -- -- --
------ ------- ------- ------- ------- ------- ------- -------
Operating income........ 218 578 3,884 9,430 11,372 3,964 5,705 6,699
Interest expense, net... 77 407 731 3,314 4,533 811 3,684 2,486
------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes and non-recurring
and extraordinary
items.................. 141 171 3,153 6,116 6,839 3,153 2,021 4,213
Provision for income
taxes.................. 81 465 1,177 2,401 2,688 1,235 794 1,656
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
non-recurring and
extraordinary items.... 60 (294) 1,976 3,715 $ 4,151 1,918 1,227 $ 2,557
======= =======
Extraordinary item(4)... -- -- -- (478) -- --
------ ------- ------- ------- ------- -------
Net income (loss)....... 60 (294) 1,976 3,237 1,918 1,227
Redeemable preferred
stock accretion ....... 133 1,013 1,646 1,717 846 1,119
------ ------- ------- ------- ------- -------
Net income available to
common stockholders.... $ (73) $(1,307) $ 330 $ 1,520 $ 1,072 $ 108
====== ======= ======= ======= ======= =======
Income before non-
recurring and
extraordinary items per
common share........... $ (.01) $ (.23) $ .06 $ .40 $ .41 $ .21 $ .02 $ .25
======= =======
Extraordinary item per
common share........... -- -- -- (.10) -- --
------ ------- ------- ------- ------- -------
Net income (loss) per
common share........... $ (.01) $ (.23) $ .06 $ .30 $ .21 $ .02
====== ======= ======= ======= ======= =======
Weighted average common
shares(5).............. 5,552 5,594 5,390 5,050 10,150 5,053 5,502 10,111
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
----------------------- ----------------
7/17/92
(INCEPTION)
THROUGH
12/31/92 1993 1994 1995 1995 1996
SELECTED OPERATING DATA: ----------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Beginning locations ..... -- 11 21 25 25 50
Locations acquired ..... 11 11 1 26 2 16
Locations opened........ -- -- 3 10 1 14
Locations closed or
sold................... -- (1) -- (2) -- --
Ending locations held
for sale(6)............ -- -- -- (9) -- --
------ ------ ------- ------- ------- --------
Ending locations ........ 11 21 25 50 28 80
====== ====== ======= ======= ======= ========
Total capital
expenditures............ $1,372 $6,618 $17,043 $23,632 $ 8,707 $ 42,392
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
---------------------------------- -----------------------
PRO FORMA
1992 1993 1994 1995 ACTUAL AS ADJUSTED(1)
------- ------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net book value of rental
equipment.............. $ 8,591 $16,223 $24,138 $ 52,818 $ 89,909 $ 92,415
Total assets............ 18,360 35,877 48,098 137,832 199,837 207,739
Total debt (including
capital leases)........ 5,024 4,411 12,752 68,555 100,475 81,604
Redeemable Preferred
Stock (net of treasury
stock)................. 10,144 25,956 26,684 28,401 37,020 --
Stockholders' equity
(deficit).............. 24 (1,281) (1,474) 46 7,523 71,316
</TABLE>
- -------
(1) Gives effect to (i) all of the acquisitions and proposed acquisitions
described in "Unaudited Pro Forma Consolidated Financial Information,"
(ii) the sale by the Company of 4,659,000 shares of Common Stock in the
offering at an assumed initial public offering price of $15.00 per share,
(iii) a reduction in interest expense as a result of reductions in
indebtedness upon application of a portion of the net proceeds to the
Company from the offering, (iv) repurchase of the Citicorp Warrant, (v)
the redemption of the Company's Redeemable Preferred Stock upon
application of a portion of the net proceeds to the Company from the
offering (and related elimination of Redeemable Preferred Stock
accretion), (vi) the elimination of a $235,000 annual monitoring fee paid
to an affiliate of the Company and (vii) reduction of interest expense and
amortization of intangibles expense resulting from the Company's restated
revolving credit facility, in each case as if such transactions had
occurred on the first day of the period presented in the case of statement
of operations data or at June 30, 1996 in the case of balance sheet data.
See "Use of Proceeds," "Capitalization," "Unaudited Pro Forma Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Relationships and Related
Transactions" and the Company's Consolidated Financial Statements and the
Notes thereto.
(2) 1993 data includes $781,000 for the write-off of costs in excess of net
assets acquired.
(3) Represents the expenses associated with the relocation of the corporate
office of Acme Holdings Inc. ("Holdings") from Irvine, California to
Scottsdale, Arizona in May 1995. Expenses include remaining lease costs,
severance and relocation costs.
(4)The Company's 1995 extraordinary item represents the loss on extinguishment
of debt related to the $30.0 million revolving credit facility paid off
September 12, 1995. The 1995 Pro Forma As Adjusted data excludes the
following items related to the Holdings Acquisition and Holdings'
prepackaged bankruptcy:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gain on extinguishment of debt........................... $52,079
Fresh start accounting adjustment........................ (4,500)
Reorganization items..................................... (2,209)
-------
$45,370
=======
</TABLE>
(5)See Note 1 to the Company's consolidated financial statements.
(6)In connection with the acquisition of Holdings, the Company decided to
sell, close or dispose of Holdings' California locations. As of August 22,
1996, six of such locations continued to be held for sale and are included
in "assets held for sale" in the Company's Consolidated Financial
Statements. The Company has executed letters of intent to sell five such
remaining locations and to sell the rental, service and delivery fleets of
the sixth location.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
OVERVIEW
Since its formation in 1992, the Company has acquired 16 businesses
comprised of 65 locations and has opened 27 start-up locations through August
22, 1996. The Company has also focused on increasing revenues and
profitability across its locations through investments in fleet expansion, the
implementation of information systems designed to improve asset utilization
and targeted marketing efforts. As a result, the Company's total revenues have
increased from $25.6 million in the year ended December 31, 1993 to $65.9
million in the year ended December 31, 1995. During the same period, the
Company's operating margin has expanded from 2.3% to 14.3%.
The Company has historically financed its acquisitions, start-up locations
and capital expenditures primarily through the issuance of equity securities,
internally generated cash flow and bank borrowings. Such financings have
increased the Company's interest expense and resulted in the accretion of
dividends on Redeemable Preferred Stock. Because all of the acquisitions have
been accounted for under the purchase method of accounting, such acquisitions
have increased the Company's goodwill and other intangibles (including
covenants not to compete). During the initial phase of an acquisition or
start-up location, the Company typically incurs expenses related to completing
acquisitions and opening start-up locations, training employees, installing or
converting information systems, facility set-up and marketing expenses. As a
result, the profitability of a new location is generally expected to be lower
in the initial period of its operation than in subsequent periods. Integration
of acquisitions is generally completed within the first six months, while the
Company generally expects start-up locations to achieve normalized
profitability after one year. The Company anticipates that as it continues to
implement its growth strategy, new locations will continue to impact the
Company's margins until such locations achieve normalized profitability.
The Company is continually involved in the investigation and evaluation of
potential acquisitions and start-up locations. Any such transactions are
typically subject to numerous conditions, including due diligence
investigation, environmental review and negotiation of a definitive purchase
agreement. In evaluating acquisition targets, the Company considers, among
other things, its competitive market position, management team, growth
position, and the demographic characteristics of the target market. At any
time, the Company may have one or more offers outstanding and may have
executed letters of intent or binding acquisition agreements. The Company has
entered into letters of intent to acquire five rental equipment businesses
with an aggregate of seven locations in Alabama, Arkansas, Georgia and
Florida. The Company is also currently discussing a number of possible
additional acquisitions. There can be no assurance, however, that such letters
of intent or discussions will result in any particular transaction being
consummated.
Since September 1995, the Company has acquired the following businesses: (i)
AA Rentals, acquired in December 1995 with one location in Athens, Georgia;
(ii) a Sarasota, Florida location, acquired in December 1995; (iii) U-Rent-M,
acquired in January 1996 with six locations in Bryan, College Station, Temple,
Huntsville and Brenham, Texas; (iv) Sun, acquired in February 1996 with one
location in each of Daytona Beach and New Smyrna Beach, Florida; (v) a Naples,
Florida location, acquired in March 1996; (vi) B&S, acquired in May 1996 with
three locations in Little Rock, Arkansas and one location in each of North
Little Rock and Jacksonville, Arkansas; and (vii) ERS, acquired in June 1996
with one location in each of Myrtle Beach and Georgetown, South Carolina. The
Company financed all of these acquisitions with internally generated cash flow
and borrowings under its revolving credit facility, except for U-Rent-M, which
in addition to such borrowings, was financed by the issuance of approximately
$11 million of equity securities.
25
<PAGE>
In connection with the acquisition of Holdings, the Company decided to sell,
close or dispose of Holdings' 11 rental locations in California, as they did
not meet the Company's financial performance criteria. To date, the Company
has sold four California rental locations and closed another. The Company
anticipates selling, closing or otherwise disposing of the remaining six
California locations by September 30, 1996. These remaining rental locations
have been classified as "assets held for sale" in the Company's Consolidated
Financial Statements. The Company has executed letters of intent to sell five
such remaining locations and to sell the rental, service and delivery fleets
of the sixth location.
The Company continually reinvests in ongoing capital expenditures in order
to acquire and maintain a competitive, high quality rental equipment fleet.
For the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996, the Company's capital expenditures aggregated $6.6 million,
$17.0 million, $23.6 million and $42.4 million, respectively. The Company
depreciates rental equipment over periods ranging from three to seven years,
which has resulted in equipment rental depreciation of $2.2 million, $4.0
million, $7.7 million and $7.8 million for the years ended December 31, 1993,
1994 and 1995 and for the six months ended June 30, 1996, respectively.
Depreciation related to new rental equipment periodically contributes to
short-term margin pressure, since new rental equipment does not immediately
generate revenues at historical equipment utilization rates. In recent years,
the Company has also made substantial investments in information systems. The
Company believes that its sophisticated information systems, combined with its
cluster strategy and ability to redeploy equipment among locations, allow RSC
to manage its fleet effectively and achieve higher equipment utilization rates
than many of its competitors.
The Company intends to apply the net proceeds received by it from the
offering to redeem the Company's Redeemable Preferred Stock, to repay the
Citicorp Loan and to reduce outstanding borrowings under the Company's $95.0
million senior secured revolving credit facility (the "Revolver") among the
Company's subsidiaries and certain financial institutions. The redemption of
the Redeemable Preferred Stock will eliminate the 6% cumulative dividend
payable thereon. For the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1996 the accreted value of preferred stock dividends
was $1.0 million, $1.6 million, $1.7 million and $1.1 million, respectively.
At June 30, 1996, approximately $11.9 million was outstanding under the
Citicorp Loan and approximately $87.3 million was outstanding under the
Revolver.
In conjunction with the offering, the Company also intends to amend and
restate the Revolver (the "Restated Revolving Credit Facility") to, among
other things, increase the availability to $125.0 million, decrease the
interest rates by 0.50% and extend the maturity date five years to 2001. The
Company's subsidiaries have received a commitment, subject to completion of
the offering and other conditions, from one of their lenders for the
additional availability, and from the agent for the lenders under the Revolver
to use its best efforts to obtain the requisite consents from other lenders
for the proposed revisions to the Revolver.
In connection with the repayment of the Citicorp Loan and the implementation
of the Restated Revolving Credit Facility, the Company anticipates recording
an extraordinary loss on extinguishment of debt in the third quarter of 1996
of approximately $1.6 million (pre-tax).
In addition, upon completion of the offering, the obligation of the Company
to pay Brentwood Buyout Partners, L.P. ("BBP"), an annual monitoring fee of
$235,000 will terminate. See "Use of Proceeds" and "Certain Relationships and
Related Transactions--Management Agreement."
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company
expressed as a percentage of total revenues, and the percentage change in such
items compared to the same period in the prior year. There can be no assurance
that the trends in revenue growth or operating results will continue in the
future.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES PERCENTAGE INCREASE (DECREASE)
------------------------------------------ --------------------------------------
SIX MONTHS
ENDED SIX MONTHS
YEARS ENDED DECEMBER 31, JUNE 30, ENDED
---------------------------- ------------ JUNE 30,
1993 1994 1995 1995 1996 1994 VS 1993 1995 VS 1994 1996 VS 1995
-------- -------- -------- ----- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... 67.3% 66.4% 71.6% 67.6% 72.7% 61.1% 69.8% 156.4%
Sales of parts,
supplies and
equipment............. 32.7 33.6 28.4 32.4 27.3 67.3 33.5 100.5
-------- -------- -------- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 63.1 57.6 138.3
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 44.5 39.0 42.3 38.9 44.5 42.8 71.1 172.5
Depreciation, equipment
rentals............... 8.4 9.6 11.7 11.7 13.3 86.0 91.3 170.9
Cost of sales of parts,
supplies and
equipment............. 23.3 24.6 19.1 21.3 18.6 72.8 22.5 107.7
-------- -------- -------- ----- -----
Total cost of revenues.. 76.2 73.2 73.1 71.9 76.4 56.7 57.4 153.0
-------- -------- -------- ----- -----
Gross profit............ 23.8 26.8 26.9 28.1 23.6 83.6 58.3 100.6
Selling, general and
administrative expense. 10.5 11.4 9.7 9.2 9.9 76.9 35.3 155.4
Depreciation and
amortization, excluding
equipment rental
depreciation........... 0.8 1.2 1.8 1.4 2.0 138.9 135.3 234.7
Amortization of
intangibles............ 10.2 4.9 1.1 1.3 2.0 (21.1) (65.4) 272.1
-------- -------- -------- ----- -----
Operating income........ 2.3 9.3 14.3 16.2 9.7 572.0 142.8 43.9
Interest expense, net... 1.6 1.8 5.0 3.3 6.3 79.6 353.4 354.3
-------- -------- -------- ----- -----
Income before income
taxes and extraordinary
item................... 0.7% 7.5% 9.3% 12.9% 3.4% 1,743.9 94.0 (35.9)
======== ======== ======== ===== =====
Other Data:
Rental gross profit.... 21.3 26.9 24.6 25.1 20.6 103.5 55.6 109.7
Sales gross profit..... 29.0 26.7 32.7 34.2 31.8 53.7 63.8 86.6
</TABLE>
27
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues. Total revenues for the six months ended June 30, 1996 increased by
138.3% to $58.5 million from $24.5 million in the same period in 1995. This
increase was primarily due to the inclusion of revenues from acquisitions of
nine businesses and the opening of 23 start-up locations subsequent to
June 30, 1995. Equipment rental revenues increased by 156.4% to $42.5 million
from $16.6 million due to a larger rental fleet as a result of acquisitions,
the partial period impact of $42.4 million in capital expenditures during the
first half of 1996 and the full period impact of $23.6 million in capital
expenditures in 1995. Sales of parts, supplies and equipment increased by
100.5% to $15.9 million from $7.9 million due primarily to the increased
number of rental locations selling these items.
Gross Profit. Gross profit for the six months ended June 30, 1996 increased
to $13.8 million, or 23.6% of total revenues, from $6.9 million, or 28.1% of
total revenues, in the same period in 1995. Gross margins on equipment rentals
decreased to 20.6% of equipment rental revenues from 25.1% for the six months
ended June 30, 1995 primarily due to the impact of 30 location additions
during the period. These new locations were comprised of 16 acquired locations
and 14 start-ups and operated for an average of three months during the
period. Start-ups and acquisitions generally incur start-up and integration
expenses during their first six months of operation resulting in lower rental
gross profit margins. These expenses include direct wages, facility rent,
equipment re-rent expense and depreciation. Approximately one-fifth of the
decline in gross margin on equipment rentals was attributable to higher
depreciation, primarily as a result of substantial capital expenditures made
during the period. Equipment utilization, which decreased to 67% from 79% in
the six months ended June 30, 1995, also contributed to the decline in gross
margin on equipment rentals. The utilization rate was negatively impacted by
the opening of 13 more start-up locations than the Company opened during the
first six months of 1995 and a significant increase in capital investment in
the rental fleet. Historically, equipment utilization rates for start-up
locations are lower during the initial period of operation. Equipment
utilization is calculated by dividing equipment rental revenues for a period
by the original cost of the average rental equipment fleet during such period.
Gross margin on sales of parts, supplies and equipment decreased to 31.8% of
sales from 34.2% due primarily to a change in the product mix of parts,
supplies and equipment sales.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the six months ended June 30, 1996 was $5.8
million, or 9.9% of total revenues compared to $2.3 million, or 9.2% of total
revenues in the same period in 1995. The increase of $3.5 million is
attributable primarily to higher selling, general and administrative expense
associated with the Holdings acquisition. Prior to its acquisition in
September 1995, Holdings' selling, general and administrative expense was
approximately 16.0% of its total revenues.
Depreciation and amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the six months ended June 30, 1996 was $1.2 million, or 2.0%
of total revenues compared to $352,000, or 1.4% of total revenues for the same
period in 1995. The increase is attributable to the larger fleet of service
and delivery vehicles in 1996 versus 1995, as well as to capital expenditures
on rental locations in 1995 and the first six months of 1996 in order to
standardize their appearance.
Amortization of intangibles. Amortization of intangibles expense for the six
months ended June 30, 1996 was $1.2 million, or 2.0% of total revenues
compared to $312,000, or 1.3% of total revenues for the same period in 1995.
The increase is due to additional covenants not-to-compete associated with
acquisitions since June 30, 1995 and amortization of the capitalized costs in
connection with the revolving credit facility entered into in September, 1995.
The Company expects that it will generally obtain covenants not to compete in
connection with acquisitions, which will be amortized over their terms,
usually one to three years.
Interest Expense, net. Interest expense, net, for the six months ended June
30, 1996 was $3.7 million compared to $811,000 in the same period in 1995.
This increase was a result of the Company's increased average debt outstanding
for the six months ended June 30, 1996 compared to the same period in 1995, as
well as amortization of mandatory increases in the prepayment price of the
Citicorp Loan. The increased debt resulted from start-up locations,
acquisitions and capital expenditures financed under the Company's revolving
credit facility.
28
<PAGE>
Provision for Income Taxes. Provision for income taxes was $794,000 for the
six months ended June 30, 1996 compared to $1.2 million in the same period in
1995. The Company's effective tax rate was 39.3% for the six month period
ending June 30, 1996 as compared to 39.2% for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Total revenues for the year ended December 31, 1995 increased
57.6% to $65.9 million compared to $41.8 million for the year ended December
31, 1994. This increase was primarily due to the inclusion of revenues from
acquisitions of five businesses and the opening of ten start-up locations in
1995. Equipment rental revenues increased 69.8% to $47.2 million for the year
ended December 31, 1995 from $27.8 million in the same period in 1994. The
acquisition of Holdings accounted for $10.2 million or 52.6% of the increase
in equipment rental revenues. In addition, rental revenues increased due to a
larger rental fleet as a result of acquisitions and the partial year impact of
approximately $23.6 million of capital expenditures in 1995 and the full year
impact of 1994 capital expenditures of $17.0 million. Sales of parts, supplies
and equipment increased 33.5% to $18.7 million for the year ended December 31,
1995 from $14.0 million for the year ended December 31, 1994. The increase was
primarily due to an increase in the number of rental locations selling parts,
supplies and equipment. The acquisition of Holdings accounted for $1.7 million
or approximately 36.2% of the increase.
Gross Profit. Gross profit for the year ended December 31, 1995 increased to
$17.8 million or 26.9% of total revenues from $11.2 million, or 26.8% of total
revenues, for the year ended December 31, 1994. Gross margin on equipment
rentals decreased to 24.6% of rental revenues from 26.9% for the year ended
December 31, 1994 due primarily to an increase in rental depreciation expense
as a percentage of rental revenues from 14.5% to 16.3% as a result of $23.6
million in capital expenditures in 1995, and a higher number of acquisitions
and start-ups in 1995, with correspondingly higher start-up and acquisition
expenses. In addition, gross margin was negatively impacted by a decrease in
the utilization rate to 77% from 79% for the year ended December 31, 1994
resulting primarily from the acquisition of Holdings, which had a lower
utilization rate than the Company, and the opening of start-up locations in
the second half 1995. Gross margin on sales of parts, supplies and equipment
increased to 32.7% of sales in 1995 from 26.7% in 1994 due to a favorable
product mix among parts, supplies and equipment sales.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased to $6.4 million, or 9.7% of total revenues
for the year ended December 31, 1995, compared to $4.7 million or 11.4% of
total revenues, for the year ended December 31, 1994. The increase of $1.7
million was attributable to infrastructure costs associated with start-ups and
acquisitions.
Depreciation and amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the year ended December 31, 1995 was $1.2 million, or 1.8%
of total revenues, compared to $504,000, or 1.2% of total revenues, for the
same period in 1994. The increase of $682,000 was attributable to a larger
fleet of vehicles associated with start-up locations and continued replacement
of older delivery vehicles.
Amortization of intangibles. Amortization of intangibles expense for the
year ended December 31, 1995 was $718,000 compared to $2.1 million for the
same period in 1994. The decrease of $1.4 million was caused by the completion
in 1994 of the amortization of covenants not-to-compete associated with 1993
acquisitions.
Interest Expense, net. Interest expense, net, for the year ended December
31, 1995 was $3.3 million, compared to $731,000 for the year ended December
31, 1994. The increase was attributable primarily to increased average debt
outstanding, as well as amortization of mandatory increases in the prepayment
price of the Citicorp Loan. During the year, total debt increased from $12.8
million to $68.6 million. The increase in debt resulted from acquisitions,
capital expenditures and start-up locations financed under the Company's
revolving credit facility.
Provision for Income Taxes. Provision for income taxes was $2.4 million for
fiscal 1995, as compared to $1.2 million for 1994. The Company's effective tax
rate was 39.3% for 1995, as compared to 37.3% for 1994.
Extraordinary Item. In 1995, the Company wrote off capitalized costs of
$478,000 associated with the Company's prior revolving credit facility which
was refinanced in September, 1995, net of an $305,000 income tax benefit.
29
<PAGE>
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues. Total revenues for the year ended December 31, 1994 increased
63.1% to $41.8 million compared to $25.6 million for the year ended December
31, 1993. Revenues increased primarily due to the full year impact of the two
locations acquired in Alabama in June 1993 and the nine locations acquired in
Georgia in August 1993, along with one acquisition and three start-up
locations opened in 1994. Equipment rental revenues increased 61.1% to $27.8
million for the year ended December 31, 1994 from $17.2 million in the same
period in 1993. Rental revenues increased due to a larger rental fleet as a
result of acquisitions and the partial year impact of $17.0 million of capital
expenditures in 1994 and the full year impact of 1993 capital expenditures of
$6.6 million. Sales of parts, supplies and equipment increased 67.3% to $14.0
million for the year ended December 31, 1994 from $8.4 million for the year
ended December 31, 1993. The increase was primarily attributable to the full
year impact of the acquisitions completed in 1993 and to the opening of three
start-up locations in 1994.
Gross Profit. Gross profit for the year ended December 31, 1994 increased to
$11.2 million or 26.8% of total revenues from $6.1 million or 23.8% of total
revenues for the year ended December 31, 1993. Gross margin on equipment
rentals increased to 26.9% of revenues from 21.3% for the year ended December
31, 1993, primarily due to the impact of an improved equipment utilization
rate of 79% as compared to 72% for the year ended December 31, 1993. The
equipment utilization rate increased primarily as a result of the acquisition
of nine locations in Georgia. Gross margin on sales of parts, supplies and
equipment decreased to 26.7% of sales in 1994 from 29.0% in 1993, due
primarily to a change in product mix among parts, supplies and equipment sales
from the prior period.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the year ended December 31, 1994 was $4.7 million
or 11.4% of total revenues compared to $2.7 million or 10.5% of total revenues
for the same period in 1993. The increase resulted from investment in
infrastructure to support growth in the Company's operations and the full-year
effect of expenses associated with the businesses acquired in 1993.
Depreciation and amortization, excluding equipment rental
depreciation. Depreciation and amortization, excluding equipment rental
depreciation, for the year ended December 31, 1994 was $504,000 compared to
$211,000 for the same period in 1993. The increase was primarily attributable
to expansion of the Company's non-rental delivery fleet and to the impact of a
full year's depreciation of assets acquired in 1993.
Amortization of intangibles. Amortization of intangibles expense for the
year ended December 31, 1994 was $2.1 million compared to $2.6 million for the
same period in 1993. The 1993 amount included a $781,000 write-off of impaired
goodwill. The remaining difference represents the full year effect of the
amortization of the covenant not-to-compete and goodwill related to the
Georgia and Alabama acquisitions.
Interest Expense, net. Interest expense, net, for the year ended December
31, 1994 was $731,000 compared to $407,000 for the comparable period in 1993.
This increase was a result of the Company's increased average debt outstanding
for the year ended December 31, 1994 compared to the period ended December 31,
1993. Total debt increased from $4.4 million to $12.8 million as of December
31, 1994. The increase in debt resulted from acquisitions, capital
expenditures and start-up locations financed under the Company's revolving
credit facility.
Provision for Income Taxes. Provision for income taxes was $1.2 million for
the year ended December 31, 1994, compared to $465,000 for the year ended
December 31, 1993. The Company had an effective tax rate of 37.3% in 1994, due
to an assessment of an alternative minimum tax.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been the funding of capital
expenditures, acquisitions and start-up locations. The Company historically
has financed its capital expenditures, acquisitions and start-up locations
primarily through the issuance of equity securities, secured bank borrowings
and net cash provided by operating activities. The Company had cash and cash
equivalents of $1.9 million at June 30, 1996 and $1.5 million at December 31,
1995.
30
<PAGE>
During the six months ended June 30, 1996, the Company's operating
activities provided net cash flow of $11.7 million as compared to $4.4 million
for the same period in the prior year. The principal causes for the variation
in cash flow between the periods were increased depreciation and amortization
and higher average accounts payable. For the years ended December 31, 1994 and
1995, cash provided by operating activities was $7.4 million and
$12.5 million, respectively. The increase was attributable primarily to higher
net income and an increase in depreciation and amortization. Net cash provided
by operating activities excluded proceeds from the sale of equipment, which
were $5.4 million for the six months ended June 30, 1996 compared to
$2.0 million for the same period in the prior year. This increase was
primarily the result of a larger fleet resulting from acquisitions.
Net cash used in investing activities was $56.9 million in the six months
ended June 30, 1996 as compared to $8.1 million in the same period for the
prior year. The increase was primarily attributable to a higher level of
capital expenditures and acquisitions. During the years ended December 31,
1993, 1994 and 1995, the Company's net cash used in investing activities was
$17.8 million, $13.8 million and $61.6 million, respectively. Acquisition
spending totaled $1.4 million and $19.9 million in the six months ended June
30, 1995 and 1996, and $9.7 million, $20,000 and $42.1 million in the years
ended December 31, 1993, 1994 and 1995, respectively. Acquisition spending for
the six months ended June 30, 1996 includes the U-Rent-M, Sun, B&S and ERS
acquisitions completed in the first half of 1996. In addition, the Company had
capital expenditures of $6.6 million, $17.0 million and $23.6 million in the
respective 1993, 1994 and 1995 periods, and $8.7 million and $42.4 million in
the respective 1995 and 1996 six month periods. Capital expenditures were
primarily for purchases of rental equipment.
Net cash provided by financing activities was $5.2 million for the six
months ended June 30, 1995 as compared to $45.6 million for the six months
ended June 30, 1996. The net cash provided by financing activities was
primarily due to issuances of capital stock and borrowings under a revolving
credit facility. Net cash provided by financing activities was $13.6 million,
$6.5 million and $49.8 million for the years ended December 31, 1993, 1994 and
1995, respectively. In 1993, net cash provided by financing activities
primarily resulted from the issuance of Redeemable Preferred Stock used to
finance acquisitions and rental fleet and to repay long-term obligations. In
fiscal 1994, net cash provided by financing activities primarily related to
borrowings made on the Company's previous revolving credit facility, which
were used to fund acquisitions and purchase rental equipment. In fiscal 1995,
the increase in net cash provided by financing activities was primarily due to
receipt of the proceeds from the Revolver and the Citicorp Loan, which were
used to pay off the Company's previous revolving credit facility and to
acquire Holdings.
The Company has historically financed some of its purchases of rental
equipment through capital leases and other obligations. Purchases of $2.5
million of rental equipment and computer equipment were financed in this
manner during 1993. The Company believes additional sources of financing are
available on a cost-effective basis and plans to use them, as necessary, in
connection with its expansion plans, to the extent permitted by the revolving
credit facility.
The Company's principal source of liquidity is the Revolver, which consists
of a revolving line of credit and availability of letters of credit. The total
amount of credit available under the Revolver is limited to a borrowing base
equal to the sum of (i) 85% of eligible accounts receivable and (ii) 75% of
the value (at the lower of net book value or market) of eligible rental
equipment. The Revolver expires September 12, 1998 and may be extended one
year with the consent of the lenders if no default exists. The Revolver has
customary financial covenants regarding interest coverage, debt ratios,
capital expenditures and minimum EBITDA levels. The Revolver also contains
covenants and provisions that restrict, among other things, the Company's
subsidiaries' ability to: (i) incur additional indebtedness; (ii) incur liens
on its property; (iii) enter into contingent obligations; (iv) engage in
certain sales of assets; (v) declare or pay dividends (including dividends to
RSC) or make other restricted payments; (vi) merge or consolidate with or
acquire another person or engage in other fundamental changes; (vii) enter
into leases; and (viii) engage in certain transactions with affiliates. The
Revolver restricts the Company's investments and capital expenditures (other
than proceeds from the sale of used equipment) to $44.6 million in 1996,
increasing to $47.2 million in 1997 and $51.8 million in 1998, thereby
31
<PAGE>
limiting the ability of the Company and its subsidiaries to expand their
businesses. In addition, the Company needs the consent of the lenders to make
an acquisition or series of related acquisitions exceeding $10.0 million for a
single transaction or series of related transactions or exceeding $15.0 million
in any fiscal year. As of December 31, 1995, March 31, 1996 and June 30, 1996,
the Company was not in compliance with certain covenants of the Revolver
related to minimum EBITDA levels and the maximum total indebtedness ratio. The
Company has received a waiver with respect to such non-compliance. The Revolver
provides for certain customary events of default, including a Change of Control
(as defined in the Revolver). Borrowings under the Revolver are secured by all
of the real and personal property of the Company's subsidiaries and a pledge of
the capital stock and intercompany debt of the subsidiaries. In addition,
certain subsidiaries of the Company are guarantors of the obligations under the
Revolver. At August 21, 1996, the principal amount outstanding under the
Revolver was $88.0 million, and the interest rate on such borrowings was 8.7%.
At August 21, 1996, an additional $4.7 million was available to the Company
under the Revolver.
In conjunction with the offering, the Company intends to amend and restate
the Revolver to, among other things, increase the availability to $125.0
million, decrease the interest rates by 0.50% and extend the maturity date five
years to 2001. The Company's subsidiaries have received a commitment, subject
to completion of the offering and other conditions, from one of their lenders
for the additional availability, and from the agent for the lenders under the
Revolver to use its best efforts to obtain the requisite consents from other
lenders for the proposed revisions to the Revolver. As part of the new
agreement, the Company will become a guarantor of the obligations of its
subsidiaries, and will grant liens on substantially all of its assets
(including the stock of its subsidiaries) to secure such guaranty. In addition,
the new agreement will amend certain covenants, including the restrictions on
investments, capital expenditures and acquisitions. The amendment will increase
the allowed investments and capital expenditures to $63.0 million in 1996,
$66.0 million in 1997, $69.0 million in 1998, $72.0 million in 1999 and $75.0
million in any fiscal year thereafter (plus amounts reinvested from asset
sales). The amendment will also provide that the Company would need consent of
the lenders to make acquisitions which exceed $15.0 million for any single
transaction or series of related transactions, or exceed $20.0 million in any
fiscal year, unless the consideration is stock of the Company or cash proceeds
from the issuance of stock. In connection with the repayment of the Citicorp
Loan and the implementation of the Restated Revolving Credit Facility, the
Company anticipates recording an extraordinary loss on extinguishment of debt
in the third quarter of 1996 of approximately $1.6 million (pre-tax).
Following application of the net proceeds from the sale of the Common Stock
offered by the Company hereby, the Company expects to have improved liquidity
and capital resources due to the replacement of a significant portion of its
secured debt and Redeemable Preferred Stock (as well as the related interest
and debt obligations) with Common Stock. As part of its growth strategy, the
Company is continually involved in the investigation and evaluation of
potential acquisitions and start-up locations. The Company is currently
evaluating a number of acquisition opportunities and start-up locations and may
at any time be a party to one or more letters of intent or acquisition
agreements. The Company has entered into letters of intent to acquire five
rental equipment businesses with an aggregate of seven locations in Alabama,
Arkansas, Georgia and Florida. The Company's liquidity and capital resources
have been and will continue to be significantly impacted by the Company's
growth strategy and by the need to offer customers a modern and well-maintained
rental equipment fleet. The Company needs to be able to complete acquisitions,
open start-up locations and make the capital expenditures necessary to acquire
and maintain its rental fleet. RSC currently estimates that it will incur
capital expenditures of approximately $62.4 million in 1996 ($42.4 million of
which was expended during the first two quarters of 1996), primarily for fleet
expansion, acquisitions and start-up locations. The Company's material
commitments for capital expenditures, at June 30, 1996, were $8.4 million. The
Company believes that cash flow from operations, together with availability
under the Revolver and vendor financing in appropriate cases, will be
sufficient to support its operations and capital liquidity requirements for the
next 12 months. However, if significant acquisition opportunities arise, the
Company may need to seek additional capital to complete them. Such acquisitions
could be financed through incurrence of additional indebtedness or issuance of
common or preferred stock (which may be issued to third parties or to sellers
of acquired businesses), depending on market conditions. If such financing were
not available, the Company's growth strategy could be hampered and its cash
32
<PAGE>
flow from operations reduced, thereby constraining funds available for growth
and acquisitions. Further, additional indebtedness would increase RSC's
leverage and may make the Company more vulnerable to economic downturns and
may limit its ability to withstand competitive pressures. However, there can
be no assurance that the Company's business will generate sufficient cash flow
or that future borrowings or additional capital, if and when required, will be
available on terms acceptable to the Company, or at all.
REDEEMABLE PREFERRED STOCK AND ACCRETION
From July, 1992 through August 22, 1996, the Company has issued a total of
319,805 shares of its Redeemable Preferred Stock at a price of $100 per share.
The Redeemable Preferred Stock accrues dividends at the rate of 6% per annum,
compounded quarterly. The dividends accrued were $1.6 million, $1.7 million
and $1.1 million for the years ended December 31, 1994 and December 31, 1995
and the six months ended June 30, 1996, respectively. At June 30, 1996,
Redeemable Preferred Stock was $37.0 million. See "Use of Proceeds."
ENVIRONMENTAL
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety,
air emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. The Company incurs ongoing expenses
associated with the removal of older underground storage tanks and the
performance of appropriate remediation at certain of its locations. The
Company has accrued $800,000 at June 30, 1996, related to the removal of
underground tanks and remediation expenses. The Company believes that the
impact of the cost of such remediation on cash flows will not be material
since the Revolver and cash flows from operations provide sufficient
availability to pay these costs. See "Risk Factors--Government and
Environmental Regulation."
ASSETS HELD FOR SALE
In connection with the acquisition of Holdings, the Company decided to sell,
close or dispose of Holdings' rental locations in California, since they were
inconsistent with the Company's financial performance criteria. The assets
related to those rental locations, consisting primarily of rental equipment
and accounts receivable, have been classified as "assets held for sale" in the
Company's consolidated financial statements. The Company believes the
aggregate sales proceeds will approximate the carrying value of these assets.
The Company has accrued $2.5 million (including allocated interest of $1.4
million) of expected cash outflows from operations of these rental locations
through the expected date of disposal as part of the allocation of the
purchase price of Holdings. The Company has sold four locations, closed one
location and anticipates selling, closing or disposing of the remaining six
locations by September 30, 1996. The Company has executed letters of intent to
sell five such remaining locations and to sell the rental, service and
delivery fleets of the sixth location.
COMMITMENTS TO PURCHASE EQUIPMENT
As of June 30, 1996, the Company had commitments to purchase $8.4 million of
equipment. Such purchases are expected to be financed through borrowings under
the Revolver.
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SEASONALITY AND SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth unaudited quarterly consolidated statement of
operations data for the year ended December 31, 1994, the year ended December
31, 1995 and the quarters ended March 31, 1996 and June 30, 1996. The
unaudited quarterly information has been prepared on the same basis as the
annual financial information and, in management's opinion, includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information for the quarters presented. Historically, the
Company's revenues and operating results have varied from quarter to quarter
and are expected to continue to fluctuate in the future. These fluctuations
have been due to a number of factors, including: general economic conditions
in the Company's markets; the timing of acquisitions and start-up locations
and related costs; the effectiveness of integrating acquired businesses and
start-up locations; the timing of fleet expansion capital expenditures; the
realization of targeted equipment utilization rates; seasonal rental patterns
of the Company's customers; and price changes in response to competitive
factors. In addition, operating results have been seasonally lower during the
first and fourth fiscal quarters than during the other quarters of the fiscal
year. The operating results for any historical quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
1994 QUARTERS ENDED 1995 QUARTERS ENDED 1996 QUARTERS ENDED
---------------------------------- ---------------------------------- ---------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- ------- -------- ------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $5,397 $ 6,545 $ 7,610 $ 8,223 $ 7,578 $ 9,009 $11,894 $18,689 $ 19,656 $ 22,874
Sales of parts,
supplies and
equipment............. 3,112 3,495 3,150 4,283 4,005 3,943 4,567 6,232 7,541 8,393
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Total revenues.......... 8,509 10,040 10,760 12,506 11,583 12,952 16,461 24,921 27,197 31,267
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 3,458 3,917 4,347 4,562 4,476 5,067 7,189 11,122 12,449 13,551
Depreciation, equipment
rentals............... 799 926 1,112 1,183 1,317 1,558 1,881 2,935 3,633 4,156
Cost of sales of parts,
supplies and
equipment............. 2,128 2,429 2,230 3,511 2,550 2,683 3,157 4,227 5,067 5,802
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Total cost of revenues.. 6,385 7,272 7,689 9,256 8,343 9,308 12,227 18,284 21,149 23,509
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Gross profit............ 2,124 2,768 3,071 3,250 3,240 3,644 4,234 6,637 6,048 7,758
Selling, general and
administrative expense. 858 1,110 1,516 1,263 1,097 1,159 1,413 2,752 2,734 3,028
Depreciation and
amortization, excluding
equipment rental
depreciation........... 90 113 143 158 159 193 237 597 571 607
Amortization of
intangibles............ 580 573 521 404 155 157 14 392 561 600
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Operating income........ 596 972 891 1,425 1,829 2,135 2,570 2,896 2,182 3,523
Interest expense, net... 100 89 228 314 355 456 890 1,613 1,639 2,045
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Income before income
taxes and extraordinary
item................... 496 883 663 1,111 1,474 1,679 1,680 1,283 543 1,478
Provision for income
taxes.................. 185 329 247 416 575 660 659 507 213 581
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Income before
extraordinary item..... 311 554 416 695 899 1,019 1,021 776 330 897
Extraordinary item, net
of income tax benefit
of $305,000............ -- -- -- -- -- -- (478) -- -- --
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Net Income.............. 311 554 416 695 899 1,019 543 776 330 897
Redeemable preferred
stock accretion........ 408 416 422 400 420 426 432 439 554 565
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Net income (loss)
available to common
stockholders........... $ (97) $ 138 $ (6) $ 295 $ 479 $ 593 $ 111 $ 337 $ (224) $ 332
====== ======= ======= ======= ======= ======= ======= ======= ========= =========
Weighted average common
and common equivalent
shares................. 5,728 5,720 5,053 5,053 5,053 5,053 5,053 5,043 5,500 5,505
Income (loss) before
extraordinary item per
common share........... $ (.02) $ .02 $ .00 $ .06 $ .09 $ .12 $ .12 $ .07 $ (.04) $ .06
Extraordinary item per
common share........... -- -- -- -- -- -- (.10) -- -- --
------ ------- ------- ------- ------- ------- ------- ------- --------- ---------
Net income (loss) per
common shares.......... $ (.02) $ .02 $ .00 $ .06 $ .09 $ .12 $ .02 $ .07 $ (.04) $ .06
====== ======= ======= ======= ======= ======= ======= ======= ========= =========
Net increase in
locations at period
end.................... 0 1 3 0 2 1 15 7 13 17
</TABLE>
34
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted SFAS 121 in the first
quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
In October 1995, the FASB issued SFAS 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25 in
accounting for stock-based compensation issued to employees. SFAS 123 allows
for a fair value based method of accounting for employee stock options and
similar equity instruments. The Company intends to apply the recognition and
measurement provisions of APB Opinion No. 25 to all employee stock options and
similar equity instruments awarded after December 31, 1995.
INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17.9 million that expire in
years 2005 through 2010. In addition, the Company had combined state
(California, Florida and Texas) net operating loss carryforwards of $13.8
million that expire in years 1996 through 2010. All of the federal
carryforwards and $12.3 million of the state carryforwards are attributable to
the Company's September 12, 1995 acquisition of Holdings. For financial
reporting purposes a valuation allowance of $6.2 million has been recognized
to offset the deferred tax assets related to those carryforwards. These
separate Company net operating loss carryforwards are subject to restrictions
in accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, and the ultimate utilization of the net operating losses is further
limited based on the profitability of certain subsidiaries of Holdings.
The Company also has alternative minimum tax credit carryovers of
approximately $1.5 million for federal and $165,000 for California income tax
purposes which are available to offset future regular income tax that is in
excess of the alternative minimum tax in such year. All of the state and
$589,000 of the federal alternative minimum tax credit carryovers resulted
from the Company's September 12, 1995 acquisition of Holdings. For financial
reporting purposes a valuation allowance of $1.7 million has been recognized
to offset the deferred tax assets related to all alternative minimum tax
credit carryovers. Limitations similar to those restricting the use of the net
operating losses also restrict the use of the credit carryovers.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation on
its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of
operations. The Company's operating results may be adversely affected by
events or conditions in a particular region, such as regional economic,
weather and other factors. In addition, the Company's operating results may be
adversely affected by increases in interest rates that may lead to a decline
in economic activity, while simultaneously resulting in higher interest
payments by the Company under its variable rate credit facilities.
35
<PAGE>
BUSINESS
GENERAL
The Company is a leading equipment rental company serving the needs of a
wide variety of industrial, manufacturing, construction, government and
homeowner markets. RSC rents a broad selection of equipment ranging from small
items such as pumps, generators, welders and electric hand tools to larger
equipment such as backhoes, forklifts, air compressors, scissor lifts, booms,
aerial manlifts and skid-steer loaders. The Company also sells parts, supplies
and used rental equipment, and acts as a distributor for new equipment on
behalf of certain national equipment manufacturers.
Since its formation in 1992, the Company has pursued an aggressive expansion
strategy and has acquired 16 businesses comprised of 65 locations and has
opened 27 start-up locations through August 22, 1996. With a focus on
operating rental locations in underserved small- to medium-sized markets, RSC
intends to continue to expand its presence in existing markets and capitalize
on opportunities to enter new geographic markets through a combination of
acquisitions and start-up locations. The Company also seeks to increase
revenues across its locations through fleet expansion, improved asset
utilization and targeted marketing efforts. Management believes that RSC is
well-positioned to capitalize on the substantial consolidation opportunities
in the equipment rental industry, and to take advantage of the growing demand
for equipment rental as businesses increasingly outsource non-core operations.
INDUSTRY OVERVIEW
The equipment rental industry serves a wide variety of industrial,
manufacturing, construction, governmental and homeowner markets. Equipment
available for rent ranges from construction and industrial equipment to
general tools and homeowners equipment. A survey conducted for the Associated
Equipment Distributors ("AED") estimates that industry rental revenues were
approximately $13 billion in 1993, which the author of the survey estimates
increased to $15 billion in 1995.
Management believes that the equipment rental industry benefits from the
trend among businesses to outsource non-core operations in order to reduce
capital investment and minimize the downtime, maintenance, repair and storage
associated with equipment ownership. While customers traditionally rented
equipment for specific purposes such as supplementing capacity during peak
periods and using equipment in connection with special projects, customers are
increasingly looking to rental operators to provide an on-going comprehensive
supply of equipment that can enable such customers to benefit from the
economic advantages and convenience of rental. According to recent surveys
conducted by The CIT Group, contractors intend to increase the percentage of
equipment they rent without a purchase option to an estimated 8% of their
total equipment requirements in 1996 from less than 5% in 1994.
The equipment rental industry is highly fragmented and primarily consists of
a large number of relatively small, independent businesses typically serving
discrete local markets within 30 to 50 miles of the store location, and a
small number of multi-location regional or national operators. Traditionally,
large equipment rental companies have focused their operations on serving
relatively large customers, primarily in medium to large metropolitan markets,
while generally serving smaller markets through delivery from distant major
markets without establishing a local presence. In such smaller markets, the
primary source of rental equipment has traditionally been relatively small,
local equipment rental businesses and equipment dealers with product offerings
typically limited in both depth and breadth.
The Company believes that the rental equipment industry offers substantial
consolidation opportunities for large, well-capitalized equipment rental
companies such as RSC. Relative to smaller companies with only one or two
rental locations, the Company believes that national operators such as RSC
benefit from several competitive advantages, including sophisticated
management information systems, volume purchasing, professional management,
the ability to transfer equipment among rental locations to satisfy customer
demand, the ability to
36
<PAGE>
service national accounts and national brand identity. In addition, the
Company believes that national operators are less sensitive to localized
cyclical downturns and can justify significant investments in professional
management and information systems. As a result of consolidation and industry
growth, 1995 rental revenues of the top 100 rental equipment companies
increased over 1994 rental revenues by approximately 22%, to $2.5 billion in
1995, according to estimates by the RER. In spite of this growth, these top
100 companies represent less than one-fifth of the total estimated 1995
industry rental revenues. See "--Competition."
BUSINESS STRATEGY
The Company's goal is to increase revenues and profitability by taking
advantage of its strong market position and pursuing a business strategy that
includes the following key elements:
Small- to Medium-Sized Market Focus. The Company focuses on operating rental
locations in underserved small- to medium-sized rental markets where the
Company can capitalize on its competitive advantages relative to the small,
local equipment rental businesses and equipment dealers who have traditionally
served such markets. In addition, the Company believes that small- to medium-
sized markets provide an extensive selection of acquisition candidates and
start-up locations and permit broader geographic and customer diversification.
Through its geographic diversification, the Company believes that it can more
effectively manage economic fluctuations than single-location businesses by
transferring equipment to regions with higher demand. The Company believes
that future acquisitions and start-up locations will provide opportunities to
achieve greater geographic and customer diversification. See "--Locations" and
"--Growth Strategy."
Cluster Strategy. Under its cluster strategy, RSC establishes a
comprehensive pool of rental equipment at a central, readily-accessible "hub"
location, and surrounds the hub with smaller "satellite" locations 30 to 50
miles away, which draw on this equipment pool to serve local customers' needs.
The hub locations provide full-service maintenance and repair operations for
the satellite locations. The Company believes that this strategy increases
fleet utilization and allows RSC to bring the benefits of a large, high-
quality and diversified rental equipment fleet to markets with populations as
small as 25,000 where a full-scale rental facility might not otherwise be
justified. See "--Fleet Management."
Advanced Information Systems. The Company has made substantial investments
in its state-of-the-art management information systems in order to improve
asset utilization and financial performance. Every rental location has on-line
access to centralized computer systems which provide real-time transaction
processing, extensive fleet management tools and daily financial management
reports. Use of these systems allows the Company to improve its asset
utilization by deploying assets to locations generating higher returns and
identifying underperforming assets for disposition. These systems also allow
an employee at any location to identify and reserve a specific piece of
equipment anywhere in a region, and schedule delivery (generally within 24
hours) to a customer's job site. See "--Fleet Management" and "--Information
Systems."
Decentralized Management. Under the Company's decentralized management
structure, RSC's region managers, who currently average over 20 years of
rental experience, are responsible for management, customer service, marketing
strategies and business growth in their regions. Each region manager is
compensated through a stock option program and cash bonus plan tied directly
to his region's performance. A small corporate staff at the Company's
headquarters focuses on corporate planning, financial reporting and analysis
and overseeing execution of the Company's growth strategy. The Company has
also centralized its purchasing and equipment disposal functions in order to
maximize purchase discounts and used rental equipment sale prices.
Superior Customer Service. The Company believes that it differentiates
itself from many of its competitors by providing responsive customer service,
a broad selection of high-quality rental equipment and "one-stop shopping" for
a wide range of parts, supplies and equipment. Depending upon market needs,
RSC also offers value-added services to its customers such as a radio-
dispatched transportation fleet and 24 hours-a-day, seven days-a-week support
services, including on-site maintenance and repair. The Company believes that
its rapid response time in delivering, servicing or replacing equipment at job
sites generates customer loyalty.
37
<PAGE>
A cornerstone to the Company's customer service commitment is its extensive
training system, Rental Service University ("RSU"), which provides formal
training to all Company employees relating to customer service, strategy,
finance, information systems, fleet management, safety and risk management and
human resources. See "--Products" and "--Sales and Marketing."
GROWTH STRATEGY
RSC's growth strategy is to continue to expand its presence in existing
markets and capitalize on opportunities to enter new geographic markets
through a combination of acquisitions and start-up locations. The Company also
seeks to increase revenues across its locations through fleet expansion,
improved asset utilization and targeted marketing efforts. The Company is
systematic in its selection of new markets for expansion and, together with
Arthur D. Little, Inc., has developed a proprietary model to guide future
expansion efforts by identifying and ranking desirable locations based on 25
demographic characteristics found in the Company's most successful geographic
markets.
Acquisition of Equipment Rental Businesses. RSC's acquisition efforts focus
on acquiring stable, respected businesses in markets that the Company believes
offer the opportunity for additional growth in rental equipment demand. The
Company primarily targets acquisitions of equipment rental businesses in
small- to medium-sized markets where an existing owner has limited resources
to expand the rental equipment fleet and/or the owner's decision to sell
coincides with the decision to retire. After completing an acquisition, the
Company integrates the operations of the acquired business into its management
information systems, consolidates its equipment purchasing and disposal
functions, and centralizes its fleet management, while assuring consistent,
high-quality service to the acquired business' customers. Proprietors of
smaller businesses often place significant emphasis on the Company's proven
track record in completing and integrating acquisitions and the Company
believes that its reputation in these areas provides it access to other
acquisition opportunities. Since its formation in 1992, RSC has acquired 16
businesses comprised of 65 locations. See "--Business Strategy--Small- to
Medium-Sized Market Focus" and "--Locations."
Start-Up Locations. RSC also enters targeted markets through start-up
locations where there is no quality business available for acquisition or
where such a business cannot be acquired on terms acceptable to the Company.
The Company's decision to open a start-up location is based upon its review of
demographic information, business growth projections and the level of existing
competition. RSC maximizes the flexibility of start-up locations by entering
into real estate leases with short initial terms and multiple option periods.
In addition, RSC typically minimizes capital expenditures at a start-up
location by redeploying and sharing equipment with an existing hub. If a
start-up location does not meet expectations, the Company can redeploy the
equipment elsewhere. Since January 1, 1994, the Company has opened 27 start-up
locations. See "--Business Strategy--Cluster Strategy" and "--Locations."
Internal Growth. The Company focuses on achieving internal growth through an
emphasis on fleet expansion, improved asset utilization and targeted marketing
efforts. The Company intends to expand its rental equipment fleet through
capital expenditures made to replace assets in, and increase the breadth and
depth of, its existing fleet. In addition, RSC's information systems have
enhanced asset utilization by providing the data necessary to improve asset
deployment based upon such factors as price realization, time utilization and
individual asset return on investment. Through its recently-introduced
national accounts marketing program, the Company targets large petrochemical,
industrial and commercial customers. The Company recently began offering these
customers In-Plant Maintenance ("IPM") services whereby RSC will locate
equipment at a customer's facility and assume complete responsibility for the
maintenance of such equipment. The IPM program allows the Company to eliminate
operating expenses such as equipment transportation and delivery, and improve
asset utilization rates resulting from the sole-source arrangement with the
customer. See "--Fleet Management," "--Information Systems" and "--Sales and
Marketing."
38
<PAGE>
PRODUCTS
The Company believes that it offers one of the most comprehensive and well-
maintained rental equipment fleets in the industry. The Company also sells
parts, supplies and used rental equipment, and acts as a distributor for new
equipment on behalf of certain national equipment manufacturers.
Rental Equipment. The Company rents over 50 categories of equipment on a
daily, weekly or monthly basis and occasionally for periods of up to one year.
The Company's rental equipment fleet of over 40,000 units includes a broad
selection of equipment ranging from small items such as pumps, generators,
welders, electric hand tools and concrete finishing equipment; to larger
equipment such as air compressors, dirt equipment, booms, aerial manlifts,
forklifts, scissor lifts, skid-steer loaders and backhoes. Each of the
Company's rental locations has access to a product mix tailored to satisfy the
needs and preferences of the local customer base. In 1995, equipment rental
accounted for approximately 71.6% of the Company's total revenues.
Sales of Parts, Supplies and Equipment. In addition to equipment rental,
most RSC locations carry a wide range of parts and supplies, including
"convenience consumables" used in conjunction with the rental equipment, such
as safety equipment, diamond saw blades and sandpaper. This sales activity
allows the Company to attract and retain customers by offering the convenience
of "one-stop shopping." In addition, RSC is a distributor for new equipment on
behalf of certain national equipment manufacturers, including Atlas-Copco,
Black & Decker, Lull, Honda, Ingersoll-Rand, Multiquip, Mustang, Norton,
Sullair, Terramite and Wacker.
The Company also routinely sells used rental equipment in order to maintain
an economically competitive fleet and to adjust to fluctuations in the demand
for specific rental products. The Company has developed a proprietary
algorithm, the "CAPCOM" model, to determine the optimal timing for the sale
and replacement of a piece of equipment given, among other things, original
purchase price, maintenance expense, rental demand and prices in the used
rental equipment market. RSC is able to realize attractive prices on used
equipment sales due to its strong preventative maintenance program, ability to
use offshore, retail and direct mail distribution channels to redirect
disposals to markets where the equipment is in highest demand, and ability to
negotiate attractive fee arrangements with third-party auctioneers. In
addition, the Company recently began marketing its used rental equipment via
the Internet. The Company is also currently evaluating additional disposal
alternatives, including the creation of a used rental equipment catalog.
In 1995, the sale of parts, supplies and equipment accounted for
approximately 28.4% of the Company's total revenues.
FLEET MANAGEMENT
The Company believes that its advanced information systems, combined with
its cluster strategy and ability to redeploy equipment among locations, allow
RSC to better manage its fleet and achieve higher equipment utilization rates
than many of its competitors. Under this strategy, an employee at any location
can locate a specific piece of equipment throughout the region, whether on
rent (in which case the estimated date available is provided), in transit, in
the service bay or ready for rent. Once identified, the equipment can be
reserved for a customer through the system and scheduled for delivery
(generally within 24 hours) to the job site or store location by the Company's
radio-dispatched transportation fleet of trucks, trailers and independent
carriers. The Company is able to further increase fleet utilization and
moderate capital expenditures through its "use-it-or-lose-it" policy, whereby
equipment is deployed to areas where it can provide the highest return.
Through its information systems, the Company generates a monthly management
report showing, for each region, every rental asset which had an unacceptable
utilization rate for the most recent 90-day period. Region managers have 30
days to correct the problem or the asset may be redeployed to another region
where demand exceeds supply, or sold, depending on the age of the asset. The
Company's information systems also track each individual rental asset and
automatically schedule preventative maintenance, frequently in advance of that
suggested by the manufacturer. As a result, the Company believes that it is
able to enhance the reliability and extend the useful life of its rental
equipment fleet, and obtain favorable prices when used rental equipment is
sold.
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<PAGE>
INFORMATION SYSTEMS
Each rental location is networked with a commonly configured hardware and
software PC equipped with electronic links to all other RSC locations and the
Company's central databases. The Company has developed a comprehensive set of
management information databases covering financial performance, fleet
utilization, sales and pricing. Company management can access these databases
24 hours-a-day at all locations via the Internet to analyze such items as: (i)
price trends by store, region, salesperson, end-user, equipment category or
customer; (ii) sales trends by store, customer, region or end-user; (iii)
fleet utilization by individual asset or asset class; (iv) financial results
and (v) performance of selected acquisitions and start-up locations. In
addition, all rental transactions are processed in real-time through a
centralized AS400 system located at corporate headquarters, which can be
accessed by the employee at the point of sale to determine equipment
availability. Local, regional and corporate management can access this
information to monitor current business activity, including daily sales volume
and fleet availability. The Company believes that its use of advanced
information technology will continue to create profit improvement
opportunities and improve equipment utilization.
CUSTOMERS
In 1995, the Company rented equipment to over 15,000 customers, with no one
customer accounting for more than 2% of the Company's total revenues, and the
top ten customers representing less than 5% of total revenues. The composition
of RSC's customer base varies widely by location and is determined by several
factors, including the business composition of the local economy. The
Company's customer base consists of the following general categories: (i)
industrial, including manufacturers, petrochemical facilities, large chemical
processing companies, paper mills, entertainment companies and public
utilities; (ii) construction, including contractors; and (iii) government and
homeowners. For the first half of 1996, management estimates that industrial,
construction and government/homeowner customers accounted for approximately
45%, 45% and 10%, respectively, of the Company's total revenues. The Company
believes the loss of any one customer would not have a material adverse effect
on the Company's business.
SALES AND MARKETING
The Company markets its products and services through a sales force
consisting of approximately 117 field-based commissioned salespeople and 160
store-based salespeople as of August 22, 1996. The field-based sales force
calls regularly on contractors' job sites and industrial facilities with the
objective of building strong business relationships and ensuring that such
customers' rental needs are fulfilled. The Company's store-based sales force
handles telephone inquiries and assists customers at each rental location to
select the proper equipment to meet their rental needs. The Company's sales
force attends RSU training programs in order to develop extensive product
knowledge and refine their customer service skills. See "--Business Strategy--
Superior Customer Service."
Through its national accounts program, the Company has begun to target large
petrochemical, industrial and commercial customers in order to develop
national relationships and increase awareness of its IPM program. See "--
Growth Strategy--Internal Growth."
The Company supplements its sales and marketing activities through
participation in industry trade shows and conferences, direct mail, and
advertising in local industry publications and the yellow pages in the markets
it serves. In addition, the Company recently created a home page on the
Internet describing the Company's products and services, geographic locations
and used rental equipment for sale. RSC's home page can be found at
"http://www.rentalservice.com."
LOCATIONS
At August 22, 1996, the Company operated 80 rental locations in the
following nine states: Alabama (8), Arkansas (5), Florida (14), Georgia (15),
Louisiana (5), Mississippi (8), South Carolina (3), Tennessee (4) and Texas
(18). In addition, as of such date, the Company had six California rental
locations classified as "assets held for sale."
40
<PAGE>
The following table shows the increase in number of RSC locations since the
Company's formation in 1992:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------- JUNE 30,
1992 1993 1994 1995 1996
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Beginning locations............... -- 11 21 25 50
Locations acquired............... 11 11 1 26 16
Locations opened................. -- -- 3 10 14
Locations closed or sold......... -- (1) -- (2) --
Ending locations held for
sale(1)......................... -- -- -- (9) --
------ ------ ------ ------ ---
Ending locations.................. 11 21 25 50 80
====== ====== ====== ====== ===
</TABLE>
- --------
(1) In connection with the acquisition of Holdings, the Company decided to
sell, close or dispose of Holdings' California locations. As of August 22,
1996, six of such locations continued to be held for sale and are included
in "assets held for sale" in the Company's Consolidated Financial
Statements. The Company has executed letters of intent to sell five such
remaining locations and to sell the rental, service and delivery fleets of
the sixth location.
The Company's rental locations are generally situated in industrial,
commercial or mixed-use zones. These locations range from approximately 1,500
to 15,000 square feet, consisting of a customer showroom, an equipment service
area and storage facilities. Five of the Company's rental locations are owned,
with the remaining locations subject to leases with terms expiring from 1996
to 2001, most with options to extend. In a number of instances, the Company's
rental locations are leased from the former owners of businesses acquired by
the Company.
COMPETITION
The equipment rental industry is highly fragmented and competitive. The
Company's competitors include: large national companies (such as Hertz
Equipment Rental Corporation, Prime Equipment and BET Plant Services U.S.A.);
regional competitors which operate in one or two states; small, independent
businesses with one or two rental locations; and equipment vendors and dealers
who both sell and rent equipment directly to customers. Some of the Company's
competitors have greater financial resources, are more geographically diverse
and have greater name recognition than the Company. Existing or future
competitors also may seek to compete with the Company for acquisition
candidates which could have the effect of increasing the price for
acquisitions or reducing the number of suitable acquisition candidates. In
addition, such competitors may also compete with the Company for start-up
locations, thereby limiting the number of attractive locations for expansion.
See "Risk Factors--Competition."
The equipment rental business is highly service-oriented. The success of an
individual rental operator is predicated on its customer handling and problem
solving abilities; quality, condition and servicing of its equipment; and
overall operation of its business. Other components of competition include
location, availability of equipment (both depth and breadth) and price. The
Company believes that it competes in the markets it serves primarily on the
basis of responsive customer service and a broad selection of high-quality
rental equipment. Relative to smaller companies with only one or two rental
locations, the Company believes that national operators such as RSC benefit
from several competitive advantages, including sophisticated management
information systems, volume purchasing, professional management, the ability
to transfer equipment among rental locations to satisfy customer demand, the
ability to service national accounts and national brand identity. In addition,
the Company believes that national operators are less sensitive to localized
cyclical downturns and can justify significant investments in professional
management and information systems.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety,
air emissions, water discharge and the generation, handling,
41
<PAGE>
storage, transportation, treatment and disposal of hazardous substances and
wastes. Under such laws, an owner or lessee of real estate may be liable for
the costs of removal or remediation of certain hazardous or toxic substances
located on or in, or emanating from, such property, as well as related costs
of investigation and property damage. Such laws often impose such liability
without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances. In connection with its
acquisitions and start-up locations, the Company usually obtains Phase I
environmental assessment reports prepared by independent environmental
consultants. A Phase I assessment consists of a site visit, historical record
review, interviews and report, with the purpose of identifying potential
environmental conditions associated with the subject real estate. There can be
no assurance, however, that acquired or leased locations have been operated in
compliance with environmental laws and regulations or that future uses or
conditions will not result in the imposition of environmental liability upon
the Company or expose the Company to third-party actions such as tort suits.
The Company dispenses petroleum products from underground and above-ground
storage tanks located at certain rental locations that it owns or leases. The
Company maintains an environmental compliance program that includes the
implementation of required technical and operational activities designed to
minimize the potential for leaks and spills, maintenance of records and the
regular testing and monitoring of tank systems for tightness. There can be no
assurance, however, that these tank systems have been or will at all times
remain free from leaks or that the use of these tanks has not or will not
result in spills or other releases. The Company incurs ongoing expenses
associated with the removal of older underground storage tanks and the
performance of appropriate remediation at certain of its locations. The
Company does not believe that such removal and remediation will have a
material adverse effect on the Company's operating results or financial
position. The Company also uses hazardous materials such as solvents to clean
and maintain its rental equipment fleet. In addition, the Company generates
and disposes waste such as used motor oil, radiator fluid and solvents, and
may be liable under various federal, state and local laws for environmental
contamination at facilities where its waste is or has been disposed. The
Company believes that it currently conducts its operations in material
compliance with all applicable laws and regulations. Compliance by the Company
with applicable environmental laws has not had a material adverse effect on
the Company's financial condition or competitive position to date. See "Risk
Factors--Government and Environmental Regulation."
TRADE NAMES
The Company currently does business under the name Rental Service
CorporationSM. The Company believes that this brand name identity enables it
to more effectively target national accounts. In addition, in certain local
markets the Company also selectively continues to use the name of an acquired
business where there is strong local name recognition and customer loyalty.
EMPLOYEES
At August 22, 1996, the Company employed 998 people, including 277
salespeople, 630 operational employees and 91 corporate and regional
management employees. None of these employees is represented by a union or a
collective bargaining agreement. The Company considers its labor relations to
be good.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business or financial
condition of the Company.
The Company has received a letter from an attorney representing a minor
injured in June 1996 while accompanying an adult using a piece of equipment
rented from the Company. The accident also resulted in the death of the adult.
The Company cannot predict whether this accident will result in the filing of
a lawsuit against the Company or the ultimate outcome of any such lawsuit.
42
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the date of this
Prospectus with respect to the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<C> <C> <S>
Martin R. Reid.............. 53 Chairman of the Board and Chief
Executive Officer
Douglas A. Waugaman......... 38 Vice President, Chief Financial Officer,
Secretary and Treasurer
Ronald Halchishak........... 49 Regional Vice President of Operations
David G. Ledlow............. 37 Regional Vice President of Operations
William M. Barnum, Jr. ..... 42 Director
James R. Buch............... 42 Director
Christopher A. Laurence..... 29 Director
John G. Quigley............. 42 Director
Frederick J. Warren......... 57 Director
</TABLE>
The principal occupations and positions for the past five years and, in
certain cases prior years, of the directors and executive officers named above
are as follows:
MARTIN R. REID was elected as a Director and Chief Executive Officer of the
Company in June 1994 and became Chairman of the Board in October 1995. Mr.
Reid is a director of Tuboscope Vetco International Corporation ("Tuboscope"),
a provider of oilfield-related inspection and coating services. Mr. Reid
served as Chief Executive Officer of Tuboscope from May 1991 to October 1993
and as Chairman of the Board of Directors from October 1990 to April 1996.
From September 1986 to June 1990, Mr. Reid was Chief Executive Officer of
Eastman Christensen Co., a provider of oil and gas drilling systems. Mr. Reid
was also Vice Chairman of Eastman Christensen Co. from August 1989 to June
1990. Mr. Reid is a director of Cobblestone Holdings, Inc. and Cobblestone
Golf Group, Inc.
DOUGLAS A. WAUGAMAN has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since January 1994. From June 1993
until joining the Company, Mr. Waugaman served as Operations Manager for
Plastiglide Manufacturing Corporation, a subsidiary of Illinois Tool Works.
From September 1991 until June 1993, Mr. Waugaman was Vice President of
Finance for Knapp Communications Corporation, a magazine publisher. From
September 1989 until September 1991, Mr. Waugaman was Controller for
Plastiglide Manufacturing Corporation. Mr. Waugaman's experience also includes
public accounting experience with Arthur Andersen and Co. Mr. Waugaman is a
certified public accountant.
RONALD HALCHISHAK joined RSC in October 1991 as Vice President of Purchasing
and Director of Safety and become Region Manager for California in 1994. He
was appointed Regional Vice President of Operations in January 1995. Prior to
joining RSC, Mr. Halchishak worked for 13 years at Hertz Equipment Corporation
in various positions including Director of European Operations and Region
Manager of the Midwest Division.
DAVID G. LEDLOW joined RSC in conjunction with the acquisition of Walker
Jones Equipment in 1992. Mr. Ledlow had been employed by Walker Jones
Equipment since 1982, serving most recently as its Vice President of
Marketing. Mr. Ledlow was promoted to Regional Vice President of Operations of
the Company in February 1993.
WILLIAM M. BARNUM, JR. has served as a director of the Company since its
formation in 1992 and served as Chairman of the Board from June 1993 through
October 1995. Mr. Barnum is a general partner of BBP, the general partner of
Brentwood RSC Partners, L.P. ("Brentwood RSC Partners"). Brentwood RSC
Partners is a significant stockholder of the Company. See "Principal and
Selling Stockholders." Mr. Barnum was an associate at Morgan Stanley & Co.
Incorporated from October 1981 until joining Brentwood Associates in July
1984. Mr. Barnum is a director of Quiksilver, Inc., Horizon Cellular Telephone
Company, L.P. and several privately held companies.
43
<PAGE>
JAMES R. BUCH has served as a director of the Company since October 1995.
From October 1990 through May 1996, Mr. Buch served as President and Chief
Executive Officer of Evans Rents, Inc. Previously, he served as Director of
U.S. Operations for Brittania Security Group.
CHRISTOPHER A. LAURENCE has served as a director of the Company since
October 1995. Mr. Laurence is a Principal of Brentwood Associates, an
affiliate of Brentwood RSC Partners. Prior to joining Brentwood Associates in
1991, Mr. Laurence was an analyst at Morgan Stanley & Co. Incorporated.
JOHN G. QUIGLEY has served as a director of the Company since January 1996.
Mr. Quigley is a founding member of Nassau Capital, L.L.C., the general
partner of Nassau Capital Partners L.P. ("Nassau Capital"). Nassau Capital is
a significant stockholder of the Company. See "Principal and Selling
Stockholders." From 1992 to January 1995, Mr. Quigley was a partner of Clipper
Capital Partners. Mr. Quigley was a partner at Adler & Shaykin from 1984 to
1989. From 1980 to 1984, Mr. Quigley was an attorney with the law firm of
Kirkland & Ellis in Chicago. Mr. Quigley was selected as a director pursuant
to the terms of a Preferred Stock and Common Stock Purchase Agreement.
FREDERICK J. WARREN has served as a director of the Company since October
1995. Mr. Warren co-founded Brentwood Associates in 1972 and is a general
partner of BBP, the general partner of Brentwood RSC Partners. See "Principal
and Selling Stockholders." Mr. Warren is a director of Digital Sound
Corporation, a supplier of high-capacity network-based message processing
systems and applications, Horizon Cellular Telephone Company, L.P.,
Cobblestone Holdings, Inc., Cobblestone Golf Group, Inc. and several privately
held companies.
Messrs. Reid, Waugaman, Warren and Barnum were also directors or executive
officers of Holdings at the time Holdings filed its prepackaged bankruptcy
plan under Chapter 11 of the United States Bankruptcy Code. See "Background of
the Company."
Upon consummation of the offering, the Board of Directors will consist of
six members, including two independent directors. Directors of the Company
serve until their successors are elected and qualified or until the director
resigns or is removed. Officers of the Company serve at the discretion of the
Company's Board of Directors. There are no family relationships among
executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors has established an audit committee
(the "Audit Committee") to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the scope and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls. The
Audit Committee consists of Messrs. Buch, Quigley and Warren.
Compensation Committee. Promptly following the consummation of the offering,
the Board of Directors will establish a compensation committee (the
"Compensation Committee") to establish remuneration levels for executive
officers of the Company and implementation of the Company's stock option plans
and any other incentive programs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1995, the Company had no compensation committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board of
Directors. Other than Martin R. Reid, there are no officers or employees of
the Company who participated in deliberations concerning such compensation
matters. Mr. Reid is a member of the compensation committee of Tuboscope.
44
<PAGE>
COMPENSATION OF DIRECTORS
The Company does not currently pay any fees or remuneration to directors for
their service on the Board of Directors or any Board committee, but the
Company reimburses directors for their out-of-pocket expenses incurred in
connection with attending meetings of the Board. Mr. Buch was granted stock
options in connection with his election to the Board.
LIMITATIONS ON LIABILITY
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except in certain
cases where liability is mandated by the DGCL. The provision has no effect on
any non-monetary remedies that may be available to the Company or its
stockholders, nor does it relieve the Company or its directors from compliance
with federal or state securities laws. The Bylaws of the Company generally
provide that the Company shall indemnify, to the fullest extent permitted by
law, any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit, investigation,
administrative hearing or any other proceeding (each, a "Proceeding") by
reason of the fact that he is or was a director or officer of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another entity, against expenses (including attorneys'
fees) and losses, claims, liabilities, judgments, fines and amounts paid in
settlement actually incurred by him in connection with such Proceeding. The
Company has entered into, or intends to enter into, agreements to provide
indemnification for the Company's directors and executive officers in addition
to the indemnification provided for in the Bylaws. These agreements, among
other things, will indemnify the Company's directors and executive officers
for certain expenses (including attorney's fees), and all losses, claims,
liabilities, judgments, fines and settlement amounts incurred by such person
arising out of or in connection with such person's service as a director or
officer of the Company to the fullest extent permitted by applicable law. In
addition, the Company has obtained director and officer liability insurance
that insures the Company's directors and officers against certain liabilities.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other executive officers of the
Company who earned more than $100,000 (salary and bonus) (the "Named Executive
Officers") for all services rendered in all capacities to the Company during
the fiscal year ended December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
LONG TERM
ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- --------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief Executive
Officer(1)................... 220,674 140,625 -- --
Douglas A. Waugaman
Vice President, Chief
Financial Officer, Secretary
and Treasurer(1)............. 139,550 48,050 126,940(2) --
Ronald Halchishak
Regional Vice President of
Operations(1)................ 147,115 26,520 -- 16,740
David G. Ledlow
Regional Vice President of
Operations................... 85,827 38,472 -- 16,740
</TABLE>
- --------
(1) Includes amounts paid by Holdings in 1995.
(2) Consists of relocation expenses reimbursed by the Company ($19,598), a
relocation bonus ($100,000) and insurance premiums paid by the Company
($7,342) for life insurance and disability policies covering Mr. Waugaman.
45
<PAGE>
Stock Options Granted in Fiscal 1995
The following table sets forth information concerning individual grants of
stock options made by the Company during the fiscal year ended December 31,
1995 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------------------- --------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------------ ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... -- -- -- -- -- --
Douglas A. Waugaman
Vice President, Chief
Financial Officer,
Secretary and
Treasurer.............. -- -- -- -- -- --
Ronald Halchishak
Regional Vice President
of Operations(1)....... 16,740 12.9% $.01 2005 $ 105 $ 267
David G. Ledlow
Regional Vice President
of Operations(2)....... 16,740 12.9% $.01 2005 $ 105 $ 267
</TABLE>
- --------
(1) The options granted to Mr. Halchishak are subject to vesting over a five
year period. Of his options, 33.33% became exercisable on January 26, 1996
and the remaining 66.67% vest over four years on December 31, 1996, 1997,
1998 and 1999. If certain financial objectives or certain individual
objectives are met, portions of the installments otherwise scheduled to
become exercisable in 1998 and 1999 are subject to acceleration of
exercisability. Mr. Halchishak's options become immediately exercisable
upon a merger or consolidation of the Company with or into another
corporation, or the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's
then outstanding voting stock, or the liquidation or dissolution of the
Company.
(2) The options granted to Mr. Ledlow are subject to vesting over a five year
period. Of his options, 28.23% became exercisable on January 26, 1996 and
the remaining 71.77% vest over four years on December 31, 1996, 1997, 1998
and 1999. If certain financial objectives or certain individual objectives
are met, portions of the installments otherwise scheduled to become
exercisable in 1998 and 1999 are subject to acceleration of
exercisability. Mr. Ledlow's options become immediately exercisable upon a
merger or consolidation of the Company with or into another corporation,
or the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's
then outstanding voting stock, or the liquidation or dissolution of the
Company.
46
<PAGE>
Aggregated Option Exercises
The following table sets forth information (on an aggregated basis)
concerning each exercise of stock options during the year ended December 31,
1995 by each of the Named Executive Officers and the year-end value of
unexercised options.
AGGREGATED OPTION EXERCISES
IN THE LAST FISCAL YEAR
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- "IN-THE-MONEY" OPTIONS
SHARES END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martin R. Reid
Chairman and Chief
Executive Officer...... -- -- -- -- -- --
Douglas A. Waugaman
Vice President, Chief
Financial Officer,
Secretary and
Treasurer.............. -- -- -- -- -- --
Ronald Halchishak
Regional Vice President
of Operations.......... -- -- -- 16,740 -- $250,933
David G. Ledlow
Regional Vice President
of Operations.......... -- -- -- 16,740 -- $250,933
</TABLE>
- --------
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
(based on an assumed initial public offering price of $15.00 per share,
less the exercise price) of the underlying securities on such date exceeds
the exercise or base price of the option.
401(K) PLAN
The Company maintains a 401(k) Retirement Savings Plan (the "401(k) Plan")
to provide retirement and other benefits to employees of the Company and to
permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Employees of the Company become eligible to participate in the 401(k) Plan
and to have salary deferral contributions made on their behalf after they
complete six months of service and attain the age of 18.
Subject to legal limitations, participants may elect, by salary reduction,
to have 401(k) Plan contributions of 2% to 16% of their compensation made to
their accounts. Under the 401(k) Plan, the Company may make discretionary
profit sharing contributions on behalf of participants who have completed
1,000 hours of service during the plan year and are employed on the last day
of the plan year (or have retired after attaining age 65, died or incurred a
disability in a plan year), based on compensation.
Participants in the 401(k) Plan always have a 100% vested and nonforfeitable
interest in the value of their 401(k) contributions. Participants become
vested in the Company's profit sharing and matching contributions based on a
graded five year vesting schedule (or upon a participant's retirement after
attaining age 65, death or disability, if earlier). Participants are entitled
to receive the vested amounts in their accounts in a single lump-sum payment
on death, disability, retirement or termination of employment. In certain
circumstances, participants may receive loans and hardship withdrawals from
their accounts in the 401(k) Plan.
STOCK OPTION PLAN
The Company maintains the Stock Option Plan For Key Employees ("Stock Option
Plan") for the benefit of certain employees of the Company. The purpose of the
Stock Option Plan is to enable the Company to attract, retain and motivate key
employees who are important to the success and growth of the Company and to
create a mutuality of interest between the key employees and the stockholders
of the Company by granting the key employees options to purchase Common Stock.
Under the Stock Option Plan, 324,000 shares of Common Stock
47
<PAGE>
may be issued. The Stock Option Plan provides that the Board or a committee
appointed by the Board of Directors (in either case, the "Committee") may
grant non-transferable incentive stock options ("ISOs") and non-qualified
stock options to key employees. The Committee has the full authority and
discretion, subject to the terms of the Stock Option Plan, to determine those
individuals who are eligible to be granted options and the amount and type of
options. Terms and conditions of options are set forth in written option
agreements. The Stock Option Plan expires ten years from the date the Stock
Option Plan was adopted by the Board of Directors, unless it is terminated
earlier by the Committee, but options granted prior to such date may extend
beyond that date.
The Stock Option Plan provides that it may be amended by the Committee,
except that no amendment may (with certain exceptions for stock splits and
other changes in the Company's Common Stock), without the approval of
stockholders of the Company, (i) increase the total number of shares of Common
Stock which may be acquired upon exercise of options granted under the Stock
Option Plan, (ii) change the types of employees eligible to participate in the
Stock Option Plan, (iii) effect any change that would require stockholder
approval under Rule 16b-3 of the Exchange Act, (iv) extend the period of time
during which an option may be granted, or (v) reduce the exercise price of an
outstanding option. The Company's Board of Directors or the stockholders may,
however, make or authorize any appropriate adjustments to the number of shares
of Common Stock available, and the terms of outstanding options, under the
Stock Option Plan to reflect a recapitalization, reorganization, stock split,
stock dividend or other change in the Company's capital structure.
The Committee generally determines the number of shares underlying an option
as well as the exercise date, the exercise price and the exercise period of an
option, subject, however, to the following restrictions: (i) options will not
be exercisable for more than 10 years from the date of grant (five years if
the optionee is a holder of at least 10% of the combined voting power of the
Company and any parent or subsidiary (a "10% shareholder") and the option is
an incentive stock option ("ISO")); and (ii) the exercise price of an ISO may
not be less than the fair market value of the underlying shares on the date of
grant (110% if the optionee is a 10% shareholder). ISOs are subject to
additional requirements under the Stock Option Plan and the Code.
A participant may elect to exercise one or more of his options by giving
written notice to the Secretary of the Company of such election at any time
during which the option is exercisable under the Stock Option Plan or the
applicable stock option agreement. The participant shall specify the number of
options to be exercised and provide payment in full of the aggregate purchase
price for the shares of Common Stock for which options are being exercised.
Payment may be made (i) in cash or by check, (ii) if so permitted by the
Committee, through delivery of unencumbered shares of Common Stock, a
promissory note or, in the case of non-qualifying stock options, unencumbered
shares of Common Stock issuable to the participant upon exercise of the
option, or (iii) with the consent of the Committee, any combination of the
consideration provided for in (i) and (ii).
In its absolute discretion, the Committee may provide that in the event of a
merger or consolidation of the Company with or into another corporation, the
acquisition by another corporation or person of all or substantially all of
the Company's assets or 80% or more of the Company's then outstanding voting
stock, or the liquidation or dissolution of the Company, all outstanding
options shall be exercisable immediately prior to such event, and immediately
after such event, the options shall terminate.
EXECUTIVE INCENTIVE BONUS PLAN
The Company maintains a Corporate Management Bonus Plan (the "Management
Bonus Plan") for key corporate employees. The purpose of the Management Bonus
Plan is to offer incentives to key management of the Company so as to (i)
reward them for achieving financial goals and (ii) further the alignment of
interests of key management with the Company's stockholders. Bonuses under the
Management Bonus Plan are based on achieving certain EBITA objectives. Each
participant's bonus award is calculated as a percentage of base salary, and
generally ranges from 20% to 75% of base salary.
In addition, the Company maintains Region Manager and General Manager Bonus
Plans (the "Operations Bonus Plan"). The Operations Bonus Plan is designed to
provide incentives to operations management to
48
<PAGE>
maintain a high level of profitability and asset utilization and to achieve
the Company's financial goals in their individual market. Bonuses under the
Operations Bonus Plan are based on the degree to which region or individual
location operating profit objectives are met and range from 10% to 75% of the
participant's base salary if financial targets are achieved. If financial
targets are exceeded, participants may receive an additional bonus based on
incremental regional or store profit.
Bonuses under the Management Bonus Plan and the Operations Bonus Plan are
paid semi-annually. The first payment is made after finalization of the first
six months results, and the amount of the first payment is 50% of the bonus
earned for that six months, with the remainder of the bonus to be paid at year
end. The second payment is calculated after year end audited financial
statements are finalized, and the amount of the second payment is the total
bonus paid less the amount paid for the first six-month period.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock outstanding immediately prior to the
offering and as adjusted to reflect the sale of Common Stock offered hereby
by: (i) each person known by the Company to own beneficially 5% or more of any
class of the Company's voting securities; (ii) each director and Named
Executive Officer of the Company; (iii) each Selling Stockholder and (iv) all
directors and executive officers of the Company as a group. Except as
otherwise indicated, each stockholder listed below has informed the Company
that such stockholder has (i) sole voting and investment power with respect to
such stockholder's shares of stock, except to the extent that authority is
shared by spouses under applicable law, and (ii) record and beneficial
ownership with respect to such stockholder's shares of stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)(3)
--------------------------------- --------------------------------
REDEEMABLE NUMBER OF REDEEMABLE
PREFERRED SHARES PREFERRED
COMMON STOCK OF COMMON COMMON STOCK
----------------- --------------- STOCK ----------------- --------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT OFFERED(2)(3) NUMBER PERCENT NUMBER PERCENT
---------------- --------- ------- ------- ------- ------------- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brentwood RSC Partners, 3,731,715 69.8% 233,836 73.1% -- 3,731,715 37.3% -- --
L.P.(4)................
William M. Barnum,
Jr.(4)................. 3,731,715 69.8 233,836 73.1 -- 3,731,715 37.3 -- --
Frederick J. Warren(4).. 3,731,715 69.8 233,836 73.1 -- 3,731,715 37.3 -- --
Christopher A.
Laurence(4)............ -- -- -- -- -- -- -- -- --
Nassau Capital Partners 707,220 13.2 49,730 15.6 -- 707,220 7.1 -- --
L.P.(5)................
Martin R. Reid(6)(7).... 213,345 4.0 -- -- 32,683 180,662 1.8 -- --
Douglas A.
Waugaman(6)(7)......... 65,340 1.2 -- -- -- 65,340 * -- --
James R. Buch(6)(8)..... -- -- -- -- -- -- -- -- --
John G. Quigley(5)...... 711,045 13.3 50,000 15.6 -- 711,045 7.1 -- --
Ronald Halchishak(6)(8). 5,580 * -- -- -- 5,580 * -- --
David G. Ledlow(6)(8)... 4,725 * -- -- -- 4,725 * -- --
Heller Financial,
Inc.(9)................ 81,810 1.5 5,125 1.6 81,810 -- -- -- --
Thomas R. Lamia(10)..... 93,285 1.7 5,844 1.8 93,285 -- -- -- --
John F. Jastrem(11)..... 62,222 1.2 -- -- 62,222 -- -- -- --
All directors and
executive officers as a
group (9
persons)(4)(5)(8)...... 4,731,750 88.5 283,836 88.8 32,683 4,699,067 47.0 -- --
</TABLE>
- --------
* Less than 1.0%.
(1) A person is deemed as of any date to have "beneficial ownership" of any
security that such person has a right to acquire within 60 days after such
date. Shares which each identified stockholder has the right to acquire
within 60 days of the date of the table set forth above are deemed to be
outstanding in calculating the percentage ownership of such stockholder,
but are not deemed to be outstanding as to any other person.
(2) The Underwriters' over-allotment option consists of 712,163 shares to be
issued and sold by the Company, 20,653 shares to be sold by Martin R. Reid
and 6,534 shares to be sold by Douglas A. Waugaman.
(3) For purposes of this table, information as to shares of Common Stock
assumes (i) the persons in the table do not purchase shares in the
offering and (ii) no exercise of the Underwriters' over-allotment option.
(4) Messrs. Barnum and Warren, directors of the Company, are general partners
of BBP, the general partner of Brentwood RSC Partners, L.P.; accordingly
Messrs. Barnum and Warren may be deemed to be the
50
<PAGE>
beneficial owners of such shares and for purposes of this table they are
included. Messrs. Barnum and Warren disclaim beneficial ownership of such
shares. The Redeemable Preferred Stock owned by Brentwood RSC Partners,
L.P. is to be redeeemed with a portion of the net proceeds to the Company
from the offering. The address of Brentwood RSC Partners, L.P., Mr. Barnum,
Mr. Warren and Mr. Laurence is 11150 Santa Monica Boulevard, Suite 1200,
Los Angeles, California 90025.
(5) Mr. Quigley, a director of the Company, is a member of Nassau Capital,
L.L.C., the general partner of Nassau Capital Partners L.P.; accordingly
Mr. Quigley may be deemed to be beneficial owner of such shares and for
purposes of this table they are included. Mr. Quigley is also a member of
NAS Partners I L.L.C. which owns 3,825 shares of Common Stock and 270
shares of Redeemable Preferred Stock; accordingly Mr. Quigley may be
deemed to be the beneficial owner of such shares and for purposes of this
table they are included. Mr. Quigley disclaims beneficial ownership of all
such shares. The Redeemable Preferred Stock owned by Nassau Capital
Partners L.P. and NAS Partners I L.L.C. is to be redeemed with a portion
of the net proceeeds to the Company from the offering. The address of
Nassau Capital Partners L.P., NAS Partners I L.L.C. and Mr. Quigley is 22
Chambers Street, Princeton, New Jersey 08542.
(6) The address of such person is c/o Rental Service Corporation, 14505 N.
Hayden Road, Suite 322, Scottsdale, Arizona 85260.
(7) Includes shares subject to vesting which may be repurchased by the Company
if they fail to vest.
(8) Excludes shares issuable upon exercise of options which are not
exercisable within 60 days of the date of the table set forth above, as
follows: Mr. Buch - 9,000 shares; Mr. Halchishak - 22,410 shares; and
Mr. Ledlow - 23,265 shares.
(9) The address of such person is 500 West Monroe Street, Chicago, Illinois
60661.
(10) The Redeemable Preferred Stock is held by a trust for the benefit of
Thomas R. Lamia. The address of such person is c/o Paul, Hastings,
Janofsky & Walker, 399 Park Avenue, 30th Floor, New York, New York 10022.
(11) The address of such person is 1913 Ripley Avenue, Redondo Beach,
California.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to a Corporate Development and Administrative Services Agreement
(the "Services Agreement"), the Company prior to the offering paid BBP a
monitoring fee in connection with management, consulting and financial
advisory services equal to one percent (1%) per annum of the aggregate amount
of debt and equity investment in the Company of or by BBP and any persons or
entities associated with BBP (collectively, the "Brentwood Entities"), and
investors in any of the Brentwood Entities, plus reimbursement of customary
costs and expenses. In 1995, the Company paid BBP a monitoring fee of $235,000
pursuant to the Services Agreement. From time to time, BBP has also received
investment banking fees from the Company in connection with the Company's
acquisitions, calculated at 1.5% of the total of the purchase price plus
acquisition costs and net capital expenditures. Investment banking fees paid
to BBP during 1995 totaled $691,000. The Company's obligation to pay such
monitoring and investment banking fees will terminate upon completion of the
offering, although the Company anticipates utilizing BBP's investment banking
services from time to time in connection with future transactions. The Company
believes that these monitoring and investment banking fees are no less
favorable than those which could be obtained for comparable services from
unaffiliated third parties. Messrs. Warren and Barnum, general partners of
BBP, who also serve as directors of the Company, do not receive additional
compensation for service in such capacity.
LEASES
Pursuant to a lease dated March 19, 1992 (the "Long Beach Lease"), the
Company leases its Long Beach, California, equipment storage facility from Ira
N. Mendelsohn and Pamela M. Mendelsohn, husband and wife, and Thomas R. Lamia.
Mr. Mendelsohn is a former chief executive officer, former director and former
stockholder of the Company, and Mr. Lamia is a current stockholder of the
Company. The initial term of the Long Beach Lease expires on April 30, 1997,
and the Company has an option to renew upon the same terms and conditions for
an additional five-year term, except that the monthly rent for the option
period is adjusted at commencement of the option period (adjustment to fair
market value determined by mutual agreement or, failing such agreement, by
appraisal) and two and one-half years into the option period (adjustment based
upon increases in the Consumer Price Index). The rent under the Long Beach
Lease for the initial term is $3,833 per month. The assets of the Company's
Long Beach operations were sold in July, 1996. As a part of such sale, the
Company assigned the Long Beach Lease to the buyer.
Although the Company relocated its corporate headquarters to Scottsdale,
Arizona in 1995, pursuant to a lease dated August 24, 1990, the Company
continues to lease its former corporate offices in Irvine, California from Ira
N. Mendelsohn (the "Irvine Office Lease"). The Irvine Office Lease expires on
June 30, 1997 and the monthly rental is $9,720.
The Company leases its Glendale, California facility from ARI Real Estate
Partnership, a general partnership of which Ira N. Mendelsohn, Thomas R. Lamia
and a third person are general partners, pursuant to a Lease dated May 31,
1989 (the "Glendale Lease"). The term of the Glendale Lease expires on May 31,
1999. The monthly rental schedule, as amended pursuant to an Amendment to
Lease dated December 10, 1991, provides for rental payments of $6,500 per
month from June 1992 through the end of the term.
The facilities at the Irvine and Glendale locations are included in "assets
held for sale" in the Company's consolidated financial statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Assets Held for Sale."
OTHER ARRANGEMENTS
The Company and Mr. Waugaman are parties to a Separation and Stock Purchase
Agreement dated July 25, 1995 (the "Waugaman Purchase Agreement"). Pursuant to
the Waugaman Purchase Agreement, if
52
<PAGE>
Mr. Waugaman's employment is terminated without cause or if he is not offered
a substantially similar position as Chief Financial Officer with a successor
entity following a change of control, he will be entitled to severance pay
equal to nine months base salary. Mr. Waugaman has agreed that in
consideration of such severance benefits, he will not compete with the Company
for a period of nine months if his employment is terminated other than for
cause. In addition, pursuant to an oral arrangement supplementing the Waugaman
Purchase Agreement, RSC has purchased a $500,000 life insurance policy under
which Mr. Waugaman's wife is the beneficiary and a disability policy for Mr.
Waugaman.
The Company and Mr. Ledlow are parties to a severance agreement providing
for severance pay equal to one year's base salary if Mr. Ledlow is terminated
without cause prior to June 1, 1998.
FUTURE TRANSACTIONS
The Company has adopted a policy that it will not enter into any material
transaction in which a Company director or officer has a direct or indirect
financial interest, unless the transaction is determined by the Company's
Board of Directors to be fair as to the Company or is approved by a majority
of the Company's disinterested directors or by the Company's stockholders, as
provided for under Delaware law. In addition, the Company's debt instruments
generally prohibit the Company from entering into any affiliate transaction on
other than arm's length terms.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Certificate of Incorporation authorizes 20,000,000 shares of Common
Stock, par value $.01 per share and 500,000 shares of preferred stock, par
value $.01 per share. As of August 22, 1996, 319,805 shares of Redeemable
Preferred Stock and 5,347,665 shares of Common Stock were issued and
outstanding, and 168,750 shares of Common Stock were issuable upon exercise of
outstanding options. All such shares of Redeemable Preferred Stock will be
redeemed with the proceeds of the offering at the redemption price of $100 per
share, plus accrued and unpaid dividends to the redemption date, so that no
such shares will remain outstanding after completion of the offering. See
"Risk Factors--Use of Proceeds to Benefit Existing Stockholders" and "Use of
Proceeds."
The discussion below describes the capital stock of the Company as it will
exist upon the closing of this offering, after redemption of the Redeemable
Preferred Stock, unless otherwise noted. In addition, the discussion below
does not purport to be complete, and is subject to and qualified in its
entirety by reference to the Certificate of Incorporation and Bylaws of the
Company, forms of which are filed as exhibits to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
The Board of Directors of the Company, in its sole discretion, may issue
Common Stock from the authorized and unissued shares of Common Stock. Each
share of Common Stock is entitled to one vote at all meetings of stockholders
of the Company for the election of directors and all other matters submitted
to stockholder vote. There are no cumulative voting rights. Accordingly, the
holders of a majority of the outstanding shares of Common Stock can elect all
the directors if they choose to do so. The rights, privileges and preferences
of the holders of Common Stock are subject to the rights of the holders of any
shares of preferred stock that may be designated and issued by the Company in
the future. Subject to any restrictions contained in preferred stock issued by
the Company, if any, and to restrictions imposed by certain debt agreements of
the Company, holders of Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of legally available assets of
the Company. The Common Stock has no preemptive or similar rights. There are
no redemption or sinking fund provisions applicable to the Common Stock.
Holders of Common Stock are not liable to further call or assessment by the
Company. Upon any liquidation, dissolution or winding up of the Company,
53
<PAGE>
after payment of the debts and other liabilities of the Company and subject to
the rights of holders of shares of preferred stock, if any, holders of Common
Stock are entitled to share pro rata in any distribution to the stockholders.
All outstanding shares of Common Stock are, and the shares offered hereby will
be, when issued and sold, fully paid and nonassessable.
Prior to the date of this Prospectus, there has been no public trading
market for the Common Stock. Subject to notice of issuance, the Common Stock
offered hereby has been approved for quotation and trading on the Nasdaq
National Market under the symbol "RSVC." See "Risk Factors--No Prior Public
Market for Common Stock; Possible Volatility of Stock Price."
PREFERRED STOCK
The Company's Board of Directors, without the approval of the holders of the
Common Stock, is authorized to fix the number of shares of any series of
preferred stock and to designate for issuance up to 500,000 shares of
preferred stock, par value $.01 per share, in such number of series and with
such rights, preferences, privileges and restrictions (including without
limitation voting rights) as the Board of Directors may from time to time
determine. Issuance of preferred stock, while providing flexibility in
connection with possible acquisitions, may adversely affect the rights,
privileges and preferences afforded the holders of Common Stock, including a
decrease in the amount available for distribution to holders of the Common
Stock in the event of a liquidation or payment of preferred stock dividends.
Issuance of shares of preferred stock may also have the effect of preventing
or delaying a change in control of the Company without further action by the
stockholders and could make removal of present management of the Company more
difficult.
CITICORP WARRANT
Pursuant to a Note and Warrant Purchase Agreement dated as of September 12,
1995, Citicorp purchased senior secured term notes and warrants to acquire
87,120 shares of Common Stock of the Company at an exercise price of $4.83 per
share. The Citicorp Warrant will be repurchased by the Company at the closing
of the offering.
DELAWARE LAW AND LIMITATIONS ON CHANGES IN CONTROL
Section 203 of the DGCL prevents an "interested stockholder" (defined in
Section 203, generally, as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became
an interested stockholder, the board of directors of the corporation approved
the transaction in which the interested stockholder became an interested
stockholder or approved the business combination, (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the corporation
and by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer), or (iii) following the transaction in
which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of 66 2/3% of
the outstanding voting stock of the corporation not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. Section 203
could prohibit or delay mergers or other takeover or change in control
attempts with respect to the Company and, accordingly, may discourage attempts
to acquire the Company.
The Company's Bylaws will generally require 50 days advance notice of any
action to be proposed at any meeting of stockholders and set forth other
specific procedures that a stockholder must follow. There are also specific
procedures, including advance notice, for the nomination of a person to the
Board of Directors when
54
<PAGE>
such person is nominated other than at the direction of the Board. In
addition, the Company's Bylaws provide that a special meeting of the Company's
stockholders may only be called by certain officers of the Company or by the
Board of Directors; no such meeting may be called by stockholders. These
provisions could have the effect of delaying, deferring or preventing a change
in control of the Company or the removal of existing management. See "Risk
Factors--Control by Existing Stockholders" and "--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
55
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have outstanding an
aggregate of 10,006,665 shares of Common Stock (10,718,828 shares if the
Underwriters' over-allotment option is exercised in full). All of the shares
sold in the offering will be freely tradeable by persons other than affiliates
of the Company which will be subject to the resale limitations of Rule 144
adopted under the Securities Act.
REGISTRATION RIGHTS
Pursuant to the Stockholders' Agreement, all of the Company's stockholders
prior to this offering have been granted piggyback registration rights with
respect to Common Stock owned by such stockholders as of such date. Such
piggyback registration rights may be exercised by such stockholders, subject
to the 180-day lock-up period described under "Underwriting," on each occasion
after the offering that the Company proposes to register any public offering
of shares of its capital stock under the Securities Act (other than with
respect to a registration of (i) securities to be offered and sold by the
Company pursuant to an employee benefit plan, dividend or reinvestment plan,
or other similar plan, (ii) debt securities of the Company, (iii) preferred
stock of the Company or (iv) securities for the purpose of consummating any
acquisition by the Company).
In addition to such piggyback registration rights, pursuant to certain
Preferred Stock and Common Stock Purchase Agreements between the Company and
certain stockholders, subject to certain conditions, stockholders owning
certain shares of Common Stock have the right, exercisable on two occasions
after January 4, 2001, to require the Company to register under the Securities
Act up to 100% of such shares of Common Stock.
Upon the closing of the offering, there will be 5,077,665 shares of Common
Stock subject to either piggyback or demand registration rights. The Company
is required to bear substantially all expenses of all such registrations,
except for underwriting discounts or commissions and fees and disbursements of
counsel for any stockholder; provided, however, the Company is required to pay
the reasonable fees and disbursements of one counsel for all holders of Common
Stock subject to demand registration rights.
The Company has reserved an aggregate of 324,000 shares of Common Stock for
issuance pursuant to the Stock Option Plan. As of the date hereof, the Company
has issued options to purchase an aggregate of 168,750 shares of Common Stock
under the Stock Option Plan. One hundred eighty days after the date of the
offering, the Company intends to file a registration statement on Form S-8
under the Securities Act to register shares to be issued upon exercise of
options granted pursuant to the Stock Option Plan. To the extent not held by
affiliates or subject to a lock-up agreement, shares of Common Stock issued
under the Stock Option Plan after the effective date of the registration
statement covering the Stock Option Plan will be available for sale in the
public market without restriction. See "Management--Stock Option Plan."
RULE 144
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
exemptions from registration under the Securities Act ("Restricted Shares")
for at least two years is entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent (1%) of the
then outstanding shares of Common Stock (beginning on the 91st day immediately
after this offering) or the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the filing of a notice of intent to
sell. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not deemed to have
been an "affiliate" of the Company at any time during the three months
preceding a sale, and who has beneficially owned Restricted Shares for at
least three years, would be entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner-of-sale provisions, notice
requirements or the availability of current public information about the
Company. The Company, the Selling Stockholders, the Company's directors and
executive officers and certain of the Company's other present stockholders
have,
56
<PAGE>
subject to certain exceptions in the case of the Company, agreed that they
will not, directly or indirectly, offer, sell, contract to sell or otherwise
dispose of or transfer any shares of capital stock of the Company, or any
security convertible into, or exercisable or exchangeable for, such capital
stock, for a period of 180 days after the date of this Prospectus, without the
prior written consent of the Representatives of the Underwriters. See
"Underwriting."
After the expiration of the lock-up period, up to 355,500 shares held by
non-affiliates may be freely tradable and 4,689,554 shares held by affiliates
will be so eligible, subject to compliance with the terms and conditions of
Rule 144.
Prior to the offering, there has been no public market for the shares of
Common Stock, and no predictions can be made as to the effect, if any, that
sales of Common Stock under Rule 144, pursuant to a registration statement or
otherwise, or the availability of shares of Common Stock for sale, will have
on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of stock options) in the public market, or the perception that such sales
could occur, could adversely affect the prevailing market price and could
impair the Company's future ability to raise capital through an offering of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale;
Registration Rights."
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom William Blair &
Company, L.L.C. and Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") are acting as Representatives, have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement by and among the
Company, the Selling Stockholders and the Underwriters, to purchase from the
Company and the Selling Stockholders the aggregate number of shares of Common
Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
William Blair & Company, L.L.C.....................................
Donaldson, Lufkin & Jenrette Securities Corporation................
---------
Total.......................................................... 4,929,000
=========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby (other than those
subject to the over-allotment option) if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock to
the public initially at the public offering price set forth on the cover page
of this Prospectus and to selected dealers at a price less a concession of not
more than $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The initial public offering price and concessions and reallowances to
dealers may in the future be changed by the Representatives.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 739,350 shares of Common Stock, to
cover over-allotments, at the same price per share to be paid by the
Underwriters for the other shares offered hereby. To the extent such option is
exercised, each Underwriter will be committed to purchase such additional
shares in approximately the same proportion as set forth in the table above.
The Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with this offering.
The Company, the Selling Stockholders, the Company's directors and executive
officers and certain of the Company's other current stockholders have agreed
that they will not, directly or indirectly, offer, sell, contract to sell or
otherwise dispose of or transfer any capital stock of the Company, or any
security convertible into, or exercisable or exchangeable for, such capital
stock, for a period of 180 days after the date of this Prospectus without the
prior written consent of the Representatives, which may be granted or withheld
in their sole discretion, except for the Common Stock offered hereby and, with
respect to the Company, except for the grant of stock options to employees of
the Company under the Stock Option Plan, the issuance of shares upon the
conversion or exercise of outstanding options and warrants and the
registration of the shares of Common Stock underlying the Stock Option Plan.
See "Shares Eligible for Future Sale."
There has been no public market for the shares of Common Stock prior to the
offering and there can be no assurance that an active market for the Common
Stock will develop or be sustained or that the market price of the Common
Stock after this offering will equal or exceed the initial public offering
price set forth on the cover page of this Prospectus. The initial public
offering price for the Common Stock has been determined by negotiation between
the Company and the Representatives. Among the factors considered in
determining the initial public offering price were prevailing market and
economic conditions, revenues and earnings of the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management, the
consideration of the above factors in relation to market valuations of similar
companies and other factors deemed relevant. The initial public offering
58
<PAGE>
price may not be indicative of the market price of the Common Stock after this
offering. The estimated initial public offering price range set forth on the
cover page hereof is subject to change as a result of market conditions and
other factors.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm, without customer
authorization, sales to any accounts over which they exercise discretionary
authority.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
DLJ performed certain services as financial advisor to Holdings in
connection with the September 1995 acquisition of Holdings by the Company. See
"Background of the Company."
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters in connection with this offering will be passed upon for the Company
by Latham & Watkins, Los Angeles, California. Certain partners of Latham &
Watkins, members of their families, related persons and others have an
indirect interest in, through a limited partnership, less than 1% of the
Common Stock. Such persons do not have the power to vote or dispose of such
shares. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Rental Service Corporation as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; at its Chicago Regional Office, 500 W. Madison Street, 14th Floor,
Chicago, Illinois 60661; and at its New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the public reference section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements of Rental Service Corporation
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995, and June 30,
1996 (unaudited)....................................................... F-3
Consolidated Statements of Operations--for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (unaudited)....................................................... F-4
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity (Deficit)--for the years ended December 31, 1993,
1994 and 1995, and for the six months ended June 30, 1996 (unaudited).. F-5
Consolidated Statements of Cash Flows--for the years ended December 31,
1993, 1994 and 1995, and for the six months ended June 30, 1995 and
1996 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements--December 31, 1995 and June
30, 1996 (unaudited)................................................... F-7
Consolidated Financial Statements of Acme Holdings Inc.
Report of Independent Auditors.......................................... F-21
Consolidated Balance Sheets--December 31, 1993 and 1994, and June 30,
1995 (unaudited)....................................................... F-22
Consolidated Statements of Operations--for the years ended December 31,
1992, 1993 and 1994, and for the six months ended June 30, 1994 and
1995 (unaudited)....................................................... F-23
Consolidated Statements of Shareholders' Deficit--for the years ended
December 31, 1992, 1993 and 1994, and for the six months ended June 30,
1995 (unaudited)....................................................... F-24
Consolidated Statements of Cash Flows--for the years ended December 31,
1992, 1993 and 1994, and for the six months ended June 30, 1994 and
1995 (unaudited)....................................................... F-25
Notes to Consolidated Financial Statements--December 31, 1994, and June
30, 1995 (unaudited)................................................... F-27
Financial Statements of Equipment Rental & Supply, Inc.
Report of Independent Auditors.......................................... F-39
Balance Sheet--December 31, 1995........................................ F-40
Statement of Operations--for the year ended December 31, 1995........... F-41
Statement of Stockholders' Equity--for the year ended December 31,
1995................................................................... F-42
Statement of Cash Flows--for the year ended December 31, 1995........... F-43
Notes to Financial Statements--December 31, 1995........................ F-44
Financial Statement of Rental Service Company
Report of Independent Auditors.......................................... F-47
Statement of Operations--for the year ended May 31, 1993................ F-48
Notes to Statement of Operations--for the year ended May 31, 1993....... F-49
Financial Statement of Wilson Equipment Co., Inc.
Report of Independent Auditors.......................................... F-51
Statement of Operations--for the period from January 1, 1993 through
June 28, 1993.......................................................... F-52
Notes to Statement of Operations--for the period from January 1, 1993
through June 28, 1993.................................................. F-53
Combined Financial Statements of B&S Rental Companies
Report of Independent Auditors.......................................... F-54
Combined Balance Sheet--May 31, 1996.................................... F-55
Combined Statement of Operations--for the eleven months ended May 31,
1996................................................................... F-56
Combined Statement of Stockholders' Equity--for the eleven months ended
May 31, 1996........................................................... F-57
Combined Statement of Cash Flows--for the eleven months ended May 31,
1996................................................................... F-58
Notes to Combined Financial Statements--May 31, 1996.................... F-59
Financial Statements of CVM, Inc. (dba U-Rent-M)
Report of Independent Auditors.......................................... F-62
Balance Sheet--November 30, 1995........................................ F-63
Statement of Operations--for the year ended November 30, 1995........... F-64
Statement of Stockholders' Equity--for the year ended November 30, 1995. F-65
Statement of Cash Flows--for the year ended November 30, 1995........... F-66
Notes to Financial Statements--November 30, 1995........................ F-67
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying consolidated balance sheets of Rental
Service Corporation (Company) as of December 31, 1994 and 1995, and the
related consolidated statements of operations, redeemable preferred stock and
common stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Rental Service Corporation at December 31, 1994 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
April 30, 1996, except as to Note 11,
as to which the date is August 21, 1996
F-2
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- JUNE 30
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 653,000 $ 1,455,000 $ 1,865,000
Accounts receivable, net of allowance
for doubtful accounts of $956,000
and $1,791,000 at December 31, 1994
and 1995 respectively and $2,655,000
at June 30, 1996.................... 6,512,000 14,427,000 17,660,000
Other receivables and prepaid
expense............................. 371,000 2,178,000 7,115,000
Parts and supplies inventories, net
of reserve for obsolescence of
$280,000 and $603,000 at December
31, 1994 and 1995 respectively and
$844,000 at June 30, 1996........... 3,296,000 5,997,000 8,335,000
Assets held for sale (Note 2)........ -- 16,054,000 18,298,000
Deferred taxes (Note 10)............. 1,965,000 7,310,000 7,310,000
Rental equipment, principally
machinery, at cost, net of
accumulated depreciation of
$5,816,000, $11,747,000 and
$15,425,000 at December 31, 1994,
1995 and June 30, 1996 (Notes 5 and
8).................................. 24,138,000 52,818,000 89,909,000
Operating property and equipment, at
cost, net (Note 3).................. 5,189,000 10,629,000 16,283,000
Intangible assets, net (Note 4)...... 5,136,000 24,154,000 30,187,000
Other assets, primarily deferred
financing costs, net................ 838,000 2,810,000 2,875,000
----------- ------------ ------------
$48,098,000 $137,832,000 $199,837,000
=========== ============ ============
LIABILITIES, REDEEMABLE PREFERRED
STOCK,
AND COMMON STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable..................... $ 4,211,000 $ 10,185,000 $ 20,432,000
Payroll and other accrued expenses... 2,920,000 19,839,000 23,956,000
Payables to related parties.......... 128,000 -- --
Accrued interest payable............. 30,000 771,000 804,000
Income taxes payable (receivable)
(Note 10)........................... 488,000 220,000 (188,000)
Deferred taxes (Note 10)............. 2,359,000 9,815,000 9,815,000
Bank debt and long term obligations
(Note 5)............................ 12,243,000 67,910,000 100,159,000
Obligations under capital leases
(Note 8)............................ 509,000 645,000 316,000
----------- ------------ ------------
Total liabilities.................... 22,888,000 109,385,000 155,294,000
Commitments and contingencies (Notes
5 and 8)
Redeemable preferred stock,
cumulative, $.01 par value (Note 6):
Authorized shares--350,000
Issued and outstanding shares--
256,061, 244,805, and 319,805, at
December 31, 1994 and 1995 and
June 30, 1996, respectively,
($27,095,000, $28,758,000, and
$37,363,000 aggregate liquidation
preference at December 31, 1994
and 1995 and June 30, 1996,
respectively)..................... 27,861,000 28,401,000 37,020,000
Treasury--11,256 preferred stock
shares at December 31, 1994....... (1,177,000) -- --
Common stockholders' equity (deficit)
(Note 6):
Common stock, $.01 par value:
Authorized shares--20,000,000
Issued and outstanding shares--
4,675,320, 4,247,730, and
5,314,275 at December 31, 1994
and 1995 and June 30, 1996,
respectively.................... 47,000 42,000 53,000
Treasury--675,000 common stock
shares at December 31, 1994....... (523,000) -- --
Additional paid-in capital......... 52,000 40,000 7,398,000
Retained earnings (deficit)........ (1,050,000) (36,000) 72,000
----------- ------------ ------------
Total common stockholders' equity
(deficit)........................... (1,474,000) 46,000 7,523,000
----------- ------------ ------------
$48,098,000 $137,832,000 $199,837,000
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------ -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals...... $17,238,000 $27,775,000 $47,170,000 $16,587,000 $42,530,000
Sales of parts,
supplies and
equipment............. 8,394,000 14,040,000 18,747,000 7,948,000 15,934,000
----------- ----------- ----------- ----------- -----------
Total revenues.......... 25,632,000 41,815,000 65,917,000 24,535,000 58,464,000
Cost of revenues:
Cost of equipment
rentals, excluding
equipment rental
depreciation.......... 11,405,000 16,284,000 27,854,000 9,543,000 26,000,000
Depreciation, equipment
rentals............... 2,161,000 4,020,000 7,691,000 2,875,000 7,789,000
Cost of sales of parts,
supplies and
equipment............. 5,959,000 10,298,000 12,617,000 5,233,000 10,869,000
----------- ----------- ----------- ----------- -----------
Total cost of revenues.. 19,525,000 30,602,000 48,162,000 17,651,000 44,658,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 6,107,000 11,213,000 17,755,000 6,884,000 13,806,000
Selling, general and
administrative expense. 2,683,000 4,747,000 6,421,000 2,256,000 5,762,000
Depreciation and
amortization, excluding
equipment rental
depreciation........... 211,000 504,000 1,186,000 352,000 1,178,000
Amortization of
intangibles............ 1,854,000 2,078,000 718,000 312,000 1,161,000
Write-off of
intangibles............ 781,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income........ 578,000 3,884,000 9,430,000 3,964,000 5,705,000
Interest expense, net... 407,000 731,000 3,314,000 811,000 3,684,000
----------- ----------- ----------- ----------- -----------
Income before income
taxes and extraordinary
item................... 171,000 3,153,000 6,116,000 3,153,000 2,021,000
Provision for income
taxes (Note 10)........ 465,000 1,177,000 2,401,000 1,235,000 794,000
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... (294,000) 1,976,000 3,715,000 1,918,000 1,227,000
Extraordinary item, loss
on extinguishment of
debt less applicable
income tax benefit of
$305,000 (Note 5)...... -- -- 478,000 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... (294,000) 1,976,000 3,237,000 1,918,000 1,227,000
Redeemable preferred
stock accretion........ 1,013,000 1,646,000 1,717,000 846,000 1,119,000
----------- ----------- ----------- ----------- -----------
Net income (loss)
available to common
stockholders........... $(1,307,000) $ 330,000 $ 1,520,000 $ 1,072,000 $ 108,000
=========== =========== =========== =========== ===========
Earnings (loss) per
common and common
equivalent share:
Income (loss) before
extraordinary item.... $ (.23) $ .06 $ .40 $ .21 $ .02
Extraordinary item..... -- -- (.10) -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ (.23) $ .06 $ .30 $ .21 $ .02
=========== =========== =========== =========== ===========
Weighted average common
and common equivalent
shares................. 5,594,430 5,390,306 5,050,368 5,052,806 5,502,120
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK COMMON STOCK
--------------------------------- ----------------------------- ADDITIONAL RETAINED
TREASURY TREASURY PAID-IN EARNINGS
SHARES AMOUNT STOCK SHARES AMOUNT STOCK CAPITAL (DEFICIT) TOTAL
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992.......... 103,457 $10,144,000 $ -- 4,500,000 $45,000 $ -- $ 52,000 $ (73,000) $ 24,000
Issuance of
preferred stock,
net of issuance
costs of
$203,000......... 150,018 14,799,000 -- -- -- -- -- -- --
Issuance of common
stock............ -- -- -- 175,320 2,000 -- -- -- 2,000
Redeemable
preferred stock
accretion........ -- 1,013,000 -- -- -- -- -- (1,013,000) (1,013,000)
Net loss.......... -- -- -- -- -- -- -- (294,000) (294,000)
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
Balance at December
31, 1993.......... 253,475 25,956,000 -- 4,675,320 47,000 -- 52,000 (1,380,000) (1,281,000)
Issuance of
preferred stock.. 2,586 259,000 -- -- -- -- -- -- --
Purchase of
treasury stock... -- -- (1,177,000) -- -- (523,000) -- -- (523,000)
Redeemable
preferred stock
accretion........ -- 1,646,000 -- -- -- -- -- (1,646,000) (1,646,000)
Net income........ -- -- -- -- -- -- -- 1,976,000 1,976,000
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
Balance at December
31, 1994.......... 256,061 27,861,000 (1,177,000) 4,675,320 47,000 (523,000) 52,000 (1,050,000) (1,474,000)
Issuance of common
stock............ -- -- -- 278,685 2,000 -- (2,000) -- --
Retirement of
treasury stock... (11,256) (1,177,000) 1,177,000 (706,275) (7,000) 523,000 (10,000) (506,000) --
Redeemable
preferred stock
accretion........ -- 1,717,000 -- -- -- -- -- (1,717,000) (1,717,000)
Net income........ -- -- -- -- -- -- -- 3,237,000 3,237,000
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
Balance at December
31, 1995.......... 244,805 28,401,000 -- 4,247,730 42,000 -- 40,000 (36,000) 46,000
Issuance of
preferred stock
(unaudited)...... 75,000 7,500,000 -- -- -- -- -- -- --
Issuance of common
stock, net of
issuance costs of
$131,000
(unaudited)...... -- -- -- 1,066,545 11,000 -- 7,358,000 -- 7,369,000
Redeemable
preferred stock
accretion
(unaudited)...... -- 1,119,000 -- -- -- -- -- (1,119,000) (1,119,000)
Net income
(unaudited)...... -- -- -- -- -- -- -- 1,227,000 1,227,000
------- ----------- ----------- --------- ------- --------- ---------- ----------- -----------
Balance at June 30,
1996 (unaudited).. 319,805 $37,020,000 $ -- 5,314,275 $53,000 $ -- $7,398,000 $ 72,000 $ 7,523,000
======= =========== =========== ========= ======= ========= ========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
RENTAL SERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (294,000) $ 1,976,000 $ 3,237,000 $ 1,918,000 $ 1,227,000
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 4,226,000 6,602,000 9,595,000 3,554,000 10,128,000
Extraordinary item..... -- -- 478,000 -- --
Interest paid in kind.. -- -- 710,000 -- 1,200,000
Provision for losses
on accounts
receivable............ 484,000 621,000 1,040,000 391,000 584,000
Gain on sale of rental
equipment............. (418,000) (920,000) (1,948,000) (995,000) (2,194,000)
Write-off of cost in
excess of net assets
acquired.............. 781,000 -- -- -- --
Changes in operating
assets and
liabilities, net of
effect of business
acquisitions:
Accounts receivable.. (1,534,000) (2,834,000) (3,346,000) (1,292,000) (1,753,000)
Other receivables and
prepaid expenses.... (438,000) 200,000 (1,182,000) (1,156,000) (4,738,000)
Intangible assets and
other assets........ (155,000) (192,000) 1,351,000 (6,000) (759,000)
Parts and supplies
inventories......... (437,000) (469,000) (1,403,000) (1,062,000) (1,176,000)
Accounts payable..... 1,252,000 1,599,000 1,866,000 1,707,000 10,247,000
Payroll and other
accrued expenses and
related party
payables............ 162,000 410,000 (1,000,000) 1,069,000 1,550,000
Accrued interest
payable............. (34,000) (18,000) 737,000 29,000 32,000
Assets held for sale. -- -- 2,652,000 -- (2,244,000)
Income taxes payable. 244,000 211,000 (375,000) 200,000 (407,000)
Deferred taxes, net.. 81,000 223,000 132,000 -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by
operating activities... 3,920,000 7,409,000 12,544,000 4,357,000 11,697,000
INVESTING ACTIVITIES
Acquisitions of rental
operations, net of cash
acquired............... (9,741,000) (20,000) (42,057,000) (1,424,000) (19,858,000)
Cash purchases of rental
equipment and operating
property and equipment. (6,618,000) (17,043,000) (23,632,000) (8,707,000) (42,392,000)
Financed purchases of
rental equipment and
operating equipment.... (2,476,000) -- -- -- --
Proceeds from sale of
used equipment......... 1,007,000 3,240,000 4,126,000 2,048,000 5,374,000
------------ ------------ ------------ ----------- ------------
Net cash used in
investing activities... (17,828,000) (13,823,000) (61,563,000) (8,083,000) (56,876,000)
FINANCING ACTIVITIES
Proceeds from bank debt. 9,540,000 20,557,000 114,826,000 13,943,000 116,954,000
Payments on bank debt... (9,164,000) (11,125,000) (69,108,000) (8,151,000) (85,713,000)
Payments of debt
issuance costs......... (619,000) (400,000) (2,024,000) -- --
Proceeds from long term
obligations............ 3,101,000 -- 10,000,000 -- --
Payment on long term
obligations............ (4,181,000) (894,000) (3,597,000) (533,000) (192,000)
Purchase of treasury
stock--preferred....... -- (1,177,000) -- -- --
Purchase of treasury
stock--common.......... -- (523,000) -- -- --
Proceeds from capital
lease borrowings....... 285,000 -- -- -- --
Payment on capital lease
obligations............ (195,000) (197,000) (276,000) (92,000) (329,000)
Proceeds from issuance
of preferred stock, net
of issuance costs...... 14,799,000 259,000 -- -- 7,500,000
Proceeds from issuance
common stock, net of
issuance costs......... 2,000 -- -- -- 7,369,000
------------ ------------ ------------ ----------- ------------
Net cash provided by
financing activities... 13,568,000 6,500,000 49,821,000 5,167,000 45,589,000
------------ ------------ ------------ ----------- ------------
Net increase (decrease)
in cash and cash
equivalents............ (340,000) 86,000 802,000 1,441,000 410,000
Cash and cash
equivalents at
beginning of period.... 907,000 567,000 653,000 653,000 1,455,000
------------ ------------ ------------ ----------- ------------
Cash and cash
equivalents at end of
period................. $ 567,000 $ 653,000 $ 1,455,000 $ 2,094,000 $ 1,865,000
============ ============ ============ =========== ============
Supplemental disclosure
of cash flow
information
Cash paid for interest.. $ 441,000 $ 749,000 $ 1,863,000 $ 754,000 $ 1,882,000
Cash paid for income
taxes.................. $ 140,000 $ 777,000 $ 1,545,000 $ 967,000 $ 419,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND JUNE 30, 1996
(THE INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
Rental Service Corporation (formerly known as Acme Acquisition Holdings
Corp.) (RSC or Company), a Delaware Corporation, was formed in June 1993 when
all of the outstanding preferred and common shares of RSC Acquisition Corp.
(RSC Acquisition) were exchanged for the same number, class and par value of
shares of RSC. RSC Acquisition was formed in July 1992.
The Company operates in a single industry segment: the short-term rental of
equipment, including ancillary sales of parts, supplies and equipment, through
a network of rental center locations in Texas, Louisiana, Mississippi,
Florida, Alabama, Tennessee, Georgia, Arkansas, South Carolina and California.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance
sheets are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the consolidated statements of operations includes
revenues earned on equipment rentals, fuel sales and rental equipment delivery
fees. Revenue from the sale of parts, supplies and equipment are recorded at
the time of delivery to or pick-up by the customer.
Credit Policy
Substantially all of the Company's business is on a credit basis. The
Company extends credit to its commercial customers based on evaluations of
their financial condition and generally no collateral is required, although in
many cases mechanics' liens are filed to protect the Company's interests.
Invoices are generated when a piece of rental equipment is returned by the
customer or in any event after 21 days. The Company has diversified its
customer base by operating rental locations in ten states, primarily in the
Sunbelt. The Company maintains reserves it believes adequate for potential
credit losses.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, commodity type
supplies and small- to medium-sized equipment for sale. All inventories are
valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment............................................ 3-7 years
Operating property and equipment............................ 3-27 years
Leasehold improvements...................................... Term of lease
</TABLE>
F-7
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental equipment is depreciated to a salvage value of 10% of cost.
Amortization of assets under capital leases is included in depreciation
expense. Rental equipment costing less than $600 is immediately expensed at
the date of purchase.
Intangible Assets
Intangible assets are recorded at cost and are amortized using the straight-
line method over their estimated useful lives of usually one to three years
for covenants not to compete, and 30 years for goodwill. The recoverability of
goodwill attributable to the Company's acquisitions is analyzed annually based
on actual and projected levels of profitability and cash flows of the
locations acquired on an undiscounted basis.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Recognition of deferred tax assets is
limited to amounts considered by management to be more likely than not of
realization in future periods.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$166,000, $407,000, $491,000, $224,000 and $454,000 in advertising costs
during the years ended December 31, 1993, 1994, and 1995 and the six months
ended June 30, 1995 and 1996, respectively.
Debt Costs
Deferred financing costs are amortized using the straight-line method over
the lives of the related debt. Interest expense for the Company's increasing
interest rate Bank Note (see Note 5) is determined based on the average
effective interest rate payable over the period in which the debt is expected
to be outstanding, which is three years.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25 and, accordingly, recognizes no compensation expense for the
stock option grants.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. Statement No. 123 allows for a fair value
based method of accounting for employee stock options and similar equity
instruments. The Company intends to apply the recognition and measurement
provisions of APB Opinion No. 25 to all employee stock options and similar
equity instruments awarded after December 31, 1995.
F-8
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company has adopted Statement No. 121 in the first quarter of 1996 and, based
on current circumstances, the effect of adoption is not material.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions located throughout the country in order to limit exposure to any
one institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers.
Fair Values of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximate fair value because of the immediate or short-term
maturity of these financial instruments. The fair value of long-term debt is
determined using current applicable interest rates as of December 31, 1995 and
approximates the carrying value of such debt because the underlying
instruments are at variable rates which are repriced frequently.
Interim Financial Statements
The accompanying consolidated balance sheet at June 30, 1996 and the
consolidated statements of operations, redeemable preferred stock and common
stockholders' equity and cash flows for the six-month periods ended June 30,
1995 and 1996 are unaudited and have been prepared on the same basis as the
audited consolidated financial statements included herein. In the opinion of
management, such unaudited consolidated financial statements include all
adjustments necessary to present fairly the information set forth therein,
which consist solely of normal recurring adjustments. The results of
operations for such interim period are not necessarily indicative of results
for the full year.
Deferred Offering Costs
Deferred offering costs incurred in conjunction with the Company's initial
public offering will be offset against the proceeds of such offering. At June
30, 1996, there were $252,000 in deferred offering costs included in the
accompanying consolidated balance sheet.
Earnings (Loss) Per Share and Supplemental Earnings Per Share
Earnings (loss) per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. In accordance with the accounting rules of the Securities and Exchange
Commission common stock and stock options and warrants issued by the Company
in the twelve month period prior to the Company's initial public offering have
been included in the calculation of common and common equivalent shares as if
they were outstanding for all periods presented, computed using the treasury
stock method and the assumed initial offering price.
F-9
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplementary pro forma net income per share--assuming the proceeds from the
issuance of common shares at the public offering price of $15.00 ($13.95 net
of issuance costs), were used to repay the Bank Note (Note 5) and repurchase
the related warrant and the Company's redeemable preferred stock as of the
beginning of the period, or the date upon which the debt was created,
whichever was later. Supplementary pro forma net income per common and common
equivalent share would have been $.47 for the year ended December 31, 1995,
and $.22 for the six months ended June 30, 1996, respectively based upon
7,779,688 and 8,676,601 share issuances, respectively.
2. BUSINESS ACQUISITIONS
A principal component of the Company's business strategy is to continue to
grow through acquisitions which augment its present operations as well as
enter into new geographic markets. In keeping with this strategy, the Company
has made several acquisitions of rental operations. These acquisitions have
been accounted for as purchases and, accordingly, the acquired tangible and
identifiable intangible assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition with any excess purchase
price reflected as goodwill in the accompanying consolidated financial
statements. The operations of the acquired businesses are included in the
consolidated statements of operations from the date of acquisition.
The following table sets forth, for the periods indicated, the net assets
acquired, liabilities assumed and cash purchase price for these acquisitions.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31 ENDED
----------------------------------- JUNE 30,
1993 1994 1995 1996
----------- -------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Assets acquired.............. $ 7,893,000 $113,000 $ 50,109,000 $15,967,000
Goodwill and covenants not to
compete..................... 4,418,000 (91,000) 19,513,000 6,684,000
Less: liabilities assumed.... (2,570,000) (2,000) (27,565,000) (2,793,000)
----------- -------- ------------ -----------
Cash purchase price.......... $ 9,741,000 $ 20,000 $ 42,057,000 $19,858,000
=========== ======== ============ ===========
Number of acquisitions....... 2 1 5 5
</TABLE>
The following table sets forth the unaudited pro forma results of operations
for each period in which acquisitions occurred and for the immediately
preceding period as if the above acquisitions were consummated at the
beginning of the immediately preceding period:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31 ENDED
-------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues........... $32,825,000 $85,712,000 $112,157,000 $62,053,000
Income (loss) before non-
recurring and
extraordinary items..... (971,000) (2,451,000) 1,609,000 1,185,000
Net income (loss)........ (971,000) (2,451,000) 46,979,000(a) 1,185,000
Earnings (loss) per
common and common stock
equivalent share:
Income (loss) before
non-recurring and
extraordinary items... (.35) (.76) (.02) .01
Net income (loss)...... (.35) (.76) 8.15(a) .01
</TABLE>
(a) Net income in 1995 includes non-recurring and extraordinary items related
to Holdings' prepackaged bankruptcy of $45,370,000 ($8.17 per share),
including a gain on extinguishment of debt of $52,079,000 and charges for
fresh start accounting adjustment and reorganization items of $6,709,000.
F-10
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 12, 1995, the Company acquired all of the assets and assumed
all of the liabilities of Acme Holdings, Inc. (Holdings) (renamed as RSC
Holdings, Inc.) and its subsidiaries which operated in California, Texas,
Louisiana, and Florida. Holdings and its subsidiaries had filed a prepackaged
joint plan of reorganization under Chapter 11 of title 11 of the United States
Code on July 13, 1995 which was subsequently approved by the court on August
24, 1995 and became effective on September 12, 1995. Pursuant to the approved
plan, Holdings was merged into a wholly owned subsidiary of the Company, the
Company entered into the Revolver and Bank Note agreements (See Note 5), and
used proceeds therefrom of $35,350,000 to pay in full satisfaction old
outstanding notes payable of Holdings which had an aggregate principal balance
at that time of approximately $78,000,000. Additionally, the Company paid
Holdings' debtor-in-possession facility of approximately $3,795,000 and
assumed the remaining liabilities of Holdings in exchange for full releases
from substantially all of Holdings' note holders.
In connection with the acquisition of Holdings, the Company decided to sell,
close or dispose of Holdings' rental locations in California, as they did not
meet the Company's financial performance criteria and were not part of the
Company's strategic plans. The assets related to those rental locations,
consisting primarily of rental equipment and accounts receivable, have been
classified as assets held for sale in the accompanying consolidated balance
sheets at December 31, 1995 and June 30, 1996. The Company believes the
carrying value of these assets approximates the estimated net sales proceeds.
The Company accrued the expected cash outflows from operations of the rental
locations through the expected date of disposal as part of the allocation of
the purchase price of Holdings. The accrual of $2,492,000 included $1,404,000
of interest allocated to the purchase price of these assets. The pre-tax
income during the period from September 12, 1995 through December 31, 1995 was
$508,000, which included allocated interest expense of $422,000 and gain on
disposal of assets of $649,000, and was credited to the accrual. The pre-tax
loss during the six months ended June 30, 1996 was $339,000 which included
allocated interest expense of $514,000 and gain on disposal of assets of
$668,000, and was charged to the accrual. As of August 22, 1996, the Company
had sold four California locations and closed another and currently
anticipates selling, closing or otherwise disposing of the remaining six
California locations by September 30, 1996. The Company has executed letters
of intent to sell five such remaining locations and to sell the rental,
service and delivery fleets of the sixth location.
3. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Vehicles, machinery and equipment........ $2,844,000 $ 7,010,000 $11,563,000
Leasehold improvements................... 332,000 1,284,000 1,777,000
Furniture, fixtures and computer
equipment............................... 1,575,000 2,663,000 3,932,000
Land and building........................ 1,059,000 1,634,000 1,982,000
---------- ----------- -----------
Total.................................... 5,810,000 12,591,000 19,254,000
Less: accumulated depreciation and
amortization............................ 621,000 1,962,000 2,971,000
---------- ----------- -----------
$5,189,000 $10,629,000 $16,283,000
========== =========== ===========
</TABLE>
F-11
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- JUNE 30
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Covenants not to compete................. $ 350,000 $ 141,000 $ 1,591,000
Goodwill................................. 5,313,000 24,685,000 29,919,000
---------- ----------- -----------
Total.................................... 5,663,000 24,826,000 31,510,000
Less: accumulated amortization........... 527,000 672,000 1,323,000
---------- ----------- -----------
$5,136,000 $24,154,000 $30,187,000
========== =========== ===========
</TABLE>
The Company has entered into noncompetition agreements with the former
owners of certain acquired businesses. The agreements are generally for terms
of one to three years and prohibit the former owners from competing with the
Company in the business of renting equipment in certain counties located in
the area of the acquired business.
During 1993, the Company recorded a charge of $368,000 for the write-off of
the net carrying value of dealership rights acquired in connection with a
business acquisition that were subsequently terminated by the vendors.
Additionally, the Company recorded a charge of $200,000 associated with the
net carrying value related to an acquired company's name. The Company also
recorded a charge of $213,000 related to the cost in excess of net assets
acquired allocated to a location that was closed.
5. BANK DEBT AND LONG TERM OBLIGATIONS
Bank debt and long term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30
1994 1995 1996
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
$95,000,000 Revolving Line of Credit
(Revolver) with a bank, interest, at
the prime rate plus 1.5%, due month-
ly, or Eurodollar rate plus 3%, due
on
demand, at the Company's option,
principal due
September 12, 1998. The interest
rate in effect at
December 31, 1995 was 8.9% and at
June 30, 1996 was 8.7%.............. $ -- $56,042,000 $ 87,282,000
$30,000,000 Revolving line of credit
(1993 Credit Agreement) with a bank,
interest at the prime rate plus 1%
on the first $10,000,000 and prime
plus 1.5% on amounts in excess
thereof............................. 10,324,000 -- --
Note payable to bank (Bank Note)..... -- 10,710,000 11,884,000
Acquisition notes payable, unsecured,
repaid in February 1995............. 200,000 -- --
Notes payable, interest at 8-12%, due
in aggregate monthly installments of
$3,400 through 2008, plus a payment
of $73,000 in January 1997.......... 588,000 393,000 413,000
Equipment contracts payable, interest
at 7-11%, payable in various monthly
installments through May 1999,
collateralized by equipment......... 1,131,000 765,000 580,000
----------- ----------- ------------
$12,243,000 $67,910,000 $100,159,000
=========== =========== ============
</TABLE>
F-12
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the acquisition of Holdings, the Company's subsidiaries
entered into the Revolver on September 12, 1995, which consists of a revolving
line of credit and availability of letters of credit, which combined may not
exceed $95,000,000. The total amount of credit available under the Revolver is
limited to a borrowing base equal to the sum of (i) 85% of eligible accounts
receivable of the Company's subsidiaries and (ii) 75% of the value (lower of
net book value or market) of eligible rental equipment. The Revolver expires
September 12, 1998 and may be extended one year with the consent of the
lenders if no default exists. The obligation of the lender to make initial
loans or issue letters of credit under the Revolver is subject to certain
customary conditions. In addition, the Revolver has financial covenants for
RSC regarding debt incurrence, interest coverage, capital expenditure
investment and minimum EBITDA levels. The Revolver also contains covenants and
provisions that restrict, among other things, the Company's subsidiaries
ability to: (i) incur additional indebtedness; (ii) incur liens on its
property, (iii) enter into contingent obligations; (iv) make certain capital
expenditures and investments; (v) engage in certain sales of assets; (vi)
merge or consolidate with or acquire another person or engage in other
fundamental changes; (vii) enter into leases; (viii) engage in certain
transactions with affiliates; and (ix) declare or pay dividends to RSC.
Borrowings under the Revolver are secured by all of the real and personal
property of the Company's subsidiaries and a pledge of the capital stock and
intercompany debt of the Company's subsidiaries. In addition, the Company's
subsidiaries are guarantors of the obligations of the other subsidiaries under
the Revolver. The Revolver includes a $2 million letter of credit facility,
with a fee equal to 2.75% of the face amount of letters of credit payable to
the lenders and other customary fees payable to the issuer of the letter of
credit. A commitment fee equal to 0.5% of the unused commitment, excluding the
face amount of all outstanding and undrawn letters of credit, is also payable
monthly in arrears.
The amounts outstanding at December 31, 1995 and June 30, 1996, were
$56,042,000 and $87,283,000 with approximately $6,815,000 and $2,143,000
respectively available based on the borrowing base available. Outstanding
letters of credit totaled $212,000 at December 31, 1995. As of December 31,
1995 and June 30, 1996, the Company was not in compliance with certain
covenants of the Revolver related to minimum EBITDA levels and the maximum
total indebtedness ratio. The Company has received a waiver with respect to
such non-compliance.
Certain subsidiaries of the Company are subject to the Revolver agreement
which limit cash dividends and loans to RSC. At December 31, 1995 and June 30,
1996, substantially all of the net consolidated assets of the Company were
restricted.
In 1995, the Company paid off the borrowings under the 1993 Credit Agreement
upon entering into the Revolver resulting in a loss on extinguishment of such
debt of $783,000 which has been classified as an extraordinary item, net of
income taxes of $305,000, in the accompanying consolidated statements of
operations.
The Company entered into a redeemable note and warrant purchase agreement
(the Bank Note) on September 12, 1995 with a financial institution that
provided $10,000,000 of 13% senior secured notes due September 15, 2005.
Interest, compounded quarterly, for the first two years is to be paid in kind
through the issuance of additional notes, thereafter paid semi-annually in
cash. The principal amount of the Bank Note will be increased by $1,000,000 on
each of the first three anniversaries, which is being accounted for as
interest expense. Additionally, the financial institution was issued warrants
entitling the purchase of 87,120 shares of common stock at a purchase price of
$4.83 per share (subject to adjustment) through September 15, 2005. The note
is collateralized by the common stock of RSC Holdings, Inc. and RSC
Acquisition Corp. and calls for certain limitations and restrictions of
payments and investments.
The Bank Note carries mandatory payment terms requiring 30% of the aggregate
principal amount of the notes to be paid on September 15, 2003 and 2004 with
the remaining outstanding principal amount together with accrued interest due
on September 15, 2005. Certain other redemptions may be required from certain
asset sale
F-13
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
proceeds or upon occurrence of a change in control. The notes are redeemable
at the option of the Company at par, except that a $1,000,000 premium must be
paid if redemption occurs in the first year. The Bank Note requires the
maintenance of certain financial covenants and other affirmative and negative
covenants. As of December 31, 1995 and June 30, 1996, the Company was in
compliance with all Bank Note covenants.
The aggregate annual maturities of bank debt and long term obligations as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
NOTES EQUIPMENT
REVOLVER PAYABLE CONTRACTS TOTAL
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
1996........................... $ -- $ 14,000 $326,000 $ 340,000
1997........................... -- 87,000 262,000 349,000
1998........................... 56,042,000 14,000 166,000 56,222,000
1999........................... -- 14,000 11,000 25,000
2000........................... -- 14,000 -- 14,000
Thereafter..................... -- 10,960,000 -- 10,960,000
----------- ----------- -------- -----------
$56,042,000 $11,103,000 $765,000 $67,910,000
=========== =========== ======== ===========
</TABLE>
6. PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Board of Directors, without the approval of the holders of the
common stock, is authorized to fix the number of shares of any series of
preferred stock and to designate for issuance up to 500,000 shares of
preferred stock, par value $.01 per share, in such number of series and with
such rights, preferences, privileges and restrictions (including without
limitations voting rights) as the Board of Directors may from time to time
determine.
The Company has outstanding at December 31, 1995 and June 30, 1996, 244,805
and 319,805, respectively shares of a series of cumulative redeemable
preferred stock ("Redeemable Preferred Stock"). The Redeemable Preferred Stock
required mandatory redemption on July 17, 2002. In September 1995 an amendment
of the certificate of incorporation of the Company was filed removing the
mandatory redemption date and adding a provision requiring mandatory
redemption upon the sale of the Company (as defined). The difference between
the redemption amount and the carrying amount of the Redeemable Preferred
Stock is being recorded through periodic accretions.
The Redeemable Preferred Stock is cumulative at a rate of 6% per annum,
computed on a quarterly basis. No dividends may be paid on the common stock in
any quarter until the accumulated dividends on the Redeemable Preferred Stock
have been paid for all quarters ending prior to the date of payment of
dividends on the common stock. Each share of the Redeemable Preferred Stock is
entitled to one vote. Upon liquidation, the preferred stock carries a
liquidation preference of $100 per share, plus an amount equal to all declared
and unpaid dividends thereon. After the payment or distribution to the holders
of Redeemable Preferred Stock of the full preferential amounts, the common
stockholders are entitled to all remaining assets of the Company to be
distributed. The Redeemable Preferred Stock may be redeemed at any time at the
election of the Company's Board of Directors at the redemption price of $100
plus accrued and unpaid dividends to the redemption date.
Stock Purchase Agreements
Between 1992 and 1995, the Company entered into various stock purchase
agreements with a former chairman, a former president, the current chairman
and the current chief financial officer for the sale of 675,000 shares of
common stock at $.02 per share and 372,195 shares of common stock at $.01 per
share. The stock was issued subject to certain vesting requirements over
generally a four to five year period. However, the vesting for
F-14
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a portion of the stock which otherwise vested in the last two years could be
accelerated if the Company achieved certain performance targets, as determined
by the Company's Board of Directors. Upon a change of control (as defined),
any unvested shares generally immediately vested. In the event the participant
terminated employment with the Company, the Company generally has the option
to purchase any unvested shares at the original issuance price.
In connection with the former chairman's resignation, the Company in
September 1994 purchased all of his vested and unvested shares (675,000) of
the Company's common stock for $523,000, as well as all of his shares (11,256)
of the Company's preferred stock for $1,177,000. As of December 31, 1994,
these shares were held by the Company as treasury shares and were canceled
during 1995.
In April 1995, the Company purchased 31,275 shares of outstanding unvested
stock of the former president at $.01 per share which was subsequently
canceled.
At December 31, 1995 and June 30, 1996, there were 144,787 of these shares
which were not vested and were subject to the Company's repurchase option at
$.01 per share.
Stockholders Agreement
Pursuant to a stockholders' agreement dated January 4, 1996, certain of the
Company's stockholders have granted certain rights of first refusal with
respect to common stock of the Company owned by such stockholders as of such
date. Before any such shares of common stock, or any beneficial interest
therein, may be sold, transferred or assigned (including transfer by operation
of law) or, subject to certain exceptions, pledged, hypothecated or encumbered
by any such stockholder, such shares shall first be offered to the Company and
the other stockholders party to the stockholders' agreement owning common
stock in the manner set forth in the stockholders' agreement. In addition,
such stockholders have certain tag-along and drag-along rights with respect to
sales of common stock by certain other stockholders.
Stock Option Plan
On July 25, 1995, the Board of Directors of the Company adopted a Stock
Option Plan whereby under the plan officers, directors, and key employees may
be granted options to purchase the Company's common stock at a price set by
the option committee not to be less than 100% of the fair market value of such
shares on the date such option is granted, further, not to exceed 110% of the
fair market price on the date such option is granted. If the Company's common
stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the fair market value established by the option
committee acting in good faith may be used for valuation. The aggregate number
of such shares which may be issued upon exercise of options may not exceed
324,000. Generally, the incentive stock options will expire ten years from the
date such option was granted.
The options currently outstanding generally become exercisable in various
amounts at January 26, 1996 and December 31, 1996, 1997, 1998, and 1999;
however, the vesting for the options otherwise exercisable at December 31,
1998 and 1999 may be accelerated to a date after December 31, 1996 and 1997 if
the employee and the Company achieve certain performance targets, as
determined by the Company's option committee.
At June 30, 1996, 121,860 shares of common stock were reserved for issuance,
pursuant to the Stock Option Plan. At December 31, 1995 and June 30, 1996,
129,690 and 202,140 options, respectively, were outstanding at exercise prices
ranging from $.01 at December 31, 1995 and $.01 to $14.11 at June 30, 1996, of
which no options were exercisable at December 31, 1995 and 33,390 options were
exercisable at June 30, 1996. Subsequent to June 30, 1996, options for 33,390
shares were exercised.
F-15
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. EMPLOYEE BENEFIT PLANS
The Company maintains a Section 401(k) employees savings plan (the Savings
Plan) covering substantially all full-time employees upon completion of at
least 500 hours of service and six months of continuous employment.
The Savings Plan is a defined contribution plan and provides for the Company
to make discretionary contributions as deemed appropriate by the
administrative committee. During the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996, the Company made
discretionary contributions totaling $18,000, $0, $0, $0 and $0, respectively.
8. COMMITMENTS AND CONTINGENCIES
Capital Leases
The Company has capital lease obligations in connection with acquiring
certain rental equipment with aggregate costs and accumulated amortization of
$937,000 and $86,000, respectively, at December 31, 1994 and $2,352,000 and
$599,000, respectively, at December 31, 1995. Future minimum lease payments
under the capital leases and the present value of the minimum lease payments
as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $502,000
1997............................................................ 194,000
1998............................................................ 13,000
1999............................................................ 1,000
--------
Total minimum future lease payments............................. 710,000
Less amount representing interest............................... 65,000
--------
Present value of net minimum future lease payments.............. $645,000
========
</TABLE>
Subsequent to December 31, 1995, accelerated payoff of certain leases
totaling $260,000 have resulted in future minimum lease payments under the
capital leases of $450,000 and the present value of the minimum lease payments
of $385,000.
Operating Leases
The Company leases certain operating premises and equipment under operating
leases. Substantially all of the property leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rentals. Certain of the real property leases provide for escalation of
future rental payments based upon increases in the consumer price index.
Rental expense under such operating leases totaled $753,000, $919,000,
$2,397,000, $549,000 and $1,376,000 for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995 and 1996, respectively.
Future minimum lease payments, by year and in the aggregate, for
noncancellable operating leases with initial or remaining terms of one year or
more are as follows at December 31, 1995:
<TABLE>
<S> <C>
1996.......................................................... $ 4,354,000
1997.......................................................... 3,190,000
1998.......................................................... 2,099,000
1999.......................................................... 1,761,000
2000.......................................................... 1,313,000
Thereafter.................................................... 2,853,000
-----------
$15,570,000
===========
</TABLE>
F-16
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to December 31, 1995, accelerated payoff of certain leases
totaling $2,976,000, including purchase options, have resulted in future
minimum lease payments under the operating leases as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 2,948,000
1997.......................................................... 2,528,000
1998.......................................................... 2,099,000
1999.......................................................... 1,761,000
2000.......................................................... 1,313,000
Thereafter.................................................... 2,852,000
-----------
$13,501,000
===========
</TABLE>
Purchase Obligations
At December 31, 1995 and June 30, 1996, the Company was obligated, under
noncancellable purchase commitments, to purchase $8,938,000 and $8,362,000,
respectively, of rental equipment.
Risk Management
The Company is self-insured for physical damage or loss to its rental
equipment. Presently, the Company has an insurance deductible of $50,000 per
occurrence for claims related to general and vehicle liability. The general
and vehicle policy includes an annual aggregate insurance deductible of
approximately $2,000,000.
Environmental
The Company and its operations are subject to a variety of federal, state
and local laws and regulations governing, among other things, worker safety,
air emissions, water discharge and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes.
Under such laws, an owner or lessee of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances located on
or in, or emanating from, such property, as well as related costs of
investigation and property damage. The Company incurs ongoing expenses
associated with the removal of underground storage tanks and the performance
of appropriate remediation at certain of its locations. The Company has
accrued $800,000 at December 31, 1995 related to the removal of the
underground tanks at the Company's locations. The actual costs of remediating
these environmental conditions may be different than that accrued by the
Company due to the difficulty in estimating such costs and due to potential
changes in the status of legislation and state reimbursement programs. The
Company does not believe that such removal and remediation will have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
Legal Proceedings
The Company and its subsidiaries are parties to various litigation matters,
in most cases involving ordinary and routine claims incidental to the business
of the Company. The ultimate legal and financial liability of the Company with
respect to such pending litigation cannot be estimated with certainty, but the
Company believes, based on its examination of such matters, that such ultimate
liability will not have a material adverse effect on the business, or the
consolidated financial position, results of operations or cash flows of the
Company.
9. RELATED PARTY TRANSACTIONS
In July 1992, the Company entered into a five-year management agreement (the
Management Agreement) with Holdings which also operated an equipment rental
businesses. Under the Management Agreement, Holdings located potential
acquisition opportunities, provided administrative assistance in connection
with acquisitions and managed, supervised and provided administrative and
accounting support for the operation of the Company's rental center locations.
Pursuant to the Management Agreement, Holdings agreed, until April 1, 1995, to
make
F-17
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
available first to the Company any opportunities which came to its attention
for acquiring additional rental center locations. The Company reimbursed
Holdings for any costs incurred by Holdings in connection with such
acquisitions. Additionally, the Company paid a management fee based on a
percentage of the acquisition cost for each acquisition and the performance of
the companies acquired. As of December 31, 1994, the management fee payable
was $255,000. Total management fee expense, included in general and
administrative expense, was $992,000 and $1,586,000 for the years ended
December 31, 1993 and 1994, respectively, $742,000 for the period from January
1, 1995 through September 12, 1995 and $524,000 for the six months ended June
30, 1995. The Management Agreement was terminated on September 12, 1995.
The Company and Holdings agreed to rerent equipment to each other in the
event the other party did not have sufficient rental equipment at a given
location to meet a customer's requirements. The party making such equipment
available received 70% of the gross rental receipts received by the other
party related to such rerental. During the years ended December 31, 1993 and
1994, the period from January 1, 1995 through September 12, 1995 and the six
months ended June 30, 1995, rerent revenue received by the Company from
Holdings was $111,000, $230,000, $72,000 and $35,000, respectively, and rerent
expense paid by the Company to Holdings was $151,000, $39,000, $27,000, and
$16,000, respectively. The agreement terminated on September 12, 1995.
During 1993, 1994 and 1995, certain expenses incurred by Holdings were paid
by the Company and vice versa. As of December 31, 1994, the related net
receivable from Holdings totaled $127,000.
One of the stockholders of the Company receives an investment banking fee
from the Company in connection with the Company's acquisitions. The fee is
calculated at 1.5% of the total of the purchase price plus acquisition costs
plus planned first year capital expenditures less one-seventh of the seller's
original cost of rental equipment. Such fees paid to the stockholder during
the years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1995 and 1996 totaled $203,000, $0, $663,000, $42,000 and $388,000,
respectively. Effective November 1, 1993, the stockholder also receives a
monitoring fee, which equals 1% of the aggregate amount of debt and equity
interest of or by the stockholder in the Company. Such fees paid to the
stockholder during the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1995 and 1996 totaled $39,000, $235,000, $235,000,
$117,000 and $117,000, respectively and are included in general and
administrative expense.
On December 31, 1994 RSC Acquisition purchased 37,512 shares of common stock
and 675,000 shares of preferred stock of Holdings for $10 from a former
officer of RSC Acquisition. This equated to a voting interest of 34.2% of
Holding's at December 31, 1994. These Holdings shares were canceled September
12, 1995 as part of Holding's plan of reorganization.
10. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal..................................... $329,000 $ 793,000 $1,135,000
State....................................... 55,000 161,000 337,000
-------- ---------- ----------
384,000 954,000 1,472,000
Deferred:
Federal..................................... 38,000 123,000 581,000
State....................................... 43,000 100,000 43,000
-------- ---------- ----------
81,000 223,000 624,000
Extraordinary item............................ -- -- 305,000
-------- ---------- ----------
$465,000 $1,177,000 $2,401,000
======== ========== ==========
</TABLE>
F-18
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities............................. $ 692,000 $ 4,601,000
Inventory reserve............................... 111,000 559,000
Bad debt reserve................................ 392,000 1,161,000
Net operating loss carryforwards................ 51,000 7,189,000
Alternative minimum tax credit.................. 746,000 1,658,000
Valuation allowance............................. (27,000) (7,858,000)
----------- -----------
1,965,000 7,310,000
Deferred tax liabilities:
Depreciation.................................... (2,359,000) (9,815,000)
----------- -----------
Net deferred tax liability........................ $ (394,000) $(2,505,000)
=========== ===========
</TABLE>
The Company's effective income tax rate varied from the statutory U.S.
federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Expected provision using the statutory tax
rate...................................... $ 58,000 $1,072,000 $2,079,000
State taxes, net of federal tax benefit.... 36,000 172,000 290,000
Other...................................... 371,000 (67,000) 32,000
-------- ---------- ----------
$465,000 $1,177,000 $2,401,000
======== ========== ==========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17,890,000 that expire in years
2005 through 2010. In addition the Company had combined state (California,
Florida and Texas) net operating loss carryforwards of $13,762,000 that expire
in years 1996 through 2010. All of the federal carryforwards and $12,344,000
of the state carryforwards are attributable to the Company's September 12,
1995 acquisition of Holdings. For financial reporting purposes a valuation
allowance of $6,200,000 has been recognized to offset the deferred tax assets
related to those carryforwards. These separate company net operating loss
carryforwards are subject to restrictions in accordance with Internal Revenue
Service Code Section 382 and the ultimate utilization of the net operating
losses is further limited based on the profitability of certain subsidiaries
of Holdings.
The Company also has alternative minimum tax credit carryovers of
approximately $1,493,000 for federal and $165,000 for state of California
income tax purposes which are available to offset future regular income tax
that is in excess of the alternative minimum tax in such year. $589,000 of the
federal and all of the state alternative minimum tax credit carryovers
resulted from the Company's September 12, 1995 acquisition of Holdings. For
financial reporting purposes a valuation allowance of $1,658,000 has been
recognized in 1995 to offset the deferred tax assets related to all
alternative minimum tax credit carryovers. Limitations similar to those
restricting the use of the net operating losses also restrict the use of the
credit carryovers.
Any tax benefit resulting from the utilization of the net operating loss
carryforwards or the tax credit carryovers obtained in the acquisition of
Holdings will be accounted for as a reduction of the purchase price of
Holdings in the periods they are realized.
F-19
<PAGE>
RENTAL SERVICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS
On August 21, 1996, the Company increased the authorized number of shares of
common and preferred stock, declared a 45-for-one stock split of the common
stock and made conforming adjustments on the terms of all outstanding common
stock equivalents. All shares and per share information in the accompanying
consolidated financial statements has been retroactively adjusted to reflect
these actions.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Acme Holdings Inc.
We have audited the accompanying consolidated balance sheets of Acme
Holdings Inc. ("Holdings") as of December 31, 1993 and 1994, and the related
consolidated statements of operations, shareholders' deficit, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Holdings' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Holdings at
December 31, 1993 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Holdings will continue as a going concern. Holdings has incurred recurring
losses and has a net capital deficiency. In addition, as more fully described
in Note 3, Holdings has not complied with certain covenants of loan agreements
and has not made an interest payment due on December 1, 1994. These conditions
raise substantial doubt about the ability of Acme Holdings Inc. to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As discussed in Note 9 to the consolidated financial statements, in 1993
Acme Holdings Inc. changed its method of accounting for income taxes.
/s/ ERNST & YOUNG LLP
Orange County, California
March 30, 1995
F-21
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
JUNE 30
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
Cash and cash equivalents (Note 1).. $ 599,000 $ 3,183,000 $ 1,627,000
Accounts receivable, net of
allowance for doubtful accounts of
$1,097,000 in 1993, $1,352,000 in
1994 and $1,786,000 in 1995 ....... 9,025,000 9,145,000 8,829,000
Other receivables................... 164,000 316,000 235,000
Receivables from related parties
(Note 7)........................... 220,000 138,000 298,000
Parts and supplies inventories (Note
1)................................. 1,453,000 1,180,000 1,099,000
Prepaid expenses.................... 609,000 585,000 897,000
Rental equipment, principally
machinery, at cost, net of
accumulated depreciation of
$32,515,000 in 1993, $32,576,000 in
1994 and $33,102,000 in 1995
(Notes 1, 3 and 6)................. 33,027,000 28,277,000 30,049,000
Operating property and equipment, at
cost, net of accumulated
depreciation of $3,505,000 in 1993,
$3,856,000 in 1994 and $4,019,000
in 1995 (Notes 1 and 3)............ 3,931,000 3,067,000 3,698,000
Goodwill, net of accumulated
amortization of $724,000 in 1993,
$869,000 in 1994 and $941,000 in
1995 (Note 1)...................... 3,646,000 3,501,000 3,429,000
Other assets, net (Notes 1 and 6)... 3,830,000 3,001,000 2,682,000
------------ ------------ ------------
$ 56,504,000 $ 52,393,000 $ 52,843,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
DEFICIT
Accounts payable.................... $ 3,369,000 $ 2,720,000 $ 3,238,000
Unfunded disbursements.............. 1,214,000 1,635,000 3,093,000
Payroll and other accrued expenses.. 7,240,000 8,804,000 8,339,000
Accrued interest payable............ 763,000 5,398,000 10,309,000
Income taxes payable (Note 9)....... 230,000 99,000 81,000
Deferred taxes based on income (Note
9)................................. 425,000 375,000 325,000
Obligations under capital leases
(Note 6)........................... 990,000 685,000 505,000
Senior Notes (Note 3)............... 77,566,000 77,618,000 77,644,000
Senior secured borrowings (Note 3).. 5,839,000 5,058,000 4,353,000
------------ ------------ ------------
Total liabilities................... 97,636,000 102,392,000 107,887,000
Commitments (Note 6)
Shareholders' deficit (Notes 1, 4
and 8):
Preferred stock, $1.00 par value:
Authorized, issued and outstanding
shares at December 31, 1993 and
1994 and June 30, 1995--
3,000,000........................ 3,000,000 3,000,000 3,000,000
Common stock, $.01 par value:
Authorized shares--500,000
Issued and outstanding shares--at
December 31, 1993 and 1994--
112,095 and 104,598, respectively
and 102,596 at June 30, 1995..... 1,000 1,000 1,000
Additional paid-in capital......... 724,000 724,000 724,000
Accumulated deficit................ (44,857,000) (53,724,000) (58,769,000)
------------ ------------ ------------
Total shareholders' deficit......... (41,132,000) (49,999,000) (55,044,000)
------------ ------------ ------------
$ 56,504,000 $ 52,393,000 $ 52,843,000
============ ============ ============
</TABLE>
See accompanying notes.
F-22
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31 30
-------------------------------------- ------------------------
1992 1993 1994 1994 1995
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals (Note
1).................... $58,423,000 $ 55,504,000 $57,444,000 $28,296,000 $26,772,000
Sales of parts,
supplies and used
equipment............. 10,166,000 7,985,000 10,890,000 4,765,000 5,282,000
----------- ------------ ----------- ----------- -----------
Total revenues.......... 68,589,000 63,489,000 68,334,000 33,061,000 32,054,000
Costs and expenses:
Operating expenses..... 36,134,000 40,454,000 37,912,000 18,569,000 17,516,000
Cost of sales of parts,
supplies and used
equipment............. 7,074,000 6,087,000 8,188,000 3,565,000 3,912,000
General and
administrative
expense............... 7,106,000 7,338,000 11,180,000 4,631,000 5,648,000
Depreciation and
amortization expense.. 10,494,000 11,347,000 9,933,000 5,132,000 4,765,000
Restructure costs (Note
2).................... -- 1,887,000 -- -- --
Provision for rental
equipment retirements. -- 880,000 -- -- --
----------- ------------ ----------- ----------- -----------
Total costs and
expenses............... 60,808,000 67,993,000 67,213,000 31,897,000 31,841,000
----------- ------------ ----------- ----------- -----------
Operating income (loss). 7,781,000 (4,504,000) 1,121,000 1,164,000 213,000
Interest expense........ 8,422,000 9,279,000 9,927,000 4,897,000 5,198,000
----------- ------------ ----------- ----------- -----------
Loss before income
taxes.................. (641,000) (13,783,000) (8,806,000) (3,733,000) (4,985,000)
Provision for income
taxes (Note 9)......... 427,000 274,000 61,000 124,000 60,000
----------- ------------ ----------- ----------- -----------
Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000)
=========== ============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... -- $ -- 111,111 $1,000 $724,000 $(29,732,000) $(29,007,000)
Net loss.............. -- -- -- -- -- (1,068,000) (1,068,000)
Issuance of preferred
stock,
$1.00 par value...... 3,000,000 3,000,000 -- -- -- -- 3,000,000
--------- ---------- ------- ------ -------- ------------ ------------
Balance at December 31,
1992................... 3,000,000 3,000,000 111,111 1,000 724,000 (30,800,000) (27,075,000)
Net loss.............. -- -- -- -- -- (14,057,000) (14,057,000)
Issuance of common
stock,
$.01 par value....... -- -- 5,985 -- -- -- --
Forfeiture of common
shares under
Restricted Stock
Agreement (Note 4)... -- -- (5,001) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at December 31,
1993................... 3,000,000 3,000,000 112,095 1,000 724,000 (44,857,000) (41,132,000)
Net loss.............. -- -- -- -- -- (8,867,000) (8,867,000)
Forfeiture of common
shares under
Restricted Stock
Agreement (Note 4)... -- -- (7,497) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at December 31,
1994................... 3,000,000 3,000,000 104,598 1,000 724,000 (53,724,000) (49,999,000)
--------- ---------- ------- ------ -------- ------------ ------------
Net loss (unaudited).. -- -- -- -- -- (5,045,000) (5,045,000)
Forfeiture of common
shares under
Restricted Stock
Agreement (Note 4)
(unaudited).......... -- -- (2,002) -- -- -- --
--------- ---------- ------- ------ -------- ------------ ------------
Balance at June 30, 1995
(unaudited)............ 3,000,000 $3,000,000 102,596 $1,000 $724,000 $(58,769,000) $(55,044,000)
========= ========== ======= ====== ======== ============ ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------------------- ------------------------
1992 1993 1994 1994 1995
----------- ------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................ $(1,068,000) $(14,057,000) $(8,867,000) $(3,857,000) $(5,045,000)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization......... 10,327,000 11,394,000 9,985,000 5,157,000 4,792,000
Interest payable
financed through
borrowings........... 2,648,000 421,000 -- -- --
Provision for doubtful
accounts............. 726,000 1,252,000 816,000 400,000 434,000
(Gain) loss on sale of
equipment............ (409,000) 1,666,000 (679,000) (230,000) (333,000)
Increase (decrease) in
deferred taxes....... 233,000 (26,000) (50,000) -- --
Write-off of deferred
financing fees....... -- 329,000 -- -- --
Changes in operating
assets:
(Increase) decrease
in accounts
receivable......... (2,307,000) 51,000 (936,000) (35,000) (119,000)
Decrease in income
tax refund
receivable......... 211,000 -- -- -- --
Increase in other
and related party
receivables........ (153,000) (52,000) (70,000) (440,000) (79,000)
(Increase) decrease
in parts and
supplies
inventories........ (201,000) 367,000 273,000 193,000 81,000
(Increase) decrease
in prepaid
expenses........... (115,000) (97,000) 24,000 47,000 (313,000)
(Increase) decrease
in other assets.... 37,000 (97,000) 259,000 (198,000) 94,000
Increase (decrease)
in accounts payable
and unfunded
disbursements...... (405,000) 83,000 (228,000) (1,016,000) 1,976,000
Increase (decrease)
in payroll and
other accrued
expenses........... (1,205,000) 3,042,000 1,564,000 1,035,000 (471,000)
Increase (decrease)
in accrued interest
payable............ 1,219,000 (1,066,000) 4,635,000 27,000 4,911,000
Increase (decrease)
in income taxes
payable............ 349,000 (119,000) (131,000) (51,000) (66,000)
----------- ------------- ------------ ----------- -----------
Net cash provided by
operating activities... 9,887,000 3,091,000 6,595,000 1,032,000 5,862,000
INVESTING ACTIVITIES
Proceeds from sale of
rental equipment and
operating plant and
equipment.............. 1,500,000 2,194,000 5,122,000 1,866,000 2,204,000
Cash purchases of rental
equipment and operating
plant and equipment.... (3,287,000) (4,219,000) (5,653,000) (1,322,000) (8,737,000)
Financed purchases of
rental equipment and
operating equipment.... (3,163,000) (3,789,000) (2,394,000) (2,535,000) --
----------- ------------- ------------ ----------- -----------
Net cash used in
investing activities... (4,950,000) (5,814,000) (2,925,000) (1,991,000) (6,533,000)
</TABLE>
See accompanying notes.
F-25
<PAGE>
ACME HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Borrowings under
revolving facility..... $ 71,325,000 $ 40,238,000 $ 55,078,000 $ 23,766,000 $ 36,321,000
Payments under revolving
facility............... (71,840,000) (53,336,000) (55,952,000) (22,182,000) (36,109,000)
Proceeds from secured
borrowings............. 3,015,000 2,765,000 2,242,000 2,409,000 --
Payments on secured
borrowings............. (9,387,000) (28,664,000) (2,149,000) (1,339,000) (917,000)
Payments on subordinated
debt................... -- (33,828,000) -- -- --
Payments of loan
origination costs...... (678,000) (3,074,000) -- -- --
Proceeds from capital
lease borrowings....... 148,000 1,024,000 152,000 126,000 --
Payments on capital
lease obligations...... (324,000) (648,000) (457,000) (266,000) (180,000)
Proceeds from sale of
preferred stock........ 3,000,000 -- -- -- --
Proceeds from issuance
of Senior Notes........ -- 77,544,000 -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided (used)
in financing
activities............. (4,741,000) 2,021,000 (1,086,000) 2,514,000 (885,000)
------------ ------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 196,000 (702,000) 2,584,000 1,555,000 (1,556,000)
Cash and cash
equivalents at
beginning of period.... 1,105,000 1,301,000 599,000 599,000 3,183,000
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
period................. $ 1,301,000 $ 599,000 $ 3,183,000 $ 2,154,000 $ 1,627,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND JUNE 30, 1995
(THE INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED JUNE 30,
1994 AND 1995 IS UNAUDITED)
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Acme Holdings Inc., a Delaware corporation, and its wholly owned subsidiaries
(together, "Holdings") Acme Rents, Inc. ("Acme Rents"), Acme Duval Inc. ("Acme
Duval") and Acme Dixie Inc. ("Acme Dixie"). All material intercompany accounts
and transactions have been eliminated. Certain reclassifications have been
made to prior years' amounts to conform to the current year presentation.
Holdings operates in a single industry segment: the rental of equipment
through a network of rental center locations in California, Florida, Texas and
Louisiana, including sales of equipment, parts, supplies and used rental
equipment. The nature of Holdings' business is such that short-term
obligations are typically met by cash flow generated from long-term assets.
Consequently, consistent with industry practice, the accompanying balance
sheets are presented on an unclassified basis.
Interim Financial Statements
The accompanying consolidated balance sheet at June 30, 1995 and the
consolidated statements of operations, shareholders' deficit and cash flows
for the six-month periods ended June 30, 1994 and 1995 are unaudited and have
been prepared on the same basis as the audited consolidated financial
statements included herein. In the opinion of management, such unaudited
consolidated financial statements include all adjustments necessary to present
fairly the information set forth therein, which consist solely of normal
recurring adjustments. The results of operations for such interim period are
not necessarily indicative of results for the full year.
Operations
During the years ended December 31, 1992, 1993 and 1994, and six months
ended June 30, 1994 and June 30, 1995 Holdings had operating income (loss) of
$7,781,000, ($4,504,000), $1,121,000, $1,164,000 and $213,000 and net loss of
$1,068,000, $14,057,000, $8,867,000, $3,857,000 and $5,045,000, respectively.
The losses are primarily attributable to the interest expense associated with
Holdings' debt level. The results for the year ended December 31, 1994 and six
months ended June 30, 1995 include expenses related to discussions with
holders of Holdings' 11.75% $78,000,000 Senior Notes due 2000 (the Senior
Notes) regarding a possible recapitalization (Note 3). In the fourth quarter
of 1993, Holdings implemented a restructuring plan and recorded a charge of
$1,887,000 (Note 2).
Effective March 31, 1992, Holdings sold 3,000,000 shares of newly authorized
preferred stock for $3,000,000 cash, and restructured the terms of its
financing agreements with its lenders as more fully described in Notes 3 and
4. The restructured agreements reduced the amounts available to borrow,
accelerated certain bank principal payments, deferred certain subordinated
debt interest payments and modified certain loan terms, conditions and
covenants. The restructured agreements were amended in March and April 1993 to
defer certain principal and interest payments and extend the term of the
revised covenant provisions.
In June 1993, Holdings issued the Senior Notes (Note 3). Proceeds from this
issuance were used to pay off all then existing bank debt, senior subordinated
notes payable and junior subordinated notes payable.
Holdings did not make an interest payment on the Senior Notes in the amount
of $4,582,500 which was due December 1, 1994 and another payment due June 1,
1995 for the accrued interest on the Senior Notes since December 1, 1994. The
failure to make such payments constitutes an event of default under the terms
of the indenture to the Senior Notes (Note 3).
F-27
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Simultaneously with the offering of Senior Notes, Holdings established a
revolving credit facility (the New Credit Facility) with Citicorp USA Inc. and
other lenders (Citicorp). As of December 31, 1994 and June 30, 1995 Holdings
was not in compliance with the interest coverage ratio, fixed charges ratio,
leverage ratio, and capital expenditure limits in the covenant provisions
contained in the New Credit Facility agreement. In addition, Holdings' failure
to make the December 1, 1994 and June 1, 1995 interest payments on the Senior
Notes constitute an event of default under the terms of the New Credit
Facility. As of June 30, 1995, and July 12, 1995, Citicorp was making
discretionary advances to Holdings under the terms of the New Credit Facility
without any assurance that it would make such discretionary advances in the
future.
In August 1994, Holdings hired Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") as its financial advisor to help Holdings explore
alternatives for restructuring the Senior Notes and to identify long term
solutions to strengthen Holdings' financial position (Note 3). Also, in August
1994, certain holders of the Senior Notes formed an unofficial committee (the
"Unofficial Committee") to evaluate and respond to proposals.
On April 28, 1995, Holdings reached an agreement in principle with the
Unofficial Committee of the holders of the Senior Notes on a financial
restructuring of Holdings. On July 11, 1995, Holdings received and accepted
the requisite number of votes from holders of the Senior Notes approving the
contemplated financial restructuring plan. As part of the plan, on July 13,
1995, Holdings filed a prepackaged joint plan of reorganization involving
Holdings and its wholly-owned subsidiaries under Chapter 11 of the Bankruptcy
Code ("Chapter 11 Filing"). Simultaneous with the Chapter 11 Filing, the
Bankruptcy Court approved and Holdings established a $5,000,000 DIP Facility
with Citicorp USA, Inc. The DIP Facility paid off the $1,835,000 outstanding
under Holdings' New Credit Facility.
An order confirming the Plan was entered by the Court on August 24, 1995 and
the Plan became effective September 11, 1995 (the "Effective Date"). For each
$1,000.00 principal amount of Holdings' 11 3/4% Senior Notes, holders received
a total of $525.75 consisting of $497.81 as payment for the Senior Notes and
$28.94 as payment for the Releases solicited with the Plan. All of the notes
were canceled pursuant to the Plan. The Plan provided that the holders of
Holdings' Preferred Stock, Common Stock, warrants and all other options to
acquire Holdings' stock and securities claims were not entitled to receive or
retain any property under the Plan and were deemed to reject the Plan, which
was approved by the Court. All applicable shares were canceled, annulled and
extinguished on the Effective Date. The other classes of claims and interests
were unimpaired under the Plan. The Plan provided for the payment of 100% of
their claims in the ordinary course of business, with the exception of two
rejected real estate leases.
On September 12, 1995, Holdings was merged into a subsidiary of Rental
Service Corporation, and the Senior Notes, DIP Facility and certain equipment
financing were paid off.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the consolidated statements of operations include
revenues earned on fuel sales and equipment delivery fees. Revenue from the
sale of parts, supplies and equipment are recorded at the time of delivery to
or pick-up by the customer.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, supplies and
small- to medium-sized equipment for sale. All inventories are valued at the
lower of cost (first-in, first-out) or market.
F-28
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
for financial statement purposes primarily using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment............................................ 3-7 years
Operating property and equipment............................ 3-7 years
Leasehold improvements...................................... Term of lease
</TABLE>
Rental equipment costing less than $400 is immediately expensed at date of
purchase.
Goodwill
Goodwill represents the excess of purchase price over fair market value of
net assets acquired and is amortized using the straight-line method over the
estimated periods to be benefited, ranging from five to thirty years. Included
in depreciation and amortization expense for the years ended December 31,
1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is
$175,000, $167,000, $145,000, $73,000 and $72,000, respectively, of such
amortization expense. It is Holdings' policy to account for goodwill and all
other intangible assets at the lower of amortized cost or fair value. The
carrying value of goodwill is reviewed periodically (at least annually) based
on the undiscounted cash flows of the entity over the remaining amortization
period. Should this review indicate that goodwill will not be recoverable,
Holdings' carrying value of goodwill will be reduced by the estimated short
fall of undiscounted cash flows. In addition, management reviews the valuation
and amortization of other intangible assets, taking into consideration any
events and circumstances which might have diminished fair value.
Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1993 1994 JUNE 30, 1995
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Recapitalization and deferred finance
costs, net of accumulated amortization of
$277,000, $726,000 and $955,000 in 1993,
1994 and 1995 respectively................ $2,813,000 $2,364,000 $2,135,000
Noncompetition and consulting agreements,
net of accumulated amortization of
$1,951,000 in 1993........................ 121,000 -- --
Other, primarily deposits.................. 896,000 637,000 547,000
---------- ---------- ----------
$3,830,000 $3,001,000 $2,682,000
========== ========== ==========
</TABLE>
In March 1992 Holdings entered into revised credit agreements (Note 3), and
amended the terms of the subordinated notes (the Refinancing). Costs incurred
in connection with the Refinancing were being amortized over two years, the
estimated benefit period. In June 1993 Holdings issued Senior Notes (Note 3),
therefore unamortized costs of $320,000 in connection with the 1992
refinancing were written off in 1993. Noncompetition and consulting agreements
are amortized ratably over the terms of the agreements (two to five years).
Included in depreciation and amortization expense for the years ended December
31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and 1995 is
$919,000, $1,217,000, $574,000, $344,000 and $229,000, respectively, of other
assets' amortization expense.
Statements of Cash Flows
For purposes of the statements of cash flows, Holdings considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
F-29
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
-------------------------------- --------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the
year for:
Interest.............. $4,550,000 $9,924,000 $5,240,000 $ 4,876,000 $297,000
Income taxes.......... 160,000 282,000 381,000 324,000 54,000
</TABLE>
Concentration of Credit Risk
Holdings extends credit to its commercial customers based on evaluations of
their financial condition and generally no collateral is required, although in
many cases mechanics' liens are filed to protect Holdings' interests. Holdings
has diversified its customer base by operating rental center locations in
California, Florida, Texas and Louisiana. Customers of the Texas and Louisiana
and certain California rental center locations are primarily large
petrochemical companies or the maintenance contractors working therein.
Holdings maintains adequate reserves for potential credit losses and such
losses have been within management's estimates.
2. RESTRUCTURING PLAN
In the fourth quarter of 1993, Holdings implemented a restructuring plan
which focused on critical aspects of its business. As a result, Holdings
recorded a charge to operations of $1,887,000. Costs applied against the
reserve in the fourth quarter were $466,000, resulting in a reserve balance at
December 31, 1993 of $1,421,000. The restructuring charge includes $356,000 of
noncash items and $1,531,000 of cash items, of which $112,000 of noncash items
and $354,000 of cash items were realized in 1993. The primary components of
the restructuring charge are as follows:
<TABLE>
<S> <C>
Closure and realignment of rental center locations (includes
future lease commitments and the write down to net realizable
value of owned locations).................................... $1,398,000
Severance or relocation of 19 employees....................... 489,000
----------
$1,887,000
==========
</TABLE>
For the year ended December 31, 1994, Holdings applied $1,166,000 of costs
against the restructuring reserve of which $866,000 related to cash items and
$300,000 related to noncash items. As of December 31, 1994 and June 30, 1995,
the restructuring reserve was $255,000 and $195,000 respectively, which
related to the incremental costs associated with the sublet of the Hollywood,
California location, which is a future cash item.
3. FINANCING AGREEMENTS
Secured and unsecured debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30,
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank debt under revolving advances......... $ 1,919,000 $ 1,045,000 $ 1,257,000
Equipment contracts payable................ 3,920,000 4,013,000 3,096,000
----------- ----------- -----------
Senior secured borrowings.................. 5,839,000 5,058,000 4,353,000
11.75% senior notes due 2000............... 77,566,000 77,618,000 77,644,000
----------- ----------- -----------
$83,405,000 $82,676,000 $81,997,000
=========== =========== ===========
</TABLE>
F-30
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Bank Debt
On March 30, 1992, Holdings entered into a revised credit agreement (the
1992 Credit Agreement) with its banks which consisted of $20 million available
($18 million at December 31, 1992) through a revolving line of credit, a $22
million acquisition note and an $8.9 million equipment note; the amounts
available decreased over the term of the agreement. Amounts outstanding under
the 1992 Credit Agreement bore interest, due monthly, at the bank's prime rate
plus 2.25% or LIBOR plus 3.50% (8.25% or 7.5%, effective rate at December 31,
1992), provided that not more than 80% of such amounts outstanding could be at
LIBOR plus 3.50%. The bank debt was paid off in June 1993 with proceeds from
the issuance of the Senior Notes.
Simultaneous with the issuance of Senior Notes in June 1993, Holdings
established the $10,000,000 New Credit Facility with a financial institution.
Holdings may borrow, on a revolving basis, up to the amount of a borrowing
base calculated as a percentage of eligible accounts receivable and a
percentage of resale inventory. The financial institution has a security
interest in all of Holdings' accounts receivable, inventory, and proceeds
thereof. The New Credit Facility is available for general corporate purposes,
including working capital requirements. Interest is due monthly at a rate of
1.25% over the financial institution's prime rate or 2.50% over the LIBOR rate
(9.75% or 9.0%, effective rate at December 31, 1994 and 10.25% or 9.0%,
effective rate at June 30, 1995), at Holdings' option. Availability on the
revolving facility and principal borrowings outstanding were $5,027,000 and
$1,045,000, respectively, at December 31, 1994 and $4,134,000 and $1,257,000,
respectively, at June 30, 1995. Commitment fees on the unused portion of the
revolving credit facility at the rate of one-half of 1% per annum, payable in
arrears on March 1, June 1, September 1, and December 1, are due commencing
September 1, 1993. Principal is due in its entirety on June 2, 1998, unless
accelerated prior thereto.
Up to $1,000,000 of letters of credit may be issued under the New Credit
Facility. Outstanding letters of credit totaled $114,000 and $14,000 at
December 31, 1994 and June 30, 1995, respectively. Fees at the rate of 2.5%
per annum are paid upon issuance of letters of credit.
Certain financial covenants and other affirmative and negative covenants are
required to be maintained as called for by the New Credit Facility agreement.
The financial covenants were amended in 1993 and again on March 29, 1994. As
of December 31, 1994 and June 30, 1995, Holdings was not in compliance with
the interest coverage ratio, fixed charges ratio, leverage ratio and capital
expenditure limits of the covenant provisions. Holdings' failure to make the
interest payment on the Senior Notes is also an event of default under the
terms of its New Credit Facility. As of March 15, 1995, Citicorp acknowledged
all the covenant non-compliance and defaults, did not waive such defaults and
reserved any and all rights and remedies under or with respect to the New
Credit Facility and the Loan Documents (as defined in the credit agreement)
resulting from such event of default. Moreover, because the covenants are
based on the trailing 12 months' earnings, pursuant to Management's estimates
for 1995, Holdings anticipates not being in compliance with covenant
provisions of the New Credit Facility at the end of any quarter during 1995.
As of June 30, 1995 and July 12, 1995, Citicorp was making discretionary
advances under the New Credit Facility without assurance that it would make
discretionary advances or issue a waiver or continue to preserve their rights
for any future defaults. If Holdings is not able to obtain an advance or a
waiver in the future and a default is declared and demand is made for the
payment of all amounts outstanding under the New Credit Facility, Holdings
does not believe it will be able to satisfy such demand. In this event,
Citicorp under the New Credit Facility would also be entitled to exercise
their rights and remedies under the related Security Agreement, which include
all rights and remedies of a secured party upon default under the New York
Uniform Commercial Code.
There can be no assurance that demand for payment of all amounts outstanding
under the New Credit Facility will not be made or how much longer Citicorp
will continue to make discretionary advances under the New Credit Facility or
that funds will otherwise be available under the New Credit Facility.
F-31
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subordinated Notes Payable
In 1990, Holdings issued $25 million in senior subordinated notes to a
financial institution for cash, and granted a warrant to purchase 27,778
shares of Holdings' common stock at an exercise price of $146.25 per share
(the Original Warrant); the Original Warrant was valued at $500,000. On April
1, 1993, the senior subordinated note agreement was amended to allow Holdings
to issue 13.5% senior subordinated interest notes (the Interest Notes) in lieu
of its July 15, 1991, January 15, 1992 and July 15, 1992 interest payments.
In conjunction with amending the senior subordinated note agreement and in
exchange for the Original Warrant, Holdings issued to the holder of the senior
subordinated notes a warrant to purchase 27,778 shares of Holdings' common
stock at an exercise price of $0.10 per share (Replacement Warrant) for the
Original Warrant. The exercise price of the Replacement Warrant was based on
the estimated fair market value of Holdings' common stock at the date of the
amendment as determined by Holdings' Board of Directors. If exercised, the
related shares would represent 21% of the outstanding shares of common stock
at December 31, 1994. The warrant is fully exercisable, in whole or in part,
and expires on January 15, 2000.
Holdings also had unsecured promissory notes payable, principally to its
shareholders, aggregating $2,250,000 at December 31, 1992 bearing simple
interest at 10% to 12%. The notes were subordinated to obligations outstanding
under the 1992 Credit Agreement with the bank and the amended senior
subordinated note agreement. In accordance with a subordination agreement
dated as of March 31, 1992, the principal and interest on the junior
subordinated notes could not be paid until all obligations outstanding under
the 1992 Credit Agreement and the amended senior subordinated note agreement
were paid in full.
All Senior and Junior subordinated notes payable were paid off with proceeds
from the issuance of the Senior Notes.
11.75% Senior Notes Due 2000
On June 1, 1993, Holdings sold $78,000,000 of 11.75% Senior Notes due 2000
less a discount of $455,000 in a public debt offering. Each of Holdings'
wholly owned subsidiaries guarantee the Senior Notes on a full, unconditional,
and joint and several basis. The Senior Notes are senior obligations of
Holdings and rank pari passu with all unsubordinated indebtedness of Holdings.
Proceeds of the Senior Notes were used for the repayment of all bank debt,
senior subordinated notes payable, and junior subordinated notes payable
outstanding at June 1, 1993. The Senior Notes are redeemable, in whole or in
part, at the option of Holdings, at any time on or after June 1, 1996, at
certain agreed upon redemption prices. In addition, until June 1, 1996, upon
an Initial Public Offering of Holdings' stock, up to 20% of the originally
issued aggregate principal amount of Senior Notes may be redeemed at the
option of Holdings at a certain agreed upon price. The indenture relating to
the Senior Notes (Indenture) contains certain covenants that, among other
things, limit the type and amount of additional indebtedness that may be
incurred by Holdings and certain of its subsidiaries and imposes limitation on
investments, loans, advances, the payment of dividends and the making of
certain other payments, the creation of liens, certain transactions with
affiliates and certain mergers.
Interest, at a rate of 11.75%, is due semiannually on June 1 and December 1.
The interest payments on the Senior Notes are in the amount of $4,582,500. To
date, Holdings has not made the interest payment on the Senior Notes due
December 1, 1994 and is in default with the terms of the Senior Notes
Indenture. Since an event of default under the Indenture has occurred and is
continuing, the holders of at least 25 percent in aggregate principal amount
of the outstanding Senior Notes may, by written notice to Holdings and the
Trustee under the Indenture, and the Trustee upon the written request of such
holders, can declare the principal amount of and accrued interest on all of
the outstanding Senior Notes due and payable immediately. If an event of
default under the Indenture occurs related to the bankruptcy of Holdings or
any Holdings subsidiary of Holdings, then the
F-32
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
principal of and accrued interest on the Senior Notes shall become immediately
due and payable. If the indebtedness under the Senior Notes is accelerated,
Holdings would not be able to pay such amounts. In such event, the Trustee is
entitled to pursue any available remedy by proceeding at law or in equity to
collect the payment of principal of or interest on the Senior Notes or to
enforce the performance of any provision of the Senior Notes or the Indenture.
If not accelerated before such date, principal under the Senior Notes, in its
entirety, is due June 1, 2000.
Equipment Contracts Payable
The equipment contracts bear interest at rates ranging from 7% to 14%, are
secured by equipment purchased and are payable in various monthly principal
installments.
Debt Maturities
The aggregate annual maturities of debt as of December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
EQUIPMENT SENIOR
BANK DEBT(A) CONTRACTS NOTES(B) TOTAL
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
1995......................... $ -- $1,708,000 $ -- $ 1,708,000
1996......................... -- 1,399,000 -- 1,399,000
1997......................... -- 797,000 -- 797,000
1998......................... 1,045,000 109,000 -- 1,154,000
1999......................... -- -- -- --
Thereafter................... -- -- 77,618,000 77,618,000
---------- ---------- ----------- -----------
$1,045,000 $4,013,000 $77,618,000 $82,676,000
========== ========== =========== ===========
</TABLE>
- --------
(A) Currently, the New Credit Facility is in default and if the outstanding
principal is not accelerated, then the principal in its entirety is due
June 2, 1998.
(B) Currently, the Senior Notes are in default and if not accelerated, then
the principal in its entirety is due June 1, 2000.
4. SHAREHOLDERS' DEFICIT
On March 31, 1992, in connection with the 1992 Credit Agreement (Note 3)
Holdings issued and sold 3,000,000 shares of Series A preferred stock, par
value $1.00, (the Preferred Stock) for $3,000,000 cash. Each share of the
Preferred Stock is entitled to .005 (five one-thousandths) of one vote. No
dividends may be paid on common stock in any fiscal year unless Holdings has
first paid to the Preferred Stock shareholders a dividend of not less than
$0.06 per share, which is noncumulative. Any additional dividends declared
shall be declared on the common stock only. Upon liquidation, the Preferred
Stock carries a liquidation preference of $1.00 per share, plus an amount
equal to all declared and unpaid dividends thereon. After the payment or
distribution to the Preferred Stock shareholders of the full preferential
amounts, the common shareholders are entitled to all remaining assets of
Holdings to be distributed. Concurrent with the issuance of the Preferred
Stock, Holdings' Board of Directors declared a one-for-ten reverse stock split
of Holdings' stock outstanding on such date. The authorized shares of
Holdings' common stock was changed to 500,000 shares, $.01 par value.
Additionally, Holdings entered into a restricted stock agreement with its
former Chairman and Chief Executive Officer subjecting 25,005 shares of
Holdings' common stock owned by him to forfeiture. The restrictions on 10,002
of such shares were to lapse based on ratable monthly vesting over 36 months.
The restrictions on the remaining 15,003 shares were to lapse ratably each
year if certain earnings levels were
F-33
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
achieved for fiscal years 1992, 1993 and 1994. At December 31, 1993,
restrictions on 10,839 of the shares had lapsed and 5,001 shares were
forfeited and returned to Holdings. As of December 31, 1994, restrictions on
12,507 of the shares had lapsed and 12,498 were forfeited and returned to
Holdings. On December 31, 1994, AAC purchased all of the former Chairman's
outstanding common and preferred shares in Holdings for a total consideration
of $10.
On December 28, 1993, Holdings entered into a stock purchase agreement with
the former President (Management Participant) whereby the Management
Participant purchased 5,985 shares of Holdings' authorized but unissued common
stock at $.01 per share. One-half of the shares are referred to as Employment
Stock and the remaining one-half of the shares are referred to as Eligible
Time Accelerated Stock (ETA Stock). The shares of common stock subject to this
agreement are held in escrow until such time as the shares vest. The
Employment Stock vests at the rate of 25% on December 31, 1993, 1994, 1995 and
1996. The ETA Stock vests at the rate of 25% on December 31, 1993, 1997, 1998
and 1999, however, the vesting may be accelerated if Holdings achieves certain
performance targets, as determined by Holdings' Board of Directors. As of
December 31, 1994, 1,496 shares of Employment Stock and 748 shares of ETA
Stock had vested.
5. EMPLOYEE BENEFIT PLANS
Holdings has a Section 401(k) employees savings plan (the Savings Plan)
covering substantially all full-time employees upon completion of at least 500
hours of service and six-months of continuous employment. The Savings Plan is
a defined contribution plan and provides for Holdings to make discretionary
contributions as deemed appropriate by the Savings Plan administrative
committee. No contributions were made by Holdings to the Savings Plan during
the years ended December 31, 1992, 1993 or 1994 or the six months ended June
30, 1995.
Holdings also has a group medical and dental insurance plan (the Health
Plan) covering substantially all full time employees (and their eligible
dependents) as defined, who have completed a minimum of three months of
continuous service (12 months of service to qualify for dental benefits).
Holdings is insured for individual and aggregate claims in excess of defined
stop-loss limits and has provided reserves for amounts it believes are
sufficient to cover claims which have been incurred but not reported as of
December 31, 1994 and June 30, 1995.
6. COMMITMENTS
Obligations Under Capital Leases
Holdings has entered into capital lease obligations in connection with
acquiring certain rental equipment with aggregate costs and accumulated
amortization of $1,463,000 and $230,000 at December 31, 1993, and $1,553,000
and $355,000 at December 31, 1994, respectively. Future minimum lease payments
under the capital leases and the present value of the minimum lease payments
as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................................ $482,000
1996............................................................ 251,000
1997............................................................ 23,000
1998............................................................ 7,000
1999............................................................ --
Thereafter...................................................... --
--------
Total minimum future lease payments............................. 763,000
Less amount representing interest............................... 73,000
--------
Present value of net minimum future lease payments.............. $690,000
========
</TABLE>
F-34
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Obligations Under Operating Leases
At December 31, 1994, Holdings had minimum annual lease commitments for
property and equipment under noncancelable operating leases as follows:
<TABLE>
<S> <C>
1995.......................................................... $ 3,686,000
1996.......................................................... 2,997,000
1997.......................................................... 2,045,000
1998.......................................................... 1,141,000
1999.......................................................... 948,000
Thereafter.................................................... 2,649,000
-----------
$13,466,000
===========
</TABLE>
The property leases require Holdings to pay certain property taxes and
insurance costs. Certain of the real property leases provide for escalation of
future rental payments based upon increases in the consumer price index.
Rental expense under all operating leases totaled $3,631,000, $4,022,000,
$4,380,000, $2,224,000 and $2,110,000 for the years ended December 31, 1992,
1993, 1994, and six months ended June 30, 1994 and 1995, respectively.
Holdings leases all or a portion of one of its California locations from a
partnership that is comprised of certain present and former shareholders and
directors of Holdings and leases property which is part of a second California
location from certain present and former shareholders and directors of
Holdings. The corporate offices in California are leased from a former officer
and director of Holdings. Two locations in Louisiana are leased from a former
officer of Acme Dixie. The leases require monthly lease payments aggregating
approximately $43,000. Total rent expense attributable to these leases and
included in operations was $421,000, $532,000 and $533,000 for the years ended
December 31, 1992, 1993 and 1994, respectively and $231,000 and $231,000 for
the six months ended June 30, 1994 and 1995, respectively.
Purchase Commitments
As of December 31, 1994 and June 30, 1995, Holdings had commitments to
purchase equipment of approximately $2,395,000 and $1,977,000, respectively.
Noncompetition Agreements
Holdings in the past has entered into noncompetition and/or consulting
agreements with the former owners of certain businesses it has acquired, some
of which require cash payments in future periods. The agreements are for terms
of two to five years and prohibit the former owners from competing with
Holdings in the business of renting equipment in certain California, Texas and
Louisiana counties. The present values of these future cash payments have been
capitalized and included in other assets (Note 1) with the corresponding
liabilities included in other accrued expenses in the accompanying balance
sheets.
Any breach of the agreements by the former owners terminates Holdings'
obligations. Amounts charged to expense, including amortization expense on
capitalized costs, were approximately $546,000, $376,000, $121,000, $121,000
and $0, for the years ended December 31, 1992, 1993 and 1994, and the six
months ended June 30, 1994 and 1995, respectively.
7. RELATED PARTY TRANSACTIONS
In July 1992, Holdings entered into a five-year management agreement
(Management Agreement) with a company owned by certain shareholders of
Holdings (AAC) that is acquiring equipment rental businesses. Under
F-35
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Management Agreement, Holdings locates potential acquisition
opportunities, provides administrative assistance in connection with
acquisitions and manages, supervises and provides administrative and
accounting support for the operation of AAC's rental locations. Pursuant to
the Management Agreement, Holdings has agreed, until April 1, 1995, to make
available first to such company any opportunities which come to its attention
for acquiring additional rental locations. During 1992, 1993 and 1994,
Holdings assisted AAC in making six acquisitions. AAC reimburses Holdings for
any costs incurred by Holdings to acquire the companies. Additionally, AAC
pays Holdings a management fee based on a percentage of the acquisition cost
for each acquisition and the performance of the companies acquired. As of
December 31, 1993, the miscellaneous receivable and the management fee
receivable were $45,000 and $146,000, respectively and as of December 31,
1994, the net miscellaneous payable and the management fee receivable were
$117,000 and $255,000, respectively, and as of June 30, 1995, the net
miscellaneous payable and the management fee receivable were $82,000 and
$381,000, respectively. As a result of the chairman's resignation in June
1994, AAC at its discretion may terminate the Management Agreement between AAC
and Holdings. AAC has not notified Holdings as to its intentions with respect
to the termination or continuation of the Management Agreement. Total
management fee revenue, included as a reduction in general and administrative
expense, was $162,000, $1,082,000, $1,496,000, $718,000 and $524,000, for the
years ended December 31, 1992, 1993 and 1994, and the six months ended June
30, 1994 and 1995, respectively.
In addition, Holdings and AAC have agreed to rerent equipment to each other
in the event the other party does not have sufficient rental equipment at a
given rental center location to meet a customer's requirements. The party
making such equipment available receives 70% of the gross rental receipts
received by the other party related to such rerental. For the years ended
December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and
1995, rerent revenue received by Holdings from AAC was $13,000, $151,000,
$39,000, $6,000 and $16,000, respectively, and rerent expense paid by Holdings
to AAC was $37,000, $111,000, $230,000, $62,000 and $35,000, respectively.
Holdings also leases certain facilities owned by certain of Holdings'
present and former officers, directors and shareholders (Note 6).
8. STOCK OPTION PLAN
In May 1990, Holdings' Board of Directors approved the Acme Holdings Inc.
1990 Stock Option Plan which authorizes the granting of options to various
directors, officers, employees and outside consultants to purchase, within a
period of 10 years from date of grant, up to 7,310 shares of common stock at
an exercise price to be determined at the time of grant by Holdings' Board of
Directors. The exercise price shall be not less than fair market value on the
date of grant for incentive stock options (ISOs), and not less than 85% of the
fair market value on the date of grant for nonstatutory stock options (NSOs).
Any otherwise eligible participant who owns more than 10% of the total
combined voting power of all classes of outstanding stock of Holdings is not
eligible to receive options under the plan unless the exercise price is at
least 110% of the fair market value of such shares on the date of grant and
the options are exercisable for a term of only five years from the date of
grant. Options vest in such increments as determined by Holdings' Board of
Directors.
ISOs to purchase 3,290 shares of common stock at $.10 per share were granted
in March 1992 to replace previously issued and canceled options. In January
1993, 1,097 ISOs to purchase shares of common stock at $2.69 per share were
granted. Such ISOs become exercisable at various dates commencing July 1993.
ISOs covering 1,097 shares are exercisable at December 31, 1994. On March 31,
1992, NSOs to purchase 365 shares of common stock at $27.00 per share were
granted to replace previously issued and canceled options; such exercise price
was based upon isolated negotiations with a single option holder and bore no
relationship to the fair market value of the common stock. The NSOs were fully
exercisable at date of grant. No options were granted during 1994.
F-36
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
Effective January 1, 1993, Holdings changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (Statement No. 109). Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
As permitted under Statement No. 109, Holdings has elected not to restate
the financial statements of any prior years. There was no effect from this
change on net income for the year ended December 31, 1993 or on the deferred
tax balance at December 31, 1992.
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $ -- $ --
State...................................... 400,000 300,000 111,000
-------- -------- --------
400,000 300,000 111,000
Deferred:
Federal.................................... -- -- --
State...................................... 27,000 (26,000) (50,000)
-------- -------- --------
27,000 (26,000) (50,000)
-------- -------- --------
$427,000 $274,000 $ 61,000
======== ======== ========
</TABLE>
In 1994, deferred income taxes reflect the tax effects of temporary
differences between the value of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Holdings' net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1993 1994
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 8,614,000 $ 11,899,000
Alternative minimum tax credit.................... 754,000 754,000
Allowance for doubtful accounts................... 384,000 501,000
Accrued health & general insurance................ 1,298,000 1,257,000
State taxes, net.................................. 297,000 123,000
Other accruals.................................... 1,733,000 1,183,000
----------- ------------
Total deferred tax assets......................... 13,080,000 15,717,000
Valuation allowance for deferred tax assets....... (7,396,000) (11,596,000)
----------- ------------
Net deferred tax assets............................. 5,684,000 4,121,000
Deferred tax liabilities:
Depreciation, tax over book....................... (5,904,000) (4,146,000)
Other accruals.................................... (205,000) (350,000)
----------- ------------
Total deferred tax liabilities...................... (6,109,000) (4,496,000)
----------- ------------
Net deferred tax liabilities........................ $ (425,000) $ (375,000)
=========== ============
</TABLE>
F-37
<PAGE>
ACME HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the provision for income taxes computed by applying
the federal statutory tax rate to loss before taxes for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1992 1993 1994
--------- ----------- -----------
<S> <C> <C> <C>
Federal tax benefit at statutory rate...... $(218,000) $(4,686,000) $(2,994,000)
Losses without benefit..................... 218,000 4,686,000 2,994,000
State taxes................................ 427,000 274,000 61,000
--------- ----------- -----------
$ 427,000 $ 274,000 $ 61,000
========= =========== ===========
</TABLE>
At December 31, 1994, Holdings has approximately $29,300,000 of net
operating loss carryforwards for federal income tax purposes that expire
$9,500,000 in 2005, $6,000,000 in 2006, $1,700,000 in 2007 and $6,800,000 in
2008 and $5,300,000 in 2009. In addition, Holdings has net operating loss
carryforwards for California income tax purposes of approximately $17,800,000
which are available to offset taxable income starting in 1993 and expire
$4,300,000 in 1996, $5,800,000 in 1997, $3,900,0000 in 1998 and $3,800,000 in
1999. The ultimate realization of the benefit of these loss carryforwards is
dependent on Holdings achieving proper levels of operating profits in the
future.
Holdings also has alternative minimum tax credit carryovers of approximately
$590,000 for federal income tax purposes and $164,000 for California income
tax purposes which are available to offset future regular income tax that is
in excess of the alternative minimum tax in such year. The credits carry over
indefinitely.
Pursuant to the Tax Reform Act of 1986, use of Holdings' net operating loss
carryforwards and other tax attributes may be substantially limited if a
cumulative change in ownership of more than 50% occurs within any three year
period. As of December 31, 1994, a cumulative change of more than 50% occurred
which could significantly impact the future benefit of the federal and state
net operating loss carryforwards under Internal Revenue Service Code Section
382.
10. SUBSEQUENT EVENT
Holdings has decided to relocate its corporate office to Scottsdale, Arizona
during the second and third quarters of 1995.
F-38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying balance sheet of Equipment Rental & Supply,
Inc. (ERS) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of ERS's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ERS as of December 31,
1995 and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 15, 1996
F-39
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Cash................................................................ $ 392,000
Accounts receivable, net of allowance for doubtful accounts of
$24,000............................................................ 286,000
Other receivables and prepaid expenses.............................. 5,000
Parts and supplies inventories, net of reserve for obsolescence of
$32,000............................................................ 573,000
Rental equipment, principally machinery, at cost, net of accumulated
depreciation of $1,480,000......................................... 1,024,000
Operating property and equipment, at cost, net...................... 367,000
Other assets, principally cash surrender value of officer life
insurance, net of related loans.................................... 440,000
----------
$3,087,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................... $ 217,000
Payroll and other accrued expenses.................................. 60,000
Income taxes payable................................................ 203,000
Deferred taxes...................................................... 23,000
Note payable to stockholder......................................... 100,000
Notes and contracts payable......................................... 348,000
----------
Total liabilities................................................... 951,000
Commitments
Stockholders' Equity:
Common stock, $100 par value
Authorized shares--200
Issued and outstanding shares--100................................ 10,000
Retained earnings.................................................. 2,126,000
----------
Total stockholders' equity.......................................... 2,136,000
----------
$3,087,000
==========
</TABLE>
See accompanying notes.
F-40
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenues:
Equipment rentals.................................................. $1,255,000
Sales of parts, supplies and used equipment........................ 2,270,000
----------
Total revenues...................................................... 3,525,000
Cost of revenues:
Cost of equipment rentals, excluding equipment rental depreciation. 771,000
Depreciation, equipment rentals.................................... 350,000
Cost of sales of parts, supplies and used equipment................ 1,574,000
----------
Total cost of revenues.............................................. 2,695,000
----------
Gross profit........................................................ 830,000
Selling, general and administrative expense......................... 277,000
Depreciation and amortization, excluding equipment rental
depreciation....................................................... 58,000
----------
Operating income.................................................... 495,000
Interest expense, net............................................... 24,000
----------
Income before income taxes.......................................... 471,000
Provision for income taxes.......................................... 200,000
----------
Net income.......................................................... $ 271,000
==========
</TABLE>
See accompanying notes.
F-41
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............. 100 $10,000 $1,855,000 $ 1,865,000
Net income............................... -- -- 271,000 271,000
--- ------- ---------- -----------
Balance at December 31, 1995............. 100 $10,000 $2,126,000 $ 2,136,000
=== ======= ========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 271,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation...................................................... 408,000
Provision for losses on accounts receivable....................... 20,000
Write-off of uncollectible accounts receivable.................... (23,000)
Gain on sale of rental equipment.................................. (25,000)
Provision for obsolete inventory.................................. 29,000
Changes in operating assets and liabilities:
Accounts receivable.............................................. 38,000
Other receivables and prepaid expenses........................... 1,000
Parts and supplies inventories................................... (147,000)
Other assets..................................................... (27,000)
Accounts payable................................................. (83,000)
Payroll and other accrued expenses............................... 5,000
Income taxes payable............................................. 58,000
Deferred taxes, net.............................................. (3,000)
---------
Net cash provided by operating activities.......................... 522,000
INVESTING ACTIVITIES
Proceeds from the sale of used equipment........................... 36,000
Cash purchases of rental equipment and operating property and
equipment......................................................... (756,000)
---------
Net cash used for investing activities............................. (720,000)
FINANCING ACTIVITIES
Proceeds from notes and contracts payable.......................... 735,000
Principal repayments of notes and contracts payable................ (356,000)
---------
Net cash provided by financing activities.......................... 379,000
---------
Net increase in cash............................................... 181,000
Cash at beginning of year.......................................... 211,000
---------
Cash at end of year................................................ $ 392,000
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest............................................. $ 28,000
Cash paid for income taxes......................................... $ 146,000
</TABLE>
See accompanying notes.
F-43
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Equipment Rental & Supply, Inc. (ERS) rents construction and other equipment
and sells supplies and equipment in eastern South Carolina and northwestern
North Carolina. ERS grants credit to customers, substantially all of whom are
in the construction industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the statements of operations includes revenues earned on
equipment rentals and rental equipment delivery fees. Revenue from the sale of
parts, supplies and equipment are recorded at the time of delivery to or pick-
up by the customer.
Credit Policy
ERS extends credit to its commercial customers based on evaluations of their
financial condition and generally no collateral is required, although in many
cases mechanics liens are filed to protect ERS's interests. ERS maintains
reserves it believes adequate for potential credit losses.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, commodity type
supplies and small- to medium-sized equipment for sale. All inventories are
valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment................................................ 5 years
Operating property and equipment................................ 5-39 years
</TABLE>
All rental equipment is capitalized at date of purchase. Rental equipment is
depreciated to 10% of cost.
Income Taxes
ERS utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefits in
the future.
F-44
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $17,000
for the year ended December 31, 1995.
Concentrations of credit risk
Financial instruments that potentially subject ERS to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
ERS maintains cash with various financial institutions. Concentrations of
credit risk with respect to trade account receivable are limited due to the
large number of customers.
Fair values of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities
approximate fair value because of the immediate or short-term maturity of
these financial instruments. The carrying amount reported for long-term debt
approximates fair value because the underlying instruments are at interest
rates which approximate current market rates.
2. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following:
<TABLE>
<S> <C>
Vehicles......................................................... $164,000
Furniture, fixtures and computer equipment....................... 106,000
Land and building................................................ 444,000
--------
Total........................................................ 714,000
Less accumulated depreciation and amortization................... 347,000
--------
$367,000
========
</TABLE>
3. NOTES AND CONTRACTS PAYABLE
Notes and contracts payable consist of the following:
<TABLE>
<S> <C>
Notes payable to bank, interest at 8.8%-9.8%, secured by rental
equipment, due in monthly installments of $22,000, including
interest........................................................ $302,000
Installment purchase contract, noninterest bearing, secured by
rental equipment................................................ 46,000
--------
$348,000
========
</TABLE>
The aggregate annual maturities of notes and contracts payable as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $191,000
1997.............................................................. 48,000
1998.............................................................. 52,000
1999.............................................................. 57,000
--------
$348,000
========
</TABLE>
F-45
<PAGE>
EQUIPMENT RENTAL & SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTIES
ERS sold supplies and services to various entities that are controlled by
several of ERS's officers. During the year ended December 31, 1995, the total
amount of sales were $144,000.
ERS leases, on a month-to-month basis, land and a building to an entity in
which various corporate officers have ownership interests. During the year
ended December 31, 1995, ERS received rental income of $9,000 from this
related entity.
During the year ended December 31, 1995, ERS repaid a $50,000 loan from a
stockholder. ERS paid interest of $6,000 during 1995 on this loan.
At December 31, 1995, ERS had $12,000 due from related parties (included in
accounts receivable in the accompanying balance sheet).
ERS has a non-interest bearing note of $100,000 from a stockholder at
December 31, 1995.
5. INCOME TAXES
The components of the provision for income taxes for the year ended December
31, 1995, were as follows:
<TABLE>
<S> <C>
Current......................................................... $ 203,000
Deferred........................................................ (3,000)
---------
$ 200,000
=========
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory federal income tax by the income before income taxes for the year
ended December 31, 1995, due to the following:
<TABLE>
<S> <C>
Income tax expense at statutory rate............................ $ 160,000
Nondeductible expenses.......................................... 12,000
State taxes, net of federal benefit............................. 28,000
---------
$ 200,000
=========
</TABLE>
Deferred tax assets and liabilities as of December 31, 1995, are comprised
of the following temporary differences:
<TABLE>
<S> <C>
Deferred tax liabilities:
Accelerated depreciation....................................... $(46,000)
Deferred tax assets:
Nondeductible reserves......................................... 23,000
--------
Net deferred tax liabilities.................................... $(23,000)
========
</TABLE>
6. SUBSEQUENT EVENTS
In April 1996, ERS sold substantially all of its assets and transferred
certain liabilities to Rental Service Corporation.
F-46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying statement of operations of Rental Service
Company for the year ended May 31, 1993. This statement of operations is the
responsibility of Rental Service Company's management. Our responsibility is
to express an opinion on this statement of operations based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of operations is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of
operations. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall statement of operations presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of Rental Service
Company for the year ended May 31, 1993, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
May 14, 1996
F-47
<PAGE>
RENTAL SERVICE COMPANY
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1993
<TABLE>
<S> <C>
Revenues:
Equipment rentals................................................. $5,015,000
Sales of parts, supplies and equipment............................ 3,194,000
----------
Total revenues..................................................... 8,209,000
Costs of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation..................................................... 2,999,000
Depreciation, equipment rentals................................... 1,052,000
Cost of sales of parts, supplies and equipment.................... 2,084,000
----------
Total cost of revenues............................................. 6,135,000
----------
Gross profit....................................................... 2,074,000
Selling, general and administrative expense........................ 1,532,000
Depreciation, excluding equipment rental depreciation.............. 301,000
Amortization....................................................... 36,000
Write-off of uncollectible receivables............................. 515,000
Rent paid to related parties....................................... 244,000
----------
Operating loss..................................................... (554,000)
Interest expense, net.............................................. 235,000
----------
Net loss........................................................... $ (789,000)
==========
</TABLE>
See accompanying notes.
F-48
<PAGE>
RENTAL SERVICE COMPANY
NOTES TO STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Rental Service Company rents and sells construction equipment and party
supplies in the state of Georgia. Rental Service Company grants credit to
customers, substantially all of whom are in the Georgia construction industry.
The preparation of the statement of operations in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the statement of operations
and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the statement of operations includes revenue earned on
equipment rentals and rental equipment delivery fees. Revenue from the sale of
parts, supplies and equipment are recorded at the time of delivery to or pick-
up by the customer.
Parts and Supplies Inventory
Parts and supplies inventories consist principally of parts, commodity type
supplies and small-to-medium-sized equipment for sale. Inventories are valued
at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Property and rental equipment are carried at cost. Depreciation, including
assets under capital leases, is provided using both straight-line and
accelerated methods over the estimated useful lives of the assets which are as
follows:
<TABLE>
<S> <C>
Automotive.................................................... 5 years
Leasehold improvements........................................ 31.5 years
Office furnishings............................................ 5 - 7 years
Rental equipment.............................................. 5 - 7 years
</TABLE>
Covenants Not to Compete
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over their term, usually one to three years.
Compensated Absences
Rental Service Company has compensated absences as of May 31, 1993 which
have not been accrued because the amount cannot be reasonably estimated.
Advertising Expense
The cost of advertising is expensed as incurred. Rental Service Company
incurred $42,000 in advertising costs for the year ended May 31, 1993.
F-49
<PAGE>
RENTAL SERVICE COMPANY
NOTES TO STATEMENT OF OPERATIONS--(CONTINUED)
2. RELATED PARTY TRANSACTIONS
The rent on land and buildings is paid to certain stockholders of Rental
Service Company. The total rent paid in 1993 was $244,000.
3. PROFIT SHARING PLAN
Rental Service Company established a profit sharing plan on June 1, 1977.
Rental Service Company makes discretionary contributions to the Plan. Each
employee who performs services for Rental Service Company is an eligible
participant upon one year of service. No contributions were made during the
year.
4. INCOME TAXES
As a result of Rental Service Company's net loss, the accompanying statement
of operations does not include any provision for income taxes. Rental Service
Company had a net operating loss carryforward of approximately $99,000 at May
31, 1993 which expires in 2008. The Company has recorded a valuation allowance
of $99,000 related in the deferred tax asset.
5. SUBSEQUENT EVENTS
Subsequent to the date of the statement of operations, Rental Service
Company sold its inventory, receivables, rental equipment and other selected
assets to Rental Services Corporation for approximately $7,000,000.
F-50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Rental Service Corporation
We have audited the accompanying statement of operations of Wilson Equipment
Co., Inc. (Wilson), for the period from January 1, 1993 through June 28, 1993.
This statement of operations is the responsibility of Wilson's management. Our
responsibility is to express an opinion on this statement of operations based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of the operations of Wilson
Equipment Co., Inc., for the period from January 1, 1993 through June 28,
1993, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
July 11, 1996
F-51
<PAGE>
WILSON EQUIPMENT CO., INC.
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1993 THROUGH JUNE 28, 1993
<TABLE>
<S> <C>
Revenues:
Equipment rentals................................................ $ 593,000
Sales of parts, supplies and equipment........................... 1,313,000
----------
Total revenues..................................................... 1,906,000
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation.................................................... 551,000
Depreciation, equipment rentals.................................. 155,000
Cost of sales of parts, supplies and equipment................... 1,089,000
----------
Total cost of revenues............................................. 1,795,000
Gross profit....................................................... 111,000
Selling, general and administrative expense........................ 99,000
Depreciation, excluding equipment rental depreciation.............. 24,000
----------
Operating loss..................................................... (12,000)
Interest expense, net.............................................. 49,000
----------
Net loss........................................................... $ (61,000)
==========
</TABLE>
See accompanying notes.
F-52
<PAGE>
WILSON EQUIPMENT CO., INC.
NOTES TO STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1993 TO JUNE 28, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Wilson Equipment Co., Inc. (Wilson) rents construction and other equipment
and sells certain other equipment and supplies in the State of Alabama. Wilson
grants credit to customers, substantially all of whom are in the construction
industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the statement of operations includes revenue earned on
equipment rentals and rental equipment delivery fees. Revenue from the sale of
parts and supplies and equipment are recorded at the time of delivery to or
pick-up by the customer.
Parts and Supplies Inventory
Parts and supplies inventories consist principally of parts, commodity type
supplies and small-to-medium-sized equipment for sale. All inventories are
valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Property and rental equipment is carried at cost. Depreciation is provided
using both straight-line and accelerated methods over the estimated useful
lives of the assets which are as follows:
<TABLE>
<S> <C>
Automotive................................... 3-5 years
Leasehold improvements....................... 3-5 years
Office furnishings........................... 5-7 years
Rental equipment............................. 5-7 years
</TABLE>
Advertising Costs
The cost of advertising is expensed as incurred. Wilson incurred $4,000 in
advertising costs for the period from January 1, 1993 to June 28, 1993.
Income Taxes
Wilson's shareholders elected S Corporation status in 1987. In lieu of
Corporate income taxes, the shareholders of an S Corporation are taxed on
their proportionate share of Wilson's taxable income.
2. RELATED PARTY TRANSACTIONS
Wilson rents its building from a shareholder. The total rent paid for the
period from January 1, 1993 to June 28, 1993 was $12,500.
3. SUBSEQUENT EVENT
Wilson sold its inventory, receivables, rental development and other
selected assets to Rental Service Corporation for $2,741,000 in cash on June
28, 1993.
F-53
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying combined balance sheet as of May 31, 1996
of the corporations listed in Note 1 and referred to herein as B&S Rental
Companies, and the related combined statements of operations, stockholders'
equity and cash flows for the eleven months then ended. These combined
financial statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on those combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position at May 31,
1996 of the corporations listed in Note 1, and the combined results of their
operations and their cash flows for the eleven months then ended, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
August 7, 1996
F-54
<PAGE>
B&S RENTAL COMPANIES
COMBINED BALANCE SHEET
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash................................................................ $ 337,000
Accounts receivable, net of allowance for doubtful accounts of
$40,000............................................................ 400,000
Parts and supplies inventories...................................... 166,000
Rental equipment, principally machinery, at cost, net of accumulated
depreciation of $2,769,000......................................... 1,389,000
Operating property and equipment, at cost, net...................... 255,000
Deferred taxes...................................................... 97,000
Other assets........................................................ 18,000
----------
$2,662,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................... $ 72,000
Payroll and related expenses........................................ 275,000
Sales taxes payable................................................. 27,000
Deferred revenue.................................................... 7,000
Notes and contracts payable......................................... 475,000
----------
Total liabilities................................................... 856,000
Commitments
Stockholders' equity:
Common stock...................................................... 31,000
Additional paid-in capital........................................ 281,000
Retained earnings................................................... 1,494,000
----------
Total stockholders' equity.......................................... 1,806,000
----------
$2,662,000
==========
</TABLE>
See accompanying notes.
F-55
<PAGE>
B&S RENTAL COMPANIES
COMBINED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Revenues:
Equipment rentals.................................................. $3,513,000
Sales of parts, supplies and equipment............................. 298,000
----------
Total revenues...................................................... 3,811,000
Cost of revenues:
Cost of equipment rentals, excluding equipment rental depreciation. 2,322,000
Depreciation, equipment rentals.................................... 457,000
Cost of sales of parts, supplies and equipment..................... 105,000
----------
Total cost of revenues.............................................. 2,884,000
----------
Gross profit........................................................ 927,000
Selling, general and administrative expense......................... 662,000
Depreciation and amortization, excluding equipment rental
depreciation....................................................... 78,000
----------
Operating income.................................................... 187,000
Interest expense, net............................................... 37,000
----------
Income before income taxes.......................................... 150,000
Provision for income taxes--current................................. 60,000
----------
Net income.......................................................... $ 90,000
==========
</TABLE>
See accompanying notes.
F-56
<PAGE>
B&S RENTAL COMPANIES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at July 1, 1995............... $31,000 $281,000 $1,404,000 $1,716,000
Net income............................ -- -- 90,000 90,000
------- -------- ---------- ----------
Balance at May 31, 1996............... $31,000 $281,000 $1,494,000 $1,806,000
======= ======== ========== ==========
</TABLE>
See accompanying notes.
F-57
<PAGE>
B&S RENTAL COMPANIES
COMBINED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 90,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 535,000
Provision for losses on accounts receivable....................... 68,000
Write-off of uncollectible accounts receivable.................... (53,000)
Gain on sale of rental equipment.................................. (25,000)
Changes in operating assets and liabilities:
Accounts receivable.............................................. 46,000
Parts and supplies inventories................................... (11,000)
Other assets..................................................... 39,000
Accounts payable................................................. 25,000
Payroll and related expenses..................................... (109,000)
Income taxes..................................................... (11,000)
---------
Net cash provided by operating activities.......................... 594,000
INVESTING ACTIVITIES
Proceeds from the sale of used equipment........................... 193,000
Cash purchases of rental equipment and operating property and
equipment......................................................... (676,000)
---------
Net cash used for investing activities............................. (483,000)
FINANCING ACTIVITIES
Proceeds from notes and contracts payable.......................... 310,000
Principal repayments of notes and contracts payable................ (417,000)
---------
Net cash used by financing activities.............................. (107,000)
---------
Net increase in cash............................................... 4,000
Cash at beginning of period........................................ 333,000
---------
Cash at end of period.............................................. $ 337,000
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest............................................. $ 37,000
Cash paid for income taxes......................................... $ 77,000
</TABLE>
See accompanying notes.
F-58
<PAGE>
B&S RENTAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements of B&S Rental Companies
(collectively referred to herein as B&S Rental) include the accounts of the
following companies:
. Northside Tool Rental, Inc. (Northside)
. B&S Rental Company--Jacksonville, Inc. (Jacksonville)
. Rent-It, Inc. (Rent-It)
. Hi-Lift Rentals, Inc. (Hi-Lift)
. B&S Rental Company, Inc. (Rental)
B&S Rental rents construction and other equipment and sells supplies and
equipment in central Arkansas. B&S Rental grants credit to customers,
substantially all of whom are in the construction industry. The fiscal year-
end of all of the companies is June 30.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the statement of operations includes revenues earned on
equipment rentals and rental equipment delivery fees. Revenues from the sale
of parts, supplies and equipment is recorded at the time of delivery to or
pick-up by the customer.
Credit Policy
B&S Rental extends credit to its commercial customers based on evaluations
of their financial condition and generally no collateral is required, although
in many cases mechanics' liens are filed and personal guarantees are signed to
protect B&S Rental's interests. B&S Rental maintains reserves its believes
adequate for potential credit losses.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, commodity type
supplies and small- to medium-sized equipment for sale. All inventories are
valued at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over five years. All rental equipment is
capitalized at date of purchase.
Income Taxes
B&S Rental utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under the liability method, deferred
F-59
<PAGE>
B&S RENTAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
taxes are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse. Deferred tax
assets are recognized and measured based on the likelihood of realization of
the related tax benefits in the future.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $51,000
for the eleven months ended May 31, 1996.
Concentrations of Credit Risk
Financial instruments that potentially subject B&S Rental to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
B&S Rental maintains cash with various financial institutions.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the number of customers.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable, and accrued liabilities approximate fair value
because of the immediate or short-term maturity of these financial
instruments. The carrying amount reported for notes and contracts payable
approximates fair value because the underlying instruments are at interest
rates which approximate current market rates.
2. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following at May 31, 1996:
<TABLE>
<S> <C>
Vehicles........................................................... $ 545,000
Furniture, fixtures and computer equipment......................... 269,000
Leasehold improvements............................................. 158,000
Land............................................................... 65,000
----------
Total............................................................ 1,037,000
Less accumulated depreciation and amortization..................... 782,000
----------
$ 255,000
==========
</TABLE>
3. NOTES AND CONTRACTS PAYABLE
Notes and contracts payable consist of the following at May 31, 1996:
<TABLE>
<S> <C>
Notes payable to banks, interest at 8.0%-9.8%, secured by rental
equipment, payable in various monthly installments through June,
2000............................................................. $242,000
Equipment contracts payable, interest at 6.8%-10.8%, secured by
rental equipment, payable in various monthly installments through
March, 1999...................................................... 233,000
--------
$475,000
========
</TABLE>
In June 1996, all of the notes and contracts above were paid off.
F-60
<PAGE>
B&S RENTAL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTIES
B&S Rental leases land and a building from entities in which various
corporate officers have ownership interests. Total rent paid to these related
parties during the eleven months ended May 31, 1996 was $197,000.
5. STOCKHOLDERS' EQUITY
The individual companies had the following par value and authorized and
issued shares at May 31, 1996.
<TABLE>
<CAPTION>
RENT- HI-
NORTHSIDE JACKSONVILLE IT LIFT RENTAL
--------- ------------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Par value........................ $10.00 No par $10.00 $ 1.00 No par
Shares authorized................ 10,000 1,000 10,000 10,000 1,000
Shares issued and outstanding.... 500 1,000 500 300 500
</TABLE>
6. INCOME TAXES
Income tax expense differs from the amount computed by applying the
statutory federal income tax to the income before income taxes for the eleven
months ended May 31, 1996, due to the following:
<TABLE>
<CAPTION>
Income tax expense at statutory rate................................. $51,000
<S> <C>
State taxes, net of federal benefit.................................. 9,000
-------
$60,000
=======
</TABLE>
Deferred tax assets as of May 31, 1996, are comprised of the following
temporary differences:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Nondeductible reserves............................................ $78,000
Deferred revenue.................................................. 3,000
Depreciation...................................................... 16,000
-------
Total deferred tax assets....................................... $97,000
=======
</TABLE>
7. SUBSEQUENT EVENTS
In June 1996, B&S Rental sold substantially all of its assets and
transferred certain liabilities to Rental Service Corporation.
F-61
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Rental Service Corporation
We have audited the accompanying balance sheet of CVM, Inc. (dba U-Rent-M)
as of November 30, 1995, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of CVM, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CVM, Inc. as of November
30, 1995 and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
August 14, 1996
F-62
<PAGE>
CVM, INC.
(DBA U-RENT-M)
BALANCE SHEET
NOVEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS
Cash................................................................ $ 266,000
Accounts receivable, net of allowance for doubtful accounts of
$105,000........................................................... 1,037,000
Note receivable..................................................... 154,000
Parts and supplies inventories...................................... 347,000
Rental equipment, principally machinery, at cost, net of accumulated
depreciation of $4,164,000......................................... 4,221,000
Operating property and equipment, at cost, net...................... 835,000
Deferred tax asset.................................................. 54,000
Income tax receivable............................................... 232,000
----------
$7,146,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................... $ 322,000
Payroll and other accrued expenses.................................. 243,000
Deposits............................................................ 12,000
Amounts due related parties......................................... 327,000
Notes, contracts payable, and capital leases........................ 3,935,000
----------
Total liabilities................................................... 4,839,000
Commitments
Stockholders' equity:
Common stock, $1.00 par value
Authorized shares--900,000
Issued and outstanding shares--157,000............................ 157,000
Retained earnings.................................................. 2,150,000
----------
Total stockholders' equity.......................................... 2,307,000
----------
$7,146,000
==========
</TABLE>
See accompanying notes.
F-63
<PAGE>
CVM, INC.
(DBA U-RENT-M)
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
Revenues:
Equipment rentals................................................. $7,901,000
Sales of parts, supplies and equipment............................ 1,614,000
----------
Total revenues..................................................... 9,515,000
Cost of revenues:
Cost of equipment rentals, excluding equipment rental
depreciation..................................................... 5,094,000
Depreciation, equipment rentals................................... 1,266,000
Cost of equipment rentals from related parties.................... 200,000
Cost of sales of parts, supplies and equipment.................... 1,085,000
----------
Total cost of revenues............................................. 7,645,000
----------
Gross profit....................................................... 1,870,000
Selling, general and administrative expense........................ 1,525,000
Rent expense to related party...................................... 52,000
Depreciation and amortization, excluding equipment rental
depreciation...................................................... 203,000
----------
Operating income................................................... 90,000
Interest expense, net.............................................. 322,000
----------
Loss before income taxes........................................... (232,000)
Income tax benefit................................................. 76,000
----------
Net loss........................................................... $ (156,000)
==========
</TABLE>
See accompanying notes.
F-64
<PAGE>
CVM, INC.
(DBA U-RENT-M)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at November 30, 1994........... 157,000 $157,000 $2,306,000 $2,463,000
Net loss............................... -- -- (156,000) (156,000)
------- -------- ---------- ----------
Balance at November 30, 1995........... 157,000 $157,000 $2,150,000 $2,307,000
======= ======== ========== ==========
</TABLE>
See accompanying notes.
F-65
<PAGE>
CVM, INC.
(DBA U-RENT-M)
STATEMENT OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................... $ (156,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,469,000
Provision for losses on accounts receivable.................... 135,000
Write-off of uncollectible accounts receivable................. (116,000)
Gain on sale of rental equipment............................... (255,000)
Changes in operating assets and liabilities:
Accounts receivable.......................................... 185,000
Note receivable.............................................. (154,000)
Parts and supplies inventories............................... (43,000)
Prepaid expenses............................................. 28,000
Income tax receivable........................................ (21,000)
Accounts payable............................................. 50,000
Payroll and other accrued expenses........................... 27,000
Deposits..................................................... 1,000
Income taxes payable......................................... (185,000)
Deferred taxes, net.......................................... (12,000)
-----------
Net cash provided by operating activities........................ 953,000
INVESTING ACTIVITIES
Proceeds from the sale of equipment.............................. 538,000
Purchases of rental equipment and operating property and
equipment....................................................... (2,676,000)
-----------
Net cash used for investing activities........................... (2,138,000)
FINANCING ACTIVITIES
Proceeds from notes and contracts payable........................ 2,607,000
Principal repayments of notes and contracts payable.............. (1,766,000)
Proceeds from amounts due to related parties..................... 327,000
-----------
Net cash provided by financing activities........................ 1,168,000
-----------
Net decrease in cash............................................. (17,000)
Cash at beginning of year........................................ 283,000
-----------
Cash at end of year.............................................. $ 266,000
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest........................................... $ 322,000
Cash paid for income taxes....................................... 142,000
</TABLE>
See accompanying notes.
F-66
<PAGE>
CVM, INC.
(DBA U-RENT-M)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
CVM, Inc. dba U-Rent-M (U-Rent-M) rents construction and other equipment and
sells supplies and equipment in Texas. U-Rent-M grants credit to customers,
substantially all of whom are in the construction industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Equipment rental revenue is recorded as earned under the operating method.
Equipment rentals in the statement of operations includes revenues earned on
equipment rentals and rental equipment delivery fees. Revenue from the sale of
parts, supplies and equipment are recorded at the time of delivery to or pick-
up by the customer.
Credit Policy
U-Rent-M extends credit to its commercial customers based on evaluations of
their financial condition and generally no collateral is required, although in
many cases mechanics' liens are filed to protect U-Rent-M's interests. U-Rent-
M's maintains reserves its believes adequate for potential credit losses.
Parts and Supplies Inventories
Parts and supplies inventories consist principally of parts, commodity type
supplies and small- to medium-sized equipment for sale. All inventories are
valued at the lower of cost (weighted-average) or market.
Depreciation and Amortization
Rental equipment and operating property and equipment are being depreciated
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Rental equipment................................................ 5 years
Operating property and equipment................................ 2-31.5 years
</TABLE>
All rental equipment is capitalized at date of purchase.
Income Taxes
U-Rent-M utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured based on the likelihood of realization of the related tax benefits in
the future.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $194,000
for the year ended November 30, 1995.
F-67
<PAGE>
CVM, INC.
(DBA U-RENT-M)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject U-Rent-M to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable.
U-Rent-M maintains cash with various financial institutions. Concentrations
of credit risk with respect to trade accounts receivable are limited due to
the number of customers.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities
approximate fair value because of the immediate or short-term maturity of
these financial instruments. The carrying amount reported for long-term debt
approximates fair value because substantially all of the underlying
instruments were settled for their carrying amounts subsequent to the balance
sheet date.
2. OPERATING PROPERTY AND EQUIPMENT
Operating property and equipment consist of the following at November 30,
1995:
<TABLE>
<S> <C>
Vehicles......................................................... $1,084,000
Furniture, fixtures and computer and shop equipment.............. 343,000
Land, building and improvements.................................. 531,000
----------
Total............................................................ 1,958,000
Less accumulated depreciation and amortization................... 1,123,000
----------
$ 835,000
==========
</TABLE>
3. NOTES, CONTRACTS PAYABLE, AND CAPITAL LEASES
Notes, contracts payable and capital leases consist of the following at
November 30, 1995:
<TABLE>
<S> <C>
Installment purchase contracts, with interest rates varying from
4.1% to 10%, secured by rental equipment due in monthly
installments of $97,000, including interest.................... $2,624,000
Notes payable with interest rates varying from 9.3% to 10.3%
secured by automobiles......................................... 73,000
Notes payable with interest rates varying from 7% to 10%,
secured by real estate, equipment, inventory and accounts
receivable due in monthly installments of $30,000, including
interest....................................................... 895,000
Unsecured note payable, at 11%, due in monthly installments of
$7,000, including interest..................................... 32,000
Capital lease obligations, secured by rental equipment and
computer equipment............................................. 311,000
----------
$3,935,000
==========
</TABLE>
Subsequent to December 31, 1995, U-Rent-M paid off all of the notes,
contracts payable and capital leases, except for one capital lease, of
$22,000.
4. INCOME TAXES
The components of the benefit for income taxes for the year ended November
30, 1995, were as follows:
<TABLE>
<S> <C>
Current............................................................. $64,000
Deferred............................................................ 12,000
-------
$76,000
=======
</TABLE>
F-68
<PAGE>
CVM, INC.
(DBA U-RENT-M)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Income tax benefit differs from the amount computed by applying the
statutory federal income tax by the income before income taxes for the year
ended November 30, 1995, due to the following:
<TABLE>
<S> <C>
Income tax benefit at statutory rate................................ $79,000
Nondeductible expenses.............................................. (3,000)
-------
$76,000
=======
</TABLE>
Deferred tax assets as of November 30, 1995, are comprised of the following
temporary differences:
<TABLE>
<S> <C>
Deferred tax assets:
Charitable contribution carryforward.............................. $ 6,000
Nondeductible reserves and accruals............................... 48,000
-------
Net deferred tax assets............................................. $54,000
=======
</TABLE>
5. COMMITMENTS
Operating Leases
U-Rent-M leases one location under an operating lease which expires in 1996,
which has future minimum lease payments of $15,000.
Capital Leases
U-Rent-M has capital lease obligations in connection with acquiring certain
rental equipment with aggregate cost and accumulated amortization of $536,000
and $195,000, respectively, at December 31, 1995. Future minimum lease
payments under the capital leases as of November 30, 1995, after giving effect
to the payoff described in Note 3, are $27,000 in 1996 (including $5,000
representing interest).
6. RELATED PARTY TRANSACTIONS
U-Rent-M entered into re-rent agreements with two related parties for the
rental of equipment. Re-rent expense associated with these transactions
totaled $200,000 during the year ended November 30, 1995.
U-Rent-M paid rent on a month to month basis on four of its locations to a
stockholder totaling $52,000 during the year ended November 30, 1995.
U-Rent-M is a co-borrower with a stockholder on a $488,000 note payable to a
bank secured by the real estate which U-Rent-M rents from the stockholder. In
addition, U-Rent-M is a guarantor for the stockholder on a $400,000 note
payable. Further, U-Rent-M is a guarantor of certain equipment contracts of a
related party.
7. SUBSEQUENT EVENTS
In January 4, 1996, U-Rent-M sold substantially all of its assets and
transferred certain liabilities to Rental Service Corporation.
F-69
<PAGE>
[Photo of employee using the
Company's advanced information
systems to assist customer]
Every rental location has on-
line access to centralized
systems which provide real-time
transaction processing,
extensive fleet management
tools and daily financial
management reports. These
systems also allow an employee
at any location to identify and
reserve a specific piece of
equipment anywhere in a region
and schedule delivery to a
customer's job site.
Depending upon market needs, RSC
offers value- added services to its
customers such as radio- dispatched
transportation fleet and 24 hours-a-
day, seven days-a-week support
services, including on- site
maintenance and repair.
[Photo of employee delivering
rental equipment]
The Company's information systems
track each individual rental asset
and automatically schedule
preventative maintenance. As a [Photo of employee performing rental
result, the Company is able to equipment maintenance]
enhance the reliability and extend
the useful life of its rental
equipment fleet.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Summary Consolidated Financial Information and Operating Data............. 5
Risk Factors.............................................................. 7
Background of the Company................................................. 12
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Unaudited Pro Forma Consolidated Financial Information.................... 16
Selected Consolidated Financial Information and Operating Data............ 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 36
Management................................................................ 43
Principal and Selling Stockholders........................................ 50
Certain Relationships and Related Transactions............................ 52
Description of Capital Stock.............................................. 53
Shares Available for Future Sale.......................................... 56
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,929,000 SHARES
[LOGO OF RSC(SM)
RENTAL SERVICE CORPORATION]
COMMON STOCK
----------------
PROSPECTUS
, 1996
----------------
WILLIAM BLAIR & COMPANY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All the amounts
shown are estimates, except for the Commission Registration Fee and NASD
Filing Fee.
<TABLE>
<S> <C>
Commission Registration Fee..................................... $ 24,138
NASD Filing Fee................................................. 9,700
Nasdaq National Market Listing Fees............................. 45,970
Accounting Fees and Expenses.................................... 300,000
Legal Fees and Expenses (other than Blue Sky)................... 300,000
Blue Sky Fees and Expenses...................................... 18,000
Printing and Engraving Expenses................................. 200,000
Transfer Agent Fees and Expenses................................ 1,500
Miscellaneous Expenses.......................................... 10,000
--------
Total......................................................... $909,308
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Corporation Law") gives Delaware corporations broad powers to
indemnify their present and former directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with threatened, pending or
completed actions, suits or proceedings to which they are parties or are
threatened to be made parties by reason of being or having been such directors
or officers, subject to specified conditions and exclusions; gives a director
or officer who successfully defends an action the right to be so indemnified;
and permits a corporation to buy directors' and officers' liability insurance.
Such indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of stockholders
or otherwise.
As permitted by Section 145 of the Delaware Corporation Law, Article VI of
the Bylaws of the Company provides for the indemnification by the Company of
its directors, officers, employees and agents against liabilities and expenses
incurred in connection with actions, suits or proceeds brought against them by
a third party or in the right of the corporation, by reason of the fact that
they were or are such directors, officers, employees or agents.
Article Twelfth of the Company's Certificate of Incorporation, which is
incorporated by reference in this Registration Statement, provides that to the
fullest extent permitted by the Delaware Corporation Law as the same exists or
may hereafter be amended, a director of the Company shall not be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director.
The Company has entered into, or intends to enter into, agreements to
indemnify its directors and executive officers in addition to the
indemnification provided for in the Certificate of Incorporation and Bylaws.
These agreements, among other things, will indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees), and
all losses, claims, liabilities, judgments, fines and settlement amounts
incurred by such person arising out of or in connection with such person's
service as a director or officer of the Company to the fullest extent
permitted by applicable law.
II-1
<PAGE>
Policies of insurance may be obtained and maintained by the Company under
which its directors and officers will be insured, within the limits and
subject to the limitations of the policies, against certain expenses in
connection with the defense of, and certain liabilities which might be imposed
as a result of, actions, suits or proceedings to which they are parties by
reason of being or having been such directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table and text specifies securities sold by the Registrant
within the last three years and not registered under the Securities Act of
1933, the date of each sale, the title and amount of securities sold, and the
nature and aggregate amount of consideration received by the issuer in
connection with each sale.
<TABLE>
<CAPTION>
NUMBER OF
DATE TITLE OF SECURITIES SHARES(1) PURCHASER CONSIDERATION
---- ------------------- --------- --------- -------------
<S> <C> <C> <C> <C>
June 29, 1993(2) Common Stock 82,927 Brentwood RSC Partners, L.P. $ 82,927.00
June 29, 1993(2) Redeemable Preferred Stock 233,836 Brentwood RSC Partners, L.P. 23,386,000.00
June 29, 1993(2) Common Stock 2,073 Thomas R. Lamia 2,073.00
June 29, 1993(2) Redeemable Preferred Stock 5,844 Thomas R. Lamia 58,440.00
June 29, 1993(2) Common Stock 1,818 Heller Financial, Inc. 1,818.00
June 29, 1993(2) Redeemable Preferred Stock 5,125 Heller Financial, Inc. 51,250.00
December 28, 1993 Common Stock 1,383 John F. Jastrem 13.83
July 25, 1995 Common Stock 4,741 Martin R. Reid 47.41
July 25, 1995 Common Stock 1,210 Douglas A. Waugaman 12.10
October 9, 1995 Common Stock 242 Douglas A. Waugaman 2.42
</TABLE>
- --------
(1) Does not reflect 45-for-1 stock split effective August 21, 1996.
(2) Securities acquired pursuant to a Stock Purchase Agreement, which gave the
security holders the right to acquire shares over time and as such,
acquisitions occurred at various times from June 29, 1993 through April,
1994. The consideration for these shares consisted of stock of another
entity and cash.
Since July 25, 1995, the Registrant has sold and issued the following
securities which were not registered under the Securities Act:
a. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and between UST Private Equity Investors
Fund, Inc. and the Registrant, the Registrant sold and issued: (1) 10,000
shares of the Redeemable Preferred Stock at a cash purchase price of $100
per share, or $1,000,000 in the aggregate and (2) 3,160 shares of the
Common Stock at a cash purchase price of $316.44 per share, or $1,000,000
in the aggregate.
b. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and among the purchasers listed on Schedule
I thereto and the Registrant, the Registrant sold and issued: (1) 15,000
shares of the Redeemable Preferred Stock at a cash purchase price of $100
per share, or $1,500,000 in the aggregate and (2) 4,740 shares of the
Common Stock at a cash purchase price of $316.44 per share, or $1,500,000
in the aggregate.
c. Pursuant to the Preferred Stock and Common Stock Purchase Agreement
dated as of January 4, 1996 by and among Nassau Capital Partners L.P. and
NAS Partners I L.L.C., and the Registrant, the Registrant sold and issued:
(1) 49,730 shares and 270 shares, respectively of the Redeemable Preferred
Stock at a cash purchase price of $100 per share, or $4,973,000 and
$27,000, respectively, in the aggregate and (2) 15,716 shares and 85
shares, respectively, of the Common Stock at a cash purchase price of
$316.44 per share, or $4,973,000 and $27,000, respectively, in the
aggregate.
d. In July 1995, pursuant to its Stock Option Plan, the Registrant
granted 16 employees options to purchase an aggregate of 2,882 shares of
Common Stock at a price of $.01 per share. The options are not
transferable, and complete exercisability is not available prior to July
2001. Options covering 742 such shares were exercised in July 1996.
II-2
<PAGE>
e. In April 1996, pursuant to its Stock Option Plan, the Registrant
granted 23 employees options to purchase an aggregate of 1,360 shares of
Common Stock at a price of $635.00 per share. The options are not
transferable, and complete exercisability is not available prior to April
2000.
f. In January 1996, pursuant to its Stock Option Plan, the Registrant
granted two employees and one director options to purchase an aggregate of
622 shares of Common Stock at a price of $316.44 per share. The options are
not transferable, and complete exercisability is not available prior to
January 2001.
g. Pursuant to a Note and Warrant Purchase Agreement by and between Acme
Acquisition Holdings Corp. and Citicorp USA, Inc., on September 12, 1995,
the Company issued and sold to Citicorp USA, Inc. (i) a Senior Secured
Promissory Note in the aggregate principal amount of $10,000,000, which
note bears interest at the rate of 13% per annum and is due and payable on
September 15, 2005 and (ii) a Warrant to purchase shares of the
Registrant's Common Stock at $217.35 per share. The warrant has
restrictions on transferability and is exercisable prior to September 2005.
Any sale of securities described herein and under such captions in the
Prospectus were carried out in reliance on the exemptions from registration
contained in Sections 3(a)(9), 3(a)(11) and 4(2) of the Securities Act of 1933
as transactions not involving any public offering, except that transactions
involving the stock option plan were carried out in reliance upon Rule 701 of
the Securities Act of 1933. The recipients in each case represented their
intention to acquire the securities for investment only and not with a view of
the distribution thereof. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<C> <S>
EXHIBITS DESCRIPTION
-------- -----------
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Company.
*3.2 Form of Amended and Restated Bylaws of the Company.
5.1 Opinion of Latham & Watkins as to the validity of the securities
being registered hereby.
*10.1 Credit Agreement among Acme Alabama, Inc., Acme Dixie Inc., Acme
Duval Inc., Acme Rents, Inc., The Air & Pump Company and Walker
Jones Equipment, Inc., as Borrowers, Acme Acquisition Corp. and
Acme Holdings Inc., as Parent Guarantors, each of the financial
institutions initially a signatory thereto, together with those
assignees pursuant to Section 12.8 thereof, as Lenders, Bankers
Trust Company, as Issuing Bank, and BT Commercial Corporation,
as Agent, dated as of September 12, 1995.
*10.2 First Amendment to Credit Agreement dated as of September 26,
1995.
*10.3 Second Amendment and Consent to Credit Agreement dated as of
December 21, 1995.
*10.4 Stock Purchase Agreement dated as of July 25, 1995, between Acme
Acquisition Holdings Corp. and Martin R. Reid.
*10.5 Stock Purchase and Severance Agreement dated as of July 25,
1995, between Acme Acquisition Holdings Corp. and Douglas A.
Waugaman.
*10.6 Stock Purchase and Severance Agreement dated as of October 4,
1995 between Rental Service Corporation and Douglas A. Waugaman.
*10.7 Corporate Development and Administrative Services Agreement
dated as of July 17, 1992 between Brentwood Buyout Partners,
L.P., a Delaware limited partnership, and Acme Acquisition Corp.
*10.8 Amendment to Corporate Development and Administrative Services
Agreement effective October 31, 1993.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
EXHIBITS DESCRIPTION
-------- -----------
*10.9 Preferred Stock and Common Stock Purchase Agreement dated as of
January 4, 1996 by and between Nassau Capital Partners L.P. and
NAS Partners I L.L.C., and Rental Service Corporation.
*10.10 Letter Agreement dated June 7, 1996 between Nassau Capital
Partners L.P. and NAS
Partners I L.L.C., and Rental Service Corporation.
*10.11 Stockholders' Agreement dated as of January 4, 1996 by and among
the parties listed on the signature page thereto and Rental
Service Corporation.
*10.12 Lease dated August 24, 1990 by and between Ira N. Mendelsohn, as
lessor, and Acme Holdings Inc., as lessee, concerning the real
property located at 17871 Mitchell Drive, Irvine, California
*10.13 Lease dated March 19, 1992 by and between Ira N. Mendelsohn,
Pamela M. Mendelsohn and Trill Corp., as lessor, and Acme Rents,
Inc., as lessee, concerning the real property located at Lots
22-30, Block 14, Tract 2600, Long Beach, California
*10.14 Lease dated May 31, 1989 by and between ARI Real Estate
Partnership, as lessor, and Acme Rents, Inc., as lessee,
concerning the real property located at 326 Mira Loma Avenue,
Glendale, California, as amended by an Amendment to Lease dated
December 10, 1991.
*10.15 Stock Option Plan for Key Employees.
*10.16 Form of Incentive Stock Option Agreement for Directors.
*10.17 Form of Incentive Stock Option Agreement for Region Managers.
*10.18 Form of Amended Incentive Stock Option Agreement for Region
Managers.
*10.19 Form of Amended Incentive Stock Option Agreement for Corporate
Office Personnel.
*10.20 Form of Incentive Stock Option Agreement for Other Corporate and
District Personnel.
*10.21 Form of Indemnification Agreement.
*10.22 Termination Agreement dated July 22, 1996, between Rental
Service Corporation and Brentwood Buyout Partners, L.P.
providing for termination of the Corporate Development and
Administrative Services Agreement.
*10.23 Letter Agreement dated July 1, 1996, between the Company's
subsidiaries and BT Commercial Corporation relating to a
proposed amendment and restatement of the Credit Agreement.
*10.24 Letter Agreement dated June 1, 1996 between Rental Service
Corporation and David G. Ledlow.
10.25 Form of Amendment to Amended Incentive Stock Option Agreement
for Region Managers.
10.26 Form of Amendment to Amended Incentive Stock Option Agreement
for Region Managers.
10.27 Form of Amendment to Amended Incentive Stock Option Agreement
for Region Managers.
10.28 Form of Amendment to Amended Incentive Stock Option Agreement
for Corporate Office Personnel.
11.1 Statement re: computation of per share earnings.
*21.1 Subsidiaries of Rental Service Corporation.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule
</TABLE>
- --------
*Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules
Report of Independent Auditors
Schedule I--Condensed Financial Information of Registrant
Condensed Balance Sheets--December 31, 1994 and 1995 Condensed
Statements of Operations--for the years ended December 31, 1993, 1994
and 1995 Condensed Statements of Cash Flows--for the years ended
December 31, 1993, 1994 and 1995 Notes to Condensed Financial
Statements--December 31, 1995
Schedule II--Valuation and Qualifying Accounts--as of and for the years
ended December 31, 1993, 1994 and 1995
Other schedules are not included because the required information is not
present or is included in the consolidated financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnifications for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against ypublic policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or Rule 497(h) under the Securities Act shall be deemed to be a part of
this Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on August 22, 1996.
RENTAL SERVICE CORPORATION
By: /s/ Douglas A. Waugaman
_____________________________________
Douglas A. Waugaman
Vice President, Secretary and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in their capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Martin R. Reid* Chairman of the Board and August 22, 1996
____________________________________ Chief Executive Officer
Martin R. Reid (Principal Executive Officer)
/s/ Douglas A. Waugaman Vice President, Chief August 22, 1996
____________________________________ Financial Officer, Secretary
Douglas A. Waugaman and Treasurer (Principal
Financial and Accounting
Officer)
William M. Barnum, Jr.* Director August 22, 1996
____________________________________
William M. Barnum, Jr.
James R. Buch* Director August 22, 1996
____________________________________
James R. Buch
Christopher A. Laurence* Director August 22, 1996
____________________________________
Christopher A. Laurence
John G. Quigley* Director August 22, 1996
____________________________________
John G. Quigley
Frederick J. Warren* Director August 22, 1996
____________________________________
Frederick J. Warren
*By /s/ Douglas A. Waugaman
---------------------------------
Douglas A. Waugaman
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Rental Service Corporation
We have audited the consolidated financial statements of Rental Service
Corporation (the "Company") as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, and have issued our
report thereon dated April 30, 1996, except for Note 11, as to which the date
is August 21, 1996, included elsewhere in this Registration Statement. Our
audits also included the financial statement schedules listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
April 30, 1996, except for Note 3
to Schedule I, as to which the
date is August 21, 1996
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash................................................. $ -- $ 5,000
Investment in and net amounts due from wholly owned
subsidiaries........................................ 25,319,000 39,152,000
----------- -----------
$25,319,000 $39,157,000
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable and accrued expenses................ $ 109,000 $ --
Note payable to bank................................. -- 10,710,000
Redeemable preferred stock........................... 27,861,000 28,401,000
Redeemable preferred stock in treasury............... (1,177,000) --
Common stockholders' equity (deficit):
Common stock........................................ 59,000 54,000
Common stock in treasury............................ (523,000) --
Additional paid-in capital.......................... 40,000 28,000
Accumulated deficit................................. (1,050,000) (36,000)
----------- -----------
Total common stockholders' equity (deficit).......... (1,474,000) 46,000
----------- -----------
$25,319,000 $39,157,000
=========== ===========
</TABLE>
See accompanying notes.
S-2
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Costs and expenses:
General and administrative expenses........ $ -- $ 93,000 $ --
Interest expense (income).................. -- 28,000 (7,000)
--------- ---------- ----------
Income (loss) before net equity in net
income (loss) of subsidiaries.............. -- (121,000) 7,000
Equity in net income (loss) of subsidiaries. (294,000) 2,097,000 3,230,000
--------- ---------- ----------
Net income (loss).......................... $(294,000) $1,976,000 $3,237,000
========= ========== ==========
</TABLE>
See accompanying notes.
S-3
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1993 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................ $ (294,000) $ 1,976,000 $3,237,000
Equity in net (earnings) loss of
subsidiaries............................ 294,000 (2,097,000) (3,230,000)
Change in accounts payable and accrued
expenses................................ -- 109,000 (109,000)
----------- ----------- ----------
Net cash used in operating activities.... -- (12,000) (102,000)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock.... 14,799,000 259,000 --
Proceeds from notes payable.............. -- -- 10,000,000
Proceeds from sale of common stock....... 2,000 -- --
Loans to subsidiaries.................... (14,801,000) (247,000) (9,893,000)
----------- ----------- ----------
Net cash provided by financing
activities.............................. -- 12,000 107,000
----------- ----------- ----------
Increase in cash......................... $ -- $ -- $ 5,000
=========== =========== ==========
</TABLE>
See accompanying notes.
S-4
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
RENTAL SERVICE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Rental Service Corporation (formerly known as Acme Acquisition Holdings
Corp.) (RSC or Company), a Delaware Corporation, was formed in June 1993 when
all of the outstanding preferred and common shares of RSC Acquisition Corp.
were exchanged for the same number, class and par value of shares of RSC. RSC
Acquisition Corp. was formed in July 1992.
Rental Service Corporation's investment in subsidiaries is stated at cost
plus equity in undistributed earnings of subsidiaries since the date of
acquisition. The Company's share of net income of its unconsolidated
subsidiaries is included in consolidated income using the equity method. The
parent company-only financial statements should be read in conjunction with
the Company's consolidated financial statements.
2. LONG-TERM DEBT
The note payable to Bank is collateralized by the common stock of RSC
Holdings, Inc. and RSC Acquisition Corp. The note payable agreement includes
certain limitations and restrictions of payments and investments.
The Company has guaranteed its subsidiaries $95,000,000 revolving line of
credit with a bank, of which $56,042,000 is outstanding at December 31, 1995.
3. SUBSEQUENT EVENT
On August 21, 1996, the Company increased the authorized number of shares of
common and preferred stock, declared a 45-for-one stock split of the common
stock and made conforming adjustments on the terms of all outstanding common
stock equivalents. All shares and per share information in the accompanying
condensed financial statements has been retroactively adjusted to reflect
these actions.
S-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
RENTAL SERVICE CORPORATION
YEAR ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND DEDUCTIONS-- BALANCE AT
DESCRIPTION YEAR EXPENSES ACQUISITIONS DESCRIBE END OF YEAR
----------- ------------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1993
Deducted from assets
accounts:
Allowance for doubtful
accounts.............. $ 24,000 $ 484,000 $ 25,000 $154,000 $ 379,000
Reserve for rental
equipment............. -- 105,000 1,000 9,000 97,000
Reserve for resale
equipment............. 108,000 94,000 -- -- 202,000
---------- ---------- ---------- -------- -----------
Total................... $ 132,000 $ 683,000 $ 26,000 $163,000 $ 678,000
========== ========== ========== ======== ===========
YEAR ENDED DECEMBER 31,
1994
Deducted from assets
accounts:
Allowance for doubtful
accounts.............. $ 379,000 $ 621,000 $ 236,000 $280,000 $ 956,000
Reserve for rental
equipment............. 97,000 92,000 -- 32,000 157,000
Reserve for resale
equipment............. 202,000 78,000 -- -- 280,000
Income tax valuation
allowance............. -- 27,000 -- -- 27,000
---------- ---------- ---------- -------- -----------
Total................... $ 678,000 $ 818,000 $ 236,000 $312,000 $ 1,420,000
========== ========== ========== ======== ===========
YEAR ENDED DECEMBER 31,
1995
Deducted from assets
accounts:
Allowance for doubtful
accounts.............. $ 956,000 $1,040,000 $ 582,000 $787,000 $ 1,791,000
Reserve for rental
equipment............. 157,000 -- 519,000 165,000 511,000
Reserve for resale
equipment............. 280,000 138,000 185,000 -- 603,000
Income tax valuation
allowance............. 27,000 -- 7,831,000 -- 7,858,000
---------- ---------- ---------- -------- -----------
Total................... $1,420,000 $1,178,000 $9,117,000 $952,000 $10,763,000
========== ========== ========== ======== ===========
</TABLE>
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Company.
*3.2 Form of Amended and Restated Bylaws of the Company.
5.1 Opinion of Latham & Watkins as to the validity of the
securities being registered hereby.
*10.1 Credit Agreement among Acme Alabama, Inc., Acme Dixie Inc.,
Acme Duval Inc., Acme Rents, Inc., The Air & Pump Company
and Walker Jones Equipment, Inc., as Borrowers, Acme
Acquisition Corp. and Acme Holdings Inc., as Parent
Guarantors, each of the financial institutions initially a
signatory thereto, together with those assignees pursuant
to Section 12.8 thereof, as Lenders, Bankers Trust Company,
as Issuing Bank, and BT Commercial Corporation, as Agent,
dated as of September 12, 1995.
*10.2 First Amendment to Credit Agreement dated as of September
26, 1995.
*10.3 Second Amendment and Consent to Credit Agreement dated as
of December 21, 1995.
*10.4 Stock Purchase Agreement dated as of July 25, 1995, between
Acme Acquisition Holdings Corp. and Martin R. Reid.
*10.5 Stock Purchase and Severance Agreement dated as of July 25,
1995, between Acme Acquisition Holdings Corp. and Douglas
A. Waugaman.
*10.6 Stock Purchase and Severance Agreement dated as of October
4, 1995 between Rental Service Corporation and Douglas A.
Waugaman.
*10.7 Corporate Development and Administrative Services Agreement
dated as of July 17, 1992 between Brentwood Buyout
Partners, L.P., a Delaware limited partnership, and Acme
Acquisition Corp.
*10.8 Amendment to Corporate Development and Administrative
Services Agreement effective October 31, 1993.
*10.9 Preferred Stock and Common Stock Purchase Agreement dated
as of January 4, 1996 by and between Nassau Capital
Partners L.P. and NAS Partners I L.L.C., and Rental Service
Corporation.
*10.10 Letter Agreement dated June 7, 1996 between Nassau Capital
Partners L.P. and NAS
Partners I L.L.C., and Rental Service Corporation.
*10.11 Stockholders' Agreement dated as of January 4, 1996 by and
among the parties listed on the signature page thereto and
Rental Service Corporation.
*10.12 Lease dated August 24, 1990 by and between Ira N.
Mendelsohn, as lessor, and Acme Holdings Inc., as lessee,
concerning the real property located at 17871 Mitchell
Drive, Irvine, California
*10.13 Lease dated March 19, 1992 by and between Ira N.
Mendelsohn, Pamela M. Mendelsohn and Trill Corp., as
lessor, and Acme Rents, Inc., as lessee, concerning the
real property located at Lots 22-30, Block 14, Tract 2600,
Long Beach, California
*10.14 Lease dated May 31, 1989 by and between ARI Real Estate
Partnership, as lessor, and Acme Rents, Inc., as lessee,
concerning the real property located at 326 Mira Loma
Avenue, Glendale, California, as amended by an Amendment to
Lease dated December 10, 1991.
*10.15 Stock Option Plan for Key Employees.
*10.16 Form of Incentive Stock Option Agreement for Directors.
*10.17 Form of Incentive Stock Option Agreement for Region
Managers.
*10.18 Form of Amended Incentive Stock Option Agreement for Region
Managers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
*10.19 Form of Amended Incentive Stock Option Agreement for
Corporate Office Personnel.
*10.20 Form of Incentive Stock Option Agreement for Other
Corporate and District Personnel.
*10.21 Form of Indemnification Agreement
*10.22 Termination Agreement dated July 22, 1996, between Rental
Service Corporation and Brentwood Buyout Partners, L.P.
providing for termination of the Corporate Development and
Administrative Services Agreement.
*10.23 Letter Agreement dated July 1, 1996, between the Company's
subsidiaries and BT Commercial Corporation relating to a
proposed amendment and restatement of the Credit Agreement.
*10.24 Letter Agreement dated June 1, 1996 between Rental Service
Corporation and David G. Ledlow.
10.25 Form of Amendment to Amended Incentive Stock Option
Agreement for Region Managers.
10.26 Form of Amendment to Amended Incentive Stock Option
Agreement for Region Managers.
10.27 Form of Amendment to Amended Incentive Stock Option
Agreement for Region Managers.
10.28 Form of Amendment to Amended Incentive Stock Option
Agreement for Corporate Office Personnel.
11.1 Statement re: computation of per share earnings.
*21.1 Subsidiaries of Rental Service Corporation.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule
</TABLE>
- --------
*Previously filed.
<PAGE>
EXHIBIT 1.1
RENTAL SERVICE CORPORATION
4,929,000 Shares Common Stock/1/
UNDERWRITING AGREEMENT
_______________, 1996
William Blair & Company, L.L.C.
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the Several
Underwriters Named in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Section 1. Introductory. Rental Service Corporation ("Company") a Delaware
corporation, will have, as of the First Closing Date hereinafter defined, an
authorized capital stock consisting of 350,000 shares of Preferred Stock, $.01
par value, of which 319,805 shares were outstanding as of ____________, 1996 and
designated as 6% Cumulative Preferred Stock and 20,000,000 shares, $.01 par
value, of Common Stock ("Common Stock"), of which ____________ shares were
outstanding as of such date. The Company proposes to issue and sell 4,659,000
shares of its authorized but unissued Common Stock, and certain stockholders of
the Company (collectively referred to as the "Selling Stockholders" and named in
Schedule B) propose to sell 270,000 shares of the Company's issued and
outstanding Common Stock to the several underwriters named in Schedule A as it
may be amended by the Pricing Agreement hereinafter defined ("Underwriters"),
who are acting severally and not jointly. Collectively, such total of 4,929,000
shares of Common Stock proposed to be sold by the Company and the Selling
Stockholders is hereinafter referred to as the "Firm Shares." In addition, the
Company and certain Selling Stockholders propose to grant to the Underwriters an
option to purchase up to 739,350 additional shares of Common Stock ("Option
Shares") as provided in Section 5 hereof. The Firm Shares and, to the extent
such option is exercised, the Option Shares, are hereinafter collectively
referred to as the "Shares."
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon as you deem advisable after the registration statement
hereinafter referred to becomes effective, if it has not yet become effective,
and the Pricing Agreement hereinafter defined has been executed and delivered.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company, the Selling Stockholders and the Representatives,
acting on behalf of the several Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto ("Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company, the Selling Stockholders and the
Representatives and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed by this
Agreement, as supplemented by the Pricing Agreement. From and after the date of
the execution and delivery of the Pricing Agreement, this Agreement shall be
deemed to incorporate the Pricing Agreement.
The Company and each of the Selling Stockholders hereby confirm their
agreements with the Underwriters as follows:
- -----------
/1/ Plus an option to acquire up to 739,350 additional shares to cover
overallotments.
<PAGE>
Section 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters and the Selling Stockholders
that:
(a) A registration statement on Form S-1 (File No. 333-05949) and a
related preliminary prospectus with respect to the Shares have been prepared
and filed with the Securities and Exchange Commission ("Commission") by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder
(collectively, the "1933 Act;" unless indicated to the contrary, all
references herein to specific rules are rules promulgated under the 1933
Act); and the Company has so prepared and has filed such amendments thereto,
if any, and such amended preliminary prospectuses as may have been required
to the date hereof and will file such additional amendments thereto and such
amended prospectuses as may hereafter be required. There have been or will
promptly be delivered to you three signed copies of such registration
statement and amendments, three copies of each exhibit filed therewith, and
conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus or prospectuses and final
forms of prospectus for each of the Underwriters in such amounts as you shall
reasonably request.
Such registration statement (as amended, if applicable) at the time
it becomes effective and the prospectus constituting a part thereof
(including the information, if any, deemed to be part thereof pursuant to
Rule 430A(b) and/or Rule 434), as from time to time amended or supplemented,
are hereinafter referred to as the "Registration Statement," and the
"Prospectus," respectively, except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement became or becomes effective
(whether or not such revised prospectus is required to be filed by the
Company pursuant to Rule 424(b)), the term Prospectus shall refer to such
revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434 of the
1933 Act, all references to "Prospectus" shall be deemed to include, without
limitation, the form of prospectus and the term sheet, taken together,
provided to the Underwriters by the Company in accordance with Rule 434 of
the 1933 Act ("Rule 434 Prospectus"). Any registration statement (including
any amendment or supplement thereto or information which is deemed part
thereof) filed by the Company under Rule 462(b) ("Rule 462(b) Registration
Statement") shall be deemed to be part of the "Registration Statement" as
defined herein, and any prospectus (including any amendment or supplement
thereto or information which is deemed part thereof) included in such
registration statement shall be deemed to be part of the "Prospectus", as
defined herein, as appropriate. The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder are
hereinafter collectively referred to as the "Exchange Act."
(b) The Commission has not issued any order preventing or suspending the
use of any preliminary prospectus, and each preliminary prospectus has
conformed in all material respects with the requirements of the 1933 Act and,
as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and when the Registration Statement became or becomes effective,
and at all times subsequent thereto, up to the First Closing Date or the
Second Closing Date hereinafter defined, as the case may be, the Registration
Statement, including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable, and the Prospectus and any amendments or supplements thereto,
contained or will contain all statements that are required to be stated
therein in accordance with the 1933 Act and in all material respects
conformed or will in all material respects conform to the requirements of the
1933 Act, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, included or will include any untrue
statement of a material fact or omitted or will omit to state a material
-2-
<PAGE>
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no representation
or warranty as to information contained in or omitted from any preliminary
prospectus, the Registration Statement, the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by or on behalf of (x) any Underwriter through the
Representatives expressly for use in the preparation thereof (it being
understood and agreed by the parties hereto that such written information is
limited to the written information described in Section 4 hereof) or (y) any
Selling Stockholder expressly for use in the preparation thereof.
(c) The Company and its subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, with corporate power and authority
to own their properties and conduct their business as described in the
Prospectus; the Company and each of its subsidiaries are duly qualified to do
business as foreign corporations under the corporation law of, and are in
good standing as such in, each jurisdiction in which they own or lease
substantial properties, have an office, or in which substantial business is
conducted and such qualification is required except in any such case where
the failure to so qualify or be in good standing would not have a material
adverse effect upon the business, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries taken as a whole (a
"Material Adverse Effect"); and no proceeding of which the Company has
knowledge has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification.
(d) Except as disclosed in the Registration Statement (including, but not
limited to, contracts filed as exhibits to the Registration Statement), the
Company owns directly or indirectly 100 percent of the issued and outstanding
capital stock of each of its subsidiaries, free and clear of any claims,
liens, encumbrances or security interests and all of such capital stock has
been duly authorized and validly issued and is fully paid and nonassessable.
(e) The issued and outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable, and conform to the description thereof contained in the
Prospectus.
(f) The Shares to be sold by the Company have been duly authorized and
when issued, delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, and will conform to the
description thereof contained in the Prospectus.
(g) The making and performance by the Company of this Agreement and the
Pricing Agreement have been duly authorized by all necessary corporate action
and will not violate any provision of the Company's charter or bylaws, each
as amended to date, and will not result in the breach, or be in
contravention, of any provision of any agreement, franchise, license,
indenture, mortgage, deed of trust, or other instrument to which the Company
or any subsidiary is a party or by which the Company, any subsidiary or the
property of any of them may be bound or affected, or any order, rule or
regulation applicable to the Company or any subsidiary of any court or
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any subsidiary or any of their respective
properties, or any order of any court or governmental agency or authority
entered in any proceeding to which the Company or any subsidiary was or is
now a party or by which it is bound, except for any breach or contravention
which, singly or in the aggregate, would not have a Material Adverse Effect.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the
-3-
<PAGE>
Pricing Agreement or the consummation of the transactions contemplated herein
or therein, except for compliance with the 1933 Act, the Exchange Act and
blue sky laws applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National Association of
Securities Dealers, Inc. ("NASD"). This Agreement has been duly executed and
delivered by the Company.
(h) Ernst & Young LLP are independent accountants with respect to the
Company and its subsidiaries as required by the 1933 Act.
(i) The consolidated financial statements together with the related notes
and schedules of the Company included in the Registration Statement present
fairly the consolidated financial position of the Company as of the
respective dates of such financial statements, and the consolidated results
of operations and cash flows of the Company for the respective periods
covered thereby, all in conformity with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed in the Prospectus, and the supporting schedules included in the
Registration Statement present fairly the information required to be stated
therein. The financial information set forth in the Prospectus under
"Selected Consolidated Financial Information and Operating Data" presents
fairly on the basis stated in the Prospectus, the information set forth
therein.
The unaudited pro forma consolidated financial statements and other
unaudited pro forma information included in the Prospectus present fairly in
all material respects the information shown therein, have been prepared in
accordance with generally accepted accounting principles and the Commission's
rules and guidelines with respect to pro forma financial statements and other
pro forma information, have been properly compiled on the pro forma basis
described therein, and, in the opinion of the Company, the assumptions used
in the preparation thereof are reasonable and the adjustments used therein
are appropriate under the circumstances.
(j) (x) Neither the Company nor any of its subsidiaries is in violation
of its respective charter or in default under any consent decree, or in
default with respect to any material provision of any lease, loan agreement,
franchise, license, permit or other contract obligation to which it is a
party; and (y) to the Company's knowledge, there does not exist any state of
facts which constitutes an event of default as defined in such documents or
which, with notice or lapse of time or both, would constitute such an event
of default, except in the case of clauses (x) and (y) for defaults, events of
default and violations which neither singly nor in the aggregate are material
to the Company and its subsidiaries taken as a whole.
(k) There are no legal or governmental proceedings pending (including,
without limitation, proceedings related to environmental or discrimination
matters), or to the Company's knowledge, threatened to which the Company or
any subsidiary is a party or of which property owned or leased by the Company
or any subsidiary is the subject, or which are not disclosed in the
Prospectus, which question the validity of this Agreement or the Pricing
Agreement or any action taken or to be taken pursuant hereto or thereto or
which, if decided adversely to the Company or such subsidiaries, are
reasonably expected to have a Material Adverse Effect.
(l) There are no holders of securities of the Company having rights to
registration thereof or preemptive rights to purchase Common Stock except as
disclosed in the Prospectus. Holders of registration rights who are not
Selling Stockholders received proper notice from the Company with respect to
such rights and have not exercised such rights with respect to the offering
being made by the Prospectus.
-4-
<PAGE>
(m) The Company and each of its subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Registration
Statement), subject to no lien (except liens for taxes not yet due and
payable), mortgage, pledge, charge or encumbrance of any kind except those,
if any, reflected in such financial statements (or elsewhere in the
Registration Statement (including, but not limited to, contracts filed as
exhibits to the Registration Statement)) or which are not material to the
Company and its subsidiaries taken as a whole. The Company and each of its
subsidiaries hold their respective leased properties which are material to
the Company and its subsidiaries taken as a whole under valid and binding
leases.
(n) The Company has not taken and will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, and except as contemplated by
the Registration Statement, the Company and its subsidiaries, taken as a
whole, have not incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in the ordinary
course of business and there has not been any material adverse change in
their condition (financial or otherwise) or results of operations nor any
material adverse change in their capital stock, short-term debt or long-term
debt.
(p) The Company agrees not to sell, contract to sell or otherwise dispose
of any Common Stock or securities convertible into Common Stock (except
Common Stock issued pursuant to currently outstanding options, warrants or
convertible securities) for a period of 180 days after the effective date of
the Registration Statement without the prior written consent of the
Representatives. Notwithstanding the foregoing, during such 180-day period
the Company may (i) grant stock options pursuant to the Company's existing
stock option plan, (ii) issue shares of common stock upon the conversion or
exercise of options and warrants which are outstanding as of the date hereof
and (iii) register shares of common stock underlying the Company's existing
stock option plan.
(q) There is no material document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement which is not described or filed as required by
the 1933 Act.
(r) The Company together with its subsidiaries owns and possesses all
right, title and interest in and to, or has duly licensed from third parties,
all patents, patent rights, trade secrets, inventions, know-how, trademarks,
trade names, copyrights, service marks and other proprietary rights ("Trade
Rights"), if any, which are material to the business of the Company and its
subsidiaries taken as a whole. Neither the Company nor any of its
subsidiaries has received any notice of infringement, misappropriation or
conflict from any third party as to such material Trade Rights which has not
been resolved or disposed of and, to the knowledge of the Company, neither
the Company nor any of its subsidiaries has infringed, misappropriated or
otherwise conflicted with material Trade Rights of any third parties, which
infringement, misappropriation or conflict would have a Material Adverse
Effect.
(s) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal, state,
local and foreign laws and regulations, except where the failure to be in
compliance would not, singly or in the aggregate, have a Material Adverse
Effect.
-5-
<PAGE>
(t) All sales of the Company's capital stock prior to the date hereof
were at all relevant times exempt from the registration requirements of the
1933 Act and were duly registered with or the subject of an available
exemption from the registration requirements of the applicable state
securities or blue sky laws.
(u) The Company has filed all necessary federal and state income and
franchise tax returns and has paid all taxes shown as due thereon other than
those (i) currently payable without penalty or interest or (ii) the failure
of which to pay would not have a Material Adverse Effect; and there is no tax
deficiency that has been asserted against the Company or any of its
properties or assets that would have a Material Adverse Effect.
(v) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock thereunder, has filed
an application to list the Shares on the Nasdaq National Market, and has
received notification that the listing has been approved, subject to notice
of issuance or sale of the Shares, as the case may be.
(w) The Company is not an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940, as amended ("Investment Company Act").
(x) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 517.075, Florida Statutes (Chapter 92-198,
Laws of Florida). Section 1 has been codified at (S) 517.075 regarding
required prospectus disclosure of doing business with Cuba.
Section 3. Representations, Warranties and Covenants of the Selling
Stockholders.
(a) Each Selling Stockholder severally represents and warrants to, and
agrees with, the Company and the Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date or
the Second Closing Date, as the case may be, will have, valid marketable
title to the Shares proposed to be sold by such Selling Stockholder
hereunder on such date and full right, power and authority to enter into
this Agreement and the Pricing Agreement and to sell, assign, transfer
and deliver such Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, claims and community
property rights; and upon delivery of and payment for such Shares
hereunder, the Underwriters will acquire valid marketable title thereto,
free and clear of any voting trust arrangement, lien, encumbrance,
equity, claim and community property right other than imposed or
consented to in writing by an Underwriter.
(ii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might be
reasonably expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares.
(iii) Such Selling Stockholder has executed and delivered a Power of
Attorney ("Power of Attorney") among the Selling Stockholder,
____________, ________________, and ______________ (the "Agents"), naming
the Agents as such Selling Stockholder's attorneys-in-fact for the
purpose of entering into and carrying out this Agreement and the Pricing
Agreement
-6-
<PAGE>
on behalf of such Selling Stockholder, and the Power of Attorney has been
duly executed by such Selling Stockholder and a copy thereof has been
delivered to you.
(iv) Such Selling Stockholder further represents, warrants and agrees
that such Selling Stockholder has deposited in custody, under a Custody
Agreement ("Custody Agreement") with _____________________________, as
custodian ("Custodian"), certificates in negotiable form for the Shares
to be sold hereunder by such Selling Stockholder, for the purpose of
further delivery pursuant to this Agreement. Such Selling Stockholder
agrees that the Shares to be sold by such Selling Stockholder on deposit
with the Custodian are subject to the interests of the Company, the
Underwriters and the other Selling Stockholders, that the arrangements
made for such custody, and the appointment of the Agents pursuant to the
Power of Attorney, are to that extent irrevocable, and that the
obligations of such Selling Stockholder hereunder and under the Power of
Attorney and the Custody Agreement shall not be terminated except as
provided in this Agreement, the Power of Attorney or the Custody
Agreement by any act of such Selling Stockholder, by operation of law,
whether, in the case of an individual Selling Stockholder, by the death
or incapacity of such Selling Stockholder or, in the case of a trust or
estate, by the death of the trustee or trustees or the executor or
executors or the termination of such trust or estate, or, in the case of
a partnership or corporation, by the dissolution, winding-up or other
event affecting the legal life of such entity, or by the occurrence of
any other event. If any individual Selling Stockholder, trustee or
executor should die or become incapacitated, or any such trust, estate,
partnership or corporation should be terminated, or if any other event
should occur before the delivery of the Shares hereunder, the documents
evidencing Shares then on deposit with the Custodian shall be delivered
by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity, termination or other event had
not occurred, regardless of whether or not the Custodian shall have
received notice thereof. Each Agent has been authorized by such Selling
Stockholder to execute and deliver this Agreement and the Pricing
Agreement and the Custodian has been authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares to be sold by
such Selling Stockholder against delivery thereof and otherwise act on
behalf of such Selling Stockholder. The Custody Agreement has been duly
executed by such Selling Stockholder and a copy thereof has been
delivered to you.
(v) As to each Selling Stockholder named in Schedule B hereto as a
Principal Selling Stockholder (collectively, the "Principal Selling
Stockholders") each preliminary prospectus, insofar as it has related to
such Principal Selling Stockholder and, to the knowledge of such
Principal Selling Stockholder in all other respects, as of its date, has
conformed in all material respects with the requirements of the 1933 Act
and, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and with respect to the Registration Statement at
the time of effectiveness, and at all times subsequent thereto, up to the
First Closing Date or the Second Closing Date hereinafter defined, as the
case may be, (1) such parts of the Registration Statement and the
Prospectus and any amendments or supplements thereto as relate to such
Principal Selling Stockholder, and the Registration Statement and the
Prospectus and any amendments or supplements thereto, to the knowledge of
such Principal Selling Stockholder in all other respects, contained or
will contain all statements that are required to be stated therein in
accordance with the 1933 Act and in all material respects conformed or
will in all material respects conform to the requirements of the 1933
Act, and (2) neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, as it relates to such Principal
Selling Stockholder, and, to the knowledge of such Principal Selling
Stockholder in all other respects, included or will include any untrue
-7-
<PAGE>
statement of a material fact or omitted or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that neither clause (1) nor
(2) shall have any effect if information has been given by such Selling
Stockholder to the Company and the Representatives in writing which would
eliminate or remedy any such untrue statement or omission.
(vi) As to each Selling Stockholder that is not a Principal Selling
Stockholder (collectively, the "Non-Principal Selling Stockholders"),
each preliminary prospectus, insofar as it includes information provided
in writing by such Non-Principal Selling Stockholder for inclusion
therein as of its date, has conformed in all material respects with the
requirements of the 1933 Act and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and with
respect to the Registration Statement at the time of effectiveness, and
at all times subsequent thereto, up to the First Closing Date or the
Second Closing Date hereinafter defined, as the case may be, (1) such
parts of the Registration Statement and the Prospectus and any amendments
or supplements thereto, insofar as they include information provided in
writing by such Non-Principal Selling Stockholder for inclusion therein,
contained or will contain all statements that are required to be stated
therein in accordance with the 1933 Act and in all material respects
conformed or will in all material respects conform to the requirements of
the 1933 Act, and (2) neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, insofar as they
include information provided in writing by such Non-Principal Selling
Stockholder for inclusion therein, included or will include any untrue
statement of a material fact or omitted or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that neither clause (1) nor
(2) shall have any effect if information has been given by such Non-
Principal Selling Stockholder to the Company and the Representatives in
writing which would eliminate or remedy any such untrue statement or
omission.
(b) Each Selling Stockholder agrees with the Company and the Underwriters
not to sell, contract to sell or otherwise dispose of any Common Stock for a
period of 180 days after this Agreement becomes effective without the prior
written consent of the Representatives.
In order to document the Underwriter's compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or on the First Closing Date, as
hereinafter defined, a properly completed and executed United States Treasury
Department Form W-8 or W-9 (or other applicable form of statement specified by
Treasury Department regulations in lieu thereof).
Section 4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and the Selling Stockholders that the information set forth (a) on
the cover page of the Prospectus with respect to price, underwriting discount
and terms of the offering and (b) under "Underwriting" in the Prospectus and (c)
on the inside front cover of the Prospectus with respect to the stabilization
legend was furnished to the Company by and on behalf of the Underwriters for use
in connection with the preparation of the Registration Statement and is correct
and complete in all material respects. The Company and the Selling Stockholders
hereby acknowledge and agree that the information described in this Section 4
was the only written furnished to the Company by or on behalf of any
Underwriters through the Representatives.
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Section 5. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders,
severally and not jointly, agree to sell to the Underwriters named in Schedule A
hereto, and the Underwriters agree, severally and not jointly, to purchase from
the Company and the Selling Stockholders, respectively, 4,659,000 Firm Shares
from the Company and the respective number of Firm Shares set forth opposite the
names of the Selling Stockholders in Schedule B hereto at the price per share
set forth in the Pricing Agreement. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of full shares which
(as nearly as practicable, as determined by you) bears to 4,659,000 the same
proportion as the number of Shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the total number of Firm Shares to be
purchased by all Underwriters under this Agreement. The obligation of each
Underwriter to each Selling Stockholder shall be to purchase from such Selling
Stockholder the number of full shares which (as nearly as practicable, as
determined by you) bears to that number of Firm Shares set forth opposite the
name of such Selling Stockholder in Schedule B hereto, the same proportion as
the number of Shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to the total number of Firm Shares to be purchased by all
Underwriters under this Agreement. The initial public offering price and the
purchase price shall be set forth in the Pricing Agreement.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under
Rule 15c6-1 under the Exchange Act, (or the third business day if required under
Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the
provisions of Section 12) following the date the Registration Statement becomes
effective (or, if the Company has elected to rely upon Rule 430A, the fourth
business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the
third business day if required under Rule 15c6-1 under the Exchange Act) after
execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company and the Custodian will deliver to you at the offices of
counsel for the Underwriters or through the facilities of The Depository Trust
Company for the accounts of the several Underwriters, certificates representing
the Firm Shares to be sold by the Company and for the benefit of the Selling
Stockholders, respectively, against payment of the purchase price therefor by
delivery of federal or other immediately available funds, by wire transfer or
otherwise, to the Company and the Custodian. Such time of delivery and payment
is herein referred to as the "First Closing Date." The certificates for the Firm
Shares so to be delivered will be in such denominations and registered in such
names as you request by notice to the Company and the Custodian prior to 10:00
A.M., Chicago Time, on the second business day preceding the First Closing Date,
and will be made available at the Company's expense for checking and packaging
by the Representatives at 10:00 A.M., Chicago Time, on the business day
preceding the First Closing Date. Payment for the Firm Shares so to be
delivered shall be made at the time and in the manner described above at the
offices of counsel for the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and certain of the Selling Stockholders designated on Schedule B to be
offering Option Shares hereby grant an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 750,000 Option
Shares, at the same purchase price per share to be paid for the Firm Shares, for
use solely in covering any overallotments made by the Underwriters in the sale
and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the date of
the initial public offering upon notice by you to the Company and the Agents
setting forth the aggregate number of Option Shares as to which the Underwriters
are exercising the option, the names and denominations in which the certificates
for such shares are to be registered and the time and place at which such
certificates will be delivered. Such time of delivery (which may not be earlier
than the First Closing Date), being herein referred to as the "Second Closing
Date," shall be determined by you, but if at any time other than the First
Closing Date, shall not be earlier than three nor later than 10 full business
days after delivery of such notice of exercise. The number of Option Shares to
be purchased from the Company and each such Selling Stockholder are set forth in
Schedule B hereto. The number of Option Shares to be purchased by each
Underwriter
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<PAGE>
shall be determined by multiplying the number of Option Shares to be sold by the
Company and the Selling Stockholders pursuant to such notice of exercise by a
fraction, the numerator of which is the number of Firm Shares to be purchased by
such Underwriter as set forth opposite its name in Schedule A and the
denominator of which is the total number of Firm Shares (subject to such
adjustments to eliminate any fractional share purchases as you in your absolute
discretion may make). Certificates for the Option Shares will be made available
at the Company's expense for checking and packaging at 10:00 A.M., Chicago Time,
on the business day preceding the Second Closing Date. The manner of payment
for and delivery of the Option Shares shall be the same as for the Firm Shares
as specified in the preceding paragraph.
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Shares, to make payment
and to receipt therefor. You, individually and not as the Representatives of
the Underwriters, may make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
obligation hereunder.
Section 6. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will advise you and the Selling Stockholders promptly of
its notice of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, or of any notification to it of the suspension
of qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceedings for that purpose, and will also advise you
and the Selling Stockholders promptly of any request of the Commission for
amendment or supplement of the Registration Statement, of any preliminary
prospectus or of the Prospectus, or for additional information.
(b) The Company will give you and the Selling Stockholders notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any Rule 462(b) Registration
Statement or any amendment or supplement to the Prospectus (including any
revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Shares which differs from the prospectus
on file at the Commission at the time the Registration Statement became or
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) and any term sheet as contemplated by Rule 434)
and will furnish you and the Selling Stockholders with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement or use any such prospectus to which you or counsel for the
Underwriters shall reasonably object on a timely basis.
(c) If the Company elects to rely on Rule 434 of the 1933 Act, the
Company will prepare a term sheet that complies with the requirements of Rule
434. If the Company elects not to rely on Rule 434, the Company will provide
the Underwriters with copies of the form of prospectus, in such numbers as
the Underwriters may reasonably request, and file with the Commission such
prospectus in accordance with Rule 424(b) of the 1933 Act by the close of
business in New York City on the second business day immediately succeeding
the date of the Pricing Agreement. If the Company elects to rely on Rule 434,
the Company will provide the Underwriters with copies of the form of Rule 434
Prospectus, in such numbers as the Underwriters may reasonably request, by
the close of business in New York on the business day immediately succeeding
the date of the Pricing Agreement.
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(d) If at any time when a prospectus relating to the Shares is required
to be delivered under the 1933 Act any event occurs as a result of which the
Prospectus, including any amendments or supplements, would include an untrue
statement of a material fact, or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus, including any
amendments or supplements thereto and including any revised prospectus which
the Company proposes for use by the Underwriters in connection with the
offering of the Shares which differs from the prospectus on file with the
Commission at the time of effectiveness of the Registration Statement,
whether or not such revised prospectus is required to be filed pursuant to
Rule 424(b) to comply with the 1933 Act, the Company promptly will advise you
thereof and will promptly prepare and file with the Commission an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance; and, in case any Underwriter is required
to deliver a prospectus nine months or more after the effective date of the
Registration Statement, the Company upon request, but at the expense of such
Underwriter, will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the 1933 Act.
(e) Without the prior written consent of the Representatives, neither the
Company nor any of its subsidiaries will, prior to the earlier of the Second
Closing Date or termination or expiration of the related option, incur any
material liability or obligation, direct or contingent, or enter into any
material transaction, other than in the ordinary course of business, except
as contemplated by the Prospectus.
(f) Except for repurchase by the Company of its capital stock from
employees whose employment may terminate, neither the Company nor any of its
subsidiaries will acquire any capital stock of the Company prior to the
earlier of the Second Closing Date or termination or expiration of the
related option nor will the Company declare or pay any dividend or make any
other distribution upon the Common Stock payable to stockholders of record on
a date prior to the earlier of the Second Closing Date or termination or
expiration of the related option, except in either case as contemplated by
the Prospectus.
(g) The Company will make generally available to its security holders as
soon as reasonably practicable, and in any event not later than
_______________, 1997, a consolidated earnings statement (which need not be
audited) covering a period of at least 12 months beginning after the
effective date of the Registration Statement, which will satisfy the
provisions of the last paragraph of Section 11(a) of the 1933 Act and Rule
158.
(h) During such period as a prospectus is required by law to be delivered
in connection with offers and sales of the Shares by an Underwriter or
dealer, the Company will furnish to you at its expense, subject to the
provisions of subsection (d) hereof, copies of the Registration Statement,
the Prospectus, each preliminary prospectus and all amendments and
supplements to any such documents in each case as soon as available and in
such quantities as you may reasonably request, for the purposes contemplated
by the 1933 Act.
(i) The Company will cooperate with the Underwriters in qualifying or
registering the Shares for sale under the blue sky laws of such jurisdictions
as you reasonably designate, and will continue such qualifications in effect
so long as reasonably required for the distribution of the Shares. The
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any such jurisdiction where it is
not currently qualified or where it would be subject to taxation as a foreign
corporation.
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<PAGE>
(j) The Company will use the net proceeds received by it from the sale of
the Shares being sold by it in the manner specified in the Prospectus in all
material respects.
(k) If, at the time of effectiveness of the Registration Statement, any
information shall have been omitted therefrom in reliance upon Rule 430A
and/or Rule 434, then following the execution of the Pricing Agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A, Rule 424(b) and/or Rule 434, copies of an
amended prospectus, or, if required by such Rule 430A and/or Rule 434, a
post-effective amendment to the Registration Statement (including an amended
prospectus), containing all information so omitted. If required, the Company
will prepare and file, or transmit for filing, a Rule 462(b) Registration
Statement not later than the date of the execution of the Pricing Agreement.
If a Rule 462(b) Registration Statement is filed, the Company shall make
payment of, or arrange for payment of, the additional registration fee owing
to the Commission required by Rule 111.
(l) The Company will comply with all applicable registration, filing and
reporting requirements of the Exchange Act and the Nasdaq National Market and
will file with the Commission in a timely manner all reports on Form SR
required by Rule 463 and will furnish you copies of any such reports as soon
as practicable after the filing thereof.
Section 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as to
all of its provisions or is terminated, the Company agrees to pay (i) all costs,
fees and expenses (other than legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Company's obligations hereunder,
including without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Company and of the Company's independent
accountants, all costs and expenses incurred in connection with the preparation,
printing, filing and distribution of the Registration Statement, each
preliminary prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Pricing Agreement and the Blue Sky Memorandum, (ii) all costs,
fees and expenses (including reasonable legal fees not to exceed $18,000)
incurred by the Underwriters in connection with qualifying or registering all or
any part of the Shares for offer and sale under blue sky laws and under the laws
of certain Provinces of Canada, including the preparation of a blue sky
memorandum relating to the Shares, the attainment of NASD clearance for offering
of the Shares, and the payment of any NASD filing fee; and (iii) all fees and
expenses of the Company's transfer agent, printing of the certificates for the
Shares and all transfer taxes, if any, with respect to the sale and delivery of
the Shares to the several Underwriters.
The provisions of this Section shall not affect any agreement which the
Company and the Selling Stockholders may make for the allocation or sharing of
such expenses and costs.
Section 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company and the Selling Stockholders herein set forth as of the date hereof
and as of the First Closing Date or the Second Closing Date, as the case may be,
to the accuracy of the statements contained in the certificate of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective either prior
to the execution of this Agreement or not later than 1:00 P.M., Chicago Time,
on the first full business day after the date of this Agreement, or such
later time as shall have been consented to by you but in no event later than
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<PAGE>
1:00 P.M., Chicago Time, on the third full business day following the date
hereof; and prior to the First Closing Date or the Second Closing Date, as
the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge
of the Company, the Selling Stockholders or you, shall be contemplated by the
Commission. If the Company has elected to rely upon Rule 430A and/or Rule
434, the information concerning the initial public offering price of the
Shares and price-related information shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed period
and the Company will provide evidence satisfactory to the Representatives of
such timely filing (or a post-effective amendment providing such information
shall have been filed and declared effective in accordance with the
requirements of Rules 430A and 424(b)). If a Rule 462(b) Registration
Statement is required, such Registration Statement shall have been
transmitted to the Commission for filing and become effective within the
prescribed time period and, prior to the First Closing Date, the Company
shall have provided evidence of such filing and effectiveness in accordance
with Rule 462(b).
(b) The Shares shall have been qualified for sale under the blue sky laws
of such states as shall have been specified by the Representatives.
(c) The legality and sufficiency of the authorization, issuance and sale
or transfer and sale of the Shares hereunder, the validity and form of the
certificates representing the Shares, the execution and delivery of this
Agreement and the Pricing Agreement, and all corporate proceedings and other
legal matters incident thereto, and the form of the Registration Statement
and the Prospectus (except financial statements) shall have been approved by
counsel for the Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto, contains
an untrue statement of fact, which, in the reasonable opinion of counsel for
the Underwriters, is material or omits to state a fact which, in the opinion
of such counsel, is material and is required to be stated therein or
necessary in order to make the statements therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties
of the Company or its subsidiaries, whether or not arising in the ordinary
course of business, which, in the reasonable judgment of the Representatives,
makes it impractical or inadvisable to proceed with the public offering or
purchase of the Shares as contemplated hereby.
(f) There shall have been furnished to you, as Representatives of the
Underwriters, on the First Closing Date or the Second Closing Date, as the
case may be, except as otherwise expressly provided below:
(i) An opinion of Latham & Watkins, counsel for the Company,
addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, as the case may be, to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and Prospectus; and based solely on certificates from
public
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<PAGE>
officials, counsel shall confirm that the Company is duly qualified
to do business in each state set forth in Schedule I to such opinion;
(2) an opinion to the same general effect as clause (1) of this
subparagraph (i) in respect of RSC Holdings Inc., RSC Acquisition
Corp., Acme Dixie Inc., Acme Duval Inc. and Acme Rents, Inc., the
direct and indirect Delaware and California subsidiaries of the
Company (collectively, the "Identified Subsidiaries" and each an
"Identified Subsidiary");
(3) the issued and outstanding shares of capital stock of each
Identified Subsidiary are as set forth in Schedule II to such opinion
(the "Subsidiary Shares"). The Subsidiary Shares have been duly
authorized, validly issued and are fully paid and nonassessable.
Except as disclosed in the Registration Statement (including
contracts filed as exhibits to the Registration Statement), the
Company owns directly or indirectly all of the Subsidiary Shares and
all of the outstanding shares of capital stock of each of Acme
Alabama, Inc., The Air & Pump Company, Inc. and Walker Jones
Equipment, Inc. (collectively with the Identified Subsidiaries, the
"Subsidiaries"), and to the knowledge of such counsel, owns such
stock of the Subsidiaries free and clear of any adverse claim (as
defined in Section 8-302 of the Uniform Commercial Code);
(4) the authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and 350,000 shares of preferred
stock, par value $0.01 per share, of which based solely upon a review
of a certificate of the transfer agent and registrar and upon
issuance, delivery and payment by you and the other Underwriters for
shares of Common Stock to be issued pursuant to and in accordance
with the terms of the Underwriting Agreement and the Pricing
Agreement, ______ shares of Common Stock are outstanding as of the
date hereof (the "Capital Stock"); and such Capital Stock conforms as
to legal matters in all material respects to the description thereof
in the Prospectus under the caption "Description of Capital Stock";
(5) the Capital Stock (including the Shares), upon issuance,
delivery and payment by you and the other Underwriters for the Shares
to be issued pursuant to and in accordance with the terms of the
Underwriting Agreement and the Pricing Agreement) has been duly
authorized and validly issued and are fully paid and nonassessable;
(6) the form of certificates for the Shares to be delivered
hereunder are in due and proper form under the Delaware General
Corporation Law;
(7) the Registration Statement has become effective under the
1933 Act, and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings therefor have been initiated by the
Commission.
(8) the Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the 1933 Act;
it being understood, however, that such counsel need express no
opinion with respect to the financial statements, the notes thereto,
and the related schedules and other financial, numerical, statistical
or accounting data included in the Registration Statement or the
Prospectus;
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<PAGE>
and to such counsel's knowledge there are no leases, contracts or
documents of a character required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described or filed, as required.
In passing upon the compliance as to form of the Registration
Statement and the Prospectus, such counsel may assume that the
statements made therein are correct and complete;
(9) the statements under the captions "Management - Stock Option
Plan," "Certain Relationships and Related Transactions," "Description
of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of the
terms of the Company's capital stock, legal matters or documents
referred to therein, are accurate in all material respects;
(10) this Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by and on behalf of the Company,
and to such counsel's knowledge, no consent, approval, authorization
or order of, or filing with, any federal or Illinois or Delaware
court or governmental agency or body is required for the consummation
of the issuance and sale of the Shares by the Company pursuant to
this Agreement and the Pricing Agreement, except such as have been
obtained under the federal securities laws and such as may be
required under state securities laws in connection with the purchase
and distribution of such Shares by the Underwriters;
(11) the execution of this Agreement and the issuance of the
Shares by the Company will not contravene any of the provisions of,
or result in a default under, any agreement, franchise, license,
indenture, mortgage, deed of trust, or other instrument known to such
counsel of the Company or any of its subsidiaries or by which the
property of any of them is bound and which contravention or default
would be material to the Company and its subsidiaries taken as a
whole; or violate any of the provisions of the Company's Amended and
Restated Certificate of Incorporation or Bylaws or the DGCL or any
federal or New York statute, rule or regulation known to such counsel
to be applicable to the Company (other than federal securities laws);
and
(ii) an opinion of counsel for each of the Selling Stockholders
addressed to the Underwriters and dated the First Closing Date or the
Second Closing Date, to the effect that;
(1) this Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by or on behalf of each such
Selling Stockholder; the Agents and the Custodian for each such
Selling Stockholder have been duly and validly authorized to carry
out all transactions contemplated herein on behalf of each such
Selling Stockholder; and the performance of this Agreement and the
Pricing Agreement and the consummation of the transactions herein
contemplated by such Selling Stockholders will not result in a breach
or violation of any of the terms and provisions of, or constitute a
default under, any statute, any indenture, mortgage, deed of trust,
note agreement or other agreement or instrument known to such counsel
to which any of such Selling Stockholders is a party or by which any
are bound or to which any of the
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property of such Selling Stockholders is subject, or any order, rule
or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over any of such Selling
Stockholders or any of their properties; and no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated by
this Agreement and the Pricing Agreement in connection with the sale
of Shares to be sold by such Selling Stockholders hereunder, except
such as have been obtained under the 1933 Act and such as may be
required under applicable blue sky laws in connection with the
purchase and distribution of such Shares by the Underwriters and the
clearance of such offering with the NASD;
(2) each Selling Stockholder has full right, power and authority
to enter into this Agreement and the Pricing Agreement and to sell,
transfer and deliver the Shares to be sold on the First Closing Date
or the Second Closing Date, as the case may be, by such Selling
Stockholder hereunder and good and marketable title to such Shares so
sold, free and clear of all voting trust arrangements, liens,
encumbrances, equities, claims and community property rights
whatsoever, has been transferred to the Underwriters (who counsel may
assume to be bona fide purchasers) who have purchased such Shares
hereunder;
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of the Underwriters, at which the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although such counsel need not pass upon, and need not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus and need not make
any independent check or verification thereof, during the course of such
participation (relying as to materiality to a large extent upon the
statements of officers and other representatives of the Company), no facts
have come to such counsel's attention that causes such counsel to believe
either the Registration Statement (including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A(b) and/or Rule 434, if applicable) at the time it became effective,
insofar as it relates to such Selling Stockholder, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
or that the Prospectus, as amended or supplemented, if applicable, as of its
date and as of the First Closing Date or the Second Closing Date, as the case
may be, contained any untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
In rendering such opinion, such counsel may state that they are relying
upon the certificate of the transfer agent for the Common Stock, as to the
number of shares of Common Stock at any time or times outstanding. Such
counsel may also rely upon the opinions of other competent counsel and, as to
factual matters, on certificates of the Selling Stockholders and of officers
of the Company and of state officials, in which case their opinion is to
state that they are so doing and copies of said opinions or certificates are
to be attached to the opinion unless said opinions or certificates (or, in
the case of certificates, the information therein) have been furnished to the
Representatives in other form.
(iii) Such opinion or opinions of Sidley & Austin, counsel for the
Underwriters, dated the First Closing Date or the Second Closing Date, as the
case may be, with respect to the incorporation of the Company, the validity
of the Shares to be sold by the Company, the Registration Statement and the
Prospectus and other related matters as you may reasonably require, and the
Company shall have
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furnished to such counsel such documents and shall have exhibited to them
such papers and records as they request for the purpose of enabling them to
pass upon such matters.
(iv) A certificate of the Company executed on its behalf by the chief
executive officer and the principal financial officer of the Company, dated
the First Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(1) the representations and warranties of the Company set forth in
Section 2 of this Agreement are true and correct as of the date of this
Agreement and as of the First Closing Date or the Second Closing Date, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to such date; and
(2) to the best knowledge of the respective signers, the Commission
has not issued an order preventing or suspending the use of the
Prospectus or any preliminary prospectus filed as a part of the
Registration Statement or any amendment thereto; no stop order suspending
the effectiveness of the Registration Statement has been issued; and no
proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act.
The delivery of the certificate provided for in this subparagraph shall be
and constitute a representation and warranty of the Company as to the facts
required in the immediately foregoing clauses (1) and (2) of this subparagraph
to be set forth in said certificate.
(v) A certificate of each Selling Stockholder dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect that the
representations and warranties of such Selling Stockholder set forth in
Section 3 of this Agreement are true and correct as of such date and such
Selling Stockholder has complied with all the agreements and satisfied all
the conditions on the part of such Selling Stockholder to be performed or
satisfied at or prior to such date.
(vi) At the time the Pricing Agreement is executed and also on the First
Closing Date or the Second Closing Date, as the case may be, there shall be
delivered to you a letter addressed to you, as Representatives of the
Underwriters, from Ernst & Young LLP, independent accountants, the first one
to be dated the date of the Pricing Agreement, the second one to be dated the
First Closing Date and the third one (in the event of a second closing) to be
dated the Second Closing Date, to the effect set forth in Schedule D. There
shall not have been any material adverse change specified in the letters
referred to in this subparagraph which makes it impractical or inadvisable in
the reasonable judgment of the Representatives to proceed with the public
offering or purchase of the Shares as contemplated hereby.
(vii) Such further certificates and documents as you may reasonably
request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to Sidley & Austin, counsel for the Underwriters, which approval
shall not be unreasonably withheld. The Company shall furnish you with such
manually signed or conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification to the Company and
the Selling Stockholders without liability on the part of any Underwriter or the
Company or any Selling Stockholder,
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<PAGE>
except for the expenses to be paid or reimbursed by the Company pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
Section 9. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company or the
Selling Stockholders to perform any agreement herein or to comply with any
provision hereof, unless such failure to satisfy such condition or to comply
with any provision hereof is due to the default or omission of any Underwriter,
the Company agrees to reimburse you and the other Underwriters upon demand for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Shares. Any such termination
shall be without liability of any party to any other party except that the
provisions of this Section, Section 7 and Section 11 shall at all times be
effective and shall apply.
Section 10. Effectiveness of Registration Statement. You, the Company and
the Selling Stockholders will use your, its and their best efforts to cause the
Registration Statement to become effective, if it has not yet become effective,
and to prevent the issuance of any stop order suspending the effectiveness of
the Registration Statement and, if such stop order be issued, to obtain as soon
as possible the lifting thereof.
Section 11. Indemnification. (a) The Company and each Principal Selling
Stockholder, severally and not jointly agrees, to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the 1933 Act or the Exchange Act against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the 1933 Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise
(including in settlement of any litigation if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that neither the Company nor any
Principal Selling Stockholder will be liable in any such case to the extent that
(i) any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any preliminary prospectus, the Prospectus
or any amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Underwriter
through the Representatives, specifically for use therein; or (ii) if such
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus and (1) any such loss, claim, damage or liability
suffered or incurred by any Underwriter (or any person who controls any
Underwriter) resulted from an action, claim or suit by any person who purchased
Shares which are the subject thereof from such Underwriter in the offering and
(2) such Underwriter failed to deliver or provide a copy of the Prospectus to
such person at or prior to the confirmation of the sale of such Shares in any
case where such delivery is required by the 1933 Act and further provided, that
no Principal Selling Stockholder will be liable in any such case in respect of
any such losses, claims, damages, liabilities or expenses unless the Underwriter
or controlling person seeking indemnification from such Selling Stockholder
shall have previously sought indemnification from the Company in respect thereof
and the Company shall have failed to honor such Underwriter's or controlling
person's claim for indemnification for at least 30 calendar days (except that
the foregoing condition precendent requiring an Underwriter or a controlling
person to so seek indemnification from the Company shall not be applicable if an
Underwriter or controlling person has previously sought indemnification from the
Company with respect to such matters or if such Underwriter or controlling
person is prohibited from
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being indemnified by the Company (or from seeking such indemnification) by the
effect of any order, decree, stay, injunction, statute, legal process or other
matter of law). In addition to their other obligations under this Section
11(a), the Company and each Principal Selling Stockholder agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 11(a), they will
reimburse the Underwriters on a monthly basis for all reasonable legal and other
expenses of one counsel incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's and each Principal Selling Stockholder's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. This indemnity agreement will be in addition to any
liability which the Company and the Principal Selling Stockholders may otherwise
have.
Each Selling Stockholder who is a Non-Principal Selling Stockholder,
severally and not jointly agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
1933 Act or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter or such controlling person may
become subject under the 1933 Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise (including in settlement
of any litigation if such settlement is effected with the written consent of the
Company), to the same extent as the foregoing indemnity to each Underwriter set
forth in the immediately preceding paragraph, but only with reference to
information provided in writing by such Non-Principal Selling Stockholder to the
Company specifically for use in the preparation of the documents referred to in
the preceding paragraph.
Without limiting the full extent of the Company's agreement to indemnify each
Underwriter, as herein provided, each Selling Stockholder shall be liable under
the indemnity agreements contained in this Section 11(a) only for an amount not
exceeding the proceeds received by such Selling Stockholder from the sale of
Shares hereunder.
(b) Each Underwriter will severally indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement, and each Selling Stockholder and each person, if any, who controls
the Company within the meaning of the 1933 Act or the Exchange Act, against any
losses, claims, damages or liabilities to which the Company, or any such
director, officer, Selling Stockholder or controlling person may become subject
under the 1933 Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, any
preliminary prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto in reliance
upon and in conformity with Section 4 of this Agreement or any other written
information furnished to the Company by such Underwriter through the
Representatives specifically for use in the preparation thereof; and will
reimburse any legal or other expenses reasonably incurred by the Company, or any
such director, officer, Selling Stockholder or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action. In addition to their other obligations under this Section 11(b), the
Underwriters agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
this Section 11(b), they will reimburse the Company and the Selling Stockholders
on a monthly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any such claim,
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<PAGE>
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and the Selling Stockholders
for such expenses and the possibility that such payments might later be held to
have been improper by a court of competent jurisdiction. This indemnity
agreement will be in addition to any liability which the Underwriters may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent that
the indemnifying party was prejudiced by such failure to notify. In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, or the indemnified and indemnifying parties may have
conflicting interests which would make it inappropriate for the same counsel to
represent both of them, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defense and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defense in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
counsel, approved by the Representatives in the case of paragraph (a)
representing all Underwriters and related persons that are indemnified parties,
(ii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized in writing the employment of counsel for the indemnified party at the
expense of the indemnifying party. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability arising out of such proceeding.
(d) If the indemnification provided for in this Section is unavailable to an
indemnified party under paragraphs (a) or (b) hereof in respect of any losses,
claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
Selling Stockholders and the Underwriters from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, the Selling Stockholders and the Underwriters in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling Stockholders
and the Underwriters shall be deemed to be in the same proportion in the case of
the Company and the Selling Stockholders, as the total price paid to the Company
and the Selling Stockholders for the Shares by the Underwriters (net of
underwriting discount but before deducting expenses), and in the case of the
Underwriters as the underwriting discount received by them bears to the total of
such amounts paid to the Company and the
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<PAGE>
Selling Stockholders and received by the Underwriters as underwriting discount
in each case as contemplated by the Prospectus. The relative fault of the
Company and the Selling Stockholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company or by the Selling Stockholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action or claim.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this Section,
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of this
Agreement.
Section 12. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company and the Selling Stockholders to sell and
deliver the Shares hereunder, and of each Underwriter to purchase the Shares
hereunder, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all Shares agreed to be purchased by
such Underwriter hereunder upon tender to the Representatives of all such Shares
in accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10 percent of the total number of
Shares which the Underwriters are obligated to purchase on the First Closing
Date, the Representatives may make arrangements satisfactory to the Company and
the Selling Stockholders for the purchase of such Shares by other persons,
including any of the Underwriters, but if no such arrangements are made by such
date the nondefaulting Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the Shares which such
defaulting Underwriters agreed but failed to purchase on such date. If any
Underwriter or Underwriters so default and the aggregate number of Shares with
respect to which such default or defaults occur is more than the above
percentage and arrangements satisfactory to the Representatives and the Company
and the Selling Stockholders for the purchase of such Shares by other persons
are not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter or the Company or
the Selling Stockholders, except for the expenses to be paid by the Company
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
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<PAGE>
Section 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11 and 14 and as to all other provisions at
10:00 A.M., Chicago Time, on the day following the date upon which the Pricing
Agreement is executed and delivered, unless such a day is a Saturday, Sunday or
holiday (and in that event this Agreement shall become effective at such hour on
the business day next succeeding such Saturday, Sunday or holiday); but this
Agreement shall nevertheless become effective at such earlier time after the
Pricing Agreement is executed and delivered as you may determine on and by
notice to the Company and the Selling Stockholders or by release of any Shares
for sale to the public. For the purposes of this Section, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams (i) advising Underwriters that the Shares are released for public
offering, or (ii) offering the Shares for sale to securities dealers, whichever
may occur first.
Section 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you and
the Selling Stockholders or by you by notice to the Company and the Selling
Stockholders at any time prior to the time this Agreement shall become
effective as to all its provisions, and any such termination shall be without
liability on the part of the Company, or the Selling Stockholders to any
Underwriter (except for the expenses to be paid or reimbursed pursuant to
Section 7 hereof and except to the extent provided in Section 11 hereof) or
of any Underwriter to the Company, or the Selling Stockholders.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option referred to in Section 5, if exercised, may be
canceled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such exchange, or (ii) a
banking moratorium shall have been declared by Illinois, New York, or United
States authorities, or (iii) there shall have been any change in financial
markets or in political, economic or financial conditions which, in the
opinion of the Representatives, materially and adversely affects the market
for the Shares, or (iv) there shall have been an outbreak of major armed
hostilities between the United States and any foreign power which in the
reasonable opinion of the Representatives makes it impractical or inadvisable
to offer or sell the Shares. Any termination pursuant to this paragraph (b)
shall be without liability on the part of any Underwriter to the Company or
the Selling Stockholders or on the part of the Company to any Underwriter or
the Selling Stockholders (except for expenses to be paid or reimbursed
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof).
Section 15. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company of the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, principals, members,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Shares sold
hereunder.
Section 16. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or telegraphed and
confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606, with a copy to Sidley & Austin, One First National
Plaza, Chicago, Illinois, Attention: Larry Barden, Esq.; if sent to the Company
will be mailed, delivered or telegraphed and confirmed to the Company at its
corporate headquarters with a copy to Latham & Watkins, 633 West Fifth Street,
Suite 4000, Los Angeles, California 90071, Attention: Elizabeth A. Blendell,
Esq.; and if sent to the Selling Stockholders will be mailed, delivered or
telegraphed and confirmed to the Agents and the Custodian at such
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<PAGE>
address as they have previously furnished to the Company and the
Representatives, with a copy to _______________________________.
Section 17. Successors. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section 11,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
Section 18. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters and as such may be relied upon by the Company.
Section 19. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
Section 20. Counterparts. This Agreement may be executed in one or more
counterparts, and all counterparts so executed shall constitute one agreement.
Section 21. Applicable Law. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
* * * *
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
RENTAL SERVICE CORPORATION
By___________________________________
Chief Executive Officer
MARTIN R. REID
_____________________________________
By: Attorney-in-Fact
DOUGLAS A. WAUGAMAN
_____________________________________
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<PAGE>
By: Attorney-in-Fact
HELLER FINANCIAL, INC.
_____________________________________
By: Attorney-in-Fact
THOMAS R. LAMIA
_____________________________________
By: Attorney-in-Fact
JOHN F. JASTREM
_____________________________________
By: Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
William Blair & Company, L.L.C.
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
Acting as Representatives of the
several Underwriters named in
Schedule A
By William Blair & Company, L.L.C.
By______________________________
Principal
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<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
William Blair & Company, L.L.C.
Donaldson Lufkin & Jenrette Securities Corporation
_________
Total 4,929,000
=========
<PAGE>
SCHEDULE B
Number of Number of
Firm Shares Option Shares
to be Sold to be Sold
----------- -------------
Company 4,659,000 712,163
Principal Selling Stockholders:
- ------------------------------
Martin R. Reid................... 32,683 20,653
Douglas A. Waugaman.............. 0 6,534
Non-Principal Selling Stockholders:
- ----------------------------------
Heller Financial, Inc............ 81,810 0
Thomas R. Lamia.................. 93,285 0
John F. Jastrem.................. 62,222 0
--------- -------
Total 4,929,000 739,350
========= =======
<PAGE>
SCHEDULE C
Comfort Letter of Ernst & Young LLP
(1) They are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the 1933 Act.
(2) In their opinion the consolidated financial statements and
schedules of the Company and its subsidiaries included in the Registration
Statement and the consolidated financial statements of the Company from which
the information presented under the caption "Selected Consolidated Financial
Information and Operating Data" has been derived which are stated therein to
have been examined by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act .
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to December 31,
1995, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since December 31, 1995, a reading of the latest
available interim unaudited consolidated financial statements of the Company and
its subsidiaries (with an indication of the date thereof) and other procedures
as specified in such letter, nothing came to their attention which caused them
to believe that (i) the unaudited consolidated financial statements of the
Company and its subsidiaries included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act or that such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, (ii) the unaudited pro forma
financial statements included in the Registration Statement do not comply in
form in all material respects with the applicable accounting requirements of
Rule 11-02 of Regulation S-X and the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of such statements
and (iii) at a specified date not more than five days prior to the date thereof
in the case of the first letter and not more than two business days prior to the
date thereof in the case of the second and third letters, there was any change
in the capital stock or long-term debt or short-term debt (other than normal
payments) of the Company and its subsidiaries on a consolidated basis or any
decrease in consolidated net current assets or consolidated stockholders' equity
as compared with amounts shown on the latest unaudited balance sheet of the
Company included in the Registration Statement or for the period from the date
of such balance sheet to a date not more than five days prior to the date
thereof in the case of the first letter and not more than two business days
prior to the date thereof in the case of the second and third letters, there
were any decreases, as compared with the corresponding period of the prior year,
in equipment rentals or sales of parts, supplies and equipment, consolidated
operating income or in the total or per share amounts of consolidated net income
except, in all instances, for changes or decreases which the Prospectus
discloses have occurred or may occur or which are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed
to by the Representatives, with respect to certain information in the Prospectus
specified by the Representatives, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records of
the Company and its subsidiaries.
<PAGE>
Exhibit A
RENTAL SERVICE CORPORATION
4,929,000 Shares Common Stock/2/
PRICING AGREEMENT
_________________, 1996
William Blair & Company, L.L.C.
Donaldson Lufkin & Jenrette Securities Corporation
As Representatives of the Several
Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated
_________________, 1996 (the "Underwriting Agreement") relating to the sale by
the Company and the Selling Stockholders and the purchase by the several
Underwriters for whom William Blair & Company, L.L.C. and Donaldson Lufkin &
Jenrette Securities Corporation are acting as representatives (the
"Representatives"), of the above Shares. All terms herein shall have the
definitions contained in the Underwriting Agreement except as otherwise defined
herein.
Pursuant to Section 5 of the Underwriting Agreement, the Company and
each of the Selling Stockholders agree with the Representatives as follows:
1. The initial public offering price per share for the Shares shall
be $__________.
2. The purchase price per share for the Shares to be paid by the
several Underwriters shall be $_____________, being an amount equal to the
initial public offering price set forth above less $____________ per share.
Schedule A is amended as follows:
- -----------
/2/Plus an option to acquire up to 739,350 additional shares to cover
overallotments
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters, including you, all in accordance with
its terms.
Very truly yours,
RENTAL SERVICE CORPORATION
By______________________________
Chief Executive Officer
MARTIN R. REID
________________________________
By: Attorney-in-Fact
DOUGLAS A. WAUGAMAN
________________________________
By: Attorney-in-Fact
HELLER FINANCIAL, INC.
________________________________
By: Attorney-in-Fact
THOMAS R. LAMIA
________________________________
By: Attorney-in-Fact
JOHN F. JASTREM
________________________________
By: Attorney-in-Fact
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
William Blair & Company, L.L.C.
Donaldson Lufkin & Jenrette Securities Corporation
Acting as Representatives of the
several Underwriters
By William Blair & Company, L.L.C.
By_______________________________
Principal
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RENTAL SERVICE CORPORATION
The undersigned, Martin R. Reid and Douglas A. Waugaman, certify that
they are the Chief Executive Officer and Secretary, respectively, of Rental
Service Corporation, a corporation existing under the laws of the State of
Delaware which was originally incorporated under the name Acme Acquisition
Holdings Corp. on June 28, 1993 (the "Corporation"), and do hereby further
certify as follows:
(1) The name of the Corporation is Rental Service Corporation;
(2) The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on June 28, 1993,
and was amended by Certificates of Amendment filed with the Secretary
of State of the State of Delaware on September 12, 1995 and
December 7, 1995;
(3) The stockholders of the Corporation have adopted this Amended and
Restated Certificate of Incorporation by written consent given in
accordance with Section 228 of the General Corporation Law of the
State of Delaware, and this Amended and Restated Certificate of
Incorporation has been duly adopted in accordance with Sections 242
and 245 of the General Corporation Law of the State of Delaware; and
(4) The text of the Certificate of Incorporation of the Corporation as
amended hereby is restated to read in its entirety as follows:
FIRST: The name of the corporation is Rental Service Corporation
(hereinafter called the "Corporation").
SECOND: The address, including street, number, city, county and zip
code, of the registered office of the Corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover, County of Kent, 19901; and the
name of the registered agent of the Corporation in the State of Delaware at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty million five hundred
thousand (20,500,000),
<PAGE>
consisting of twenty million (20,000,000) shares of Common Stock, par value $.01
per share, and five hundred thousand (500,000) shares of Preferred Stock, par
value $.01 per share. On the effective date of this Amended and Restated
Certificate of Incorporation, each then outstanding share of Common Stock is
split-up, divided and converted into forty five (45) shares of Common Stock.
The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. Other than with respect to the 6% Cumulative
Preferred Stock referenced below, the Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions
(including without limitation voting rights) granted to and imposed upon the
Preferred Stock or any series thereof with respect to any wholly unissued class
or series of Preferred Stock, and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
any series then outstanding) the number of shares of any series subsequent to
the issue of shares of that series.
FIFTH: The following is a statement of the designations and the
powers, preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of the 6% Cumulative Preferred Stock:
1. Designation. A series of the Preferred Stock of the Corporation
-----------
is hereby designated as "6% Cumulative Preferred Stock" (hereinafter called the
"Cumulative Preferred Stock") consisting initially of three hundred fifty
thousand (350,000) shares. Shares of the Cumulative Preferred Stock shall rank
prior to the Corporation's Common Stock, par value $.01 per share, with respect
to the payment of dividends and upon liquidation, dissolution, winding-up or
otherwise. Unless specifically designated as junior to the Cumulative Preferred
Stock with respect to the payment of dividends or upon liquidation, dissolution,
winding-up or otherwise, all other series of Preferred Stock and other classes
of preferred stock of the Corporation shall rank on parity with the Cumulative
Preferred Stock with respect thereto.
2. Dividends.
---------
(a) Each holder of shares of Cumulative Preferred Stock shall be
entitled to receive dividends on each such share at the rate of six percent (6%)
per annum (computed on the basis of $100.00 per share), when and as declared by
the Board of Directors of the Corporation, out of funds legally available for
the payment of dividends, in respect of the period from and including the date
of the original issuance of each such share of Cumulative Preferred Stock with
respect to each such share to and including September 30, 1993 (the "Initial
Dividend Period"), and for each quarterly dividend period thereafter (a
"Quarterly Dividend Period"), which Quarterly Dividend Periods shall Commence on
July 1, October 1, January 1, and April 1 in each year and shall end on and
include the day immediately preceding the first day of the next Quarterly
Dividend Period. Dividends on the shares of Cumulative Preferred Stock shall be
payable on June 30, September 30, December 31, and March 31 of each year (a
"Dividend Payment Date"), commencing September 30, 1993. Each such dividend
shall be paid to the
2
<PAGE>
holders of record of the Cumulative Preferred Stock as they shall appear on the
stock register of the Corporation on such record date, not exceeding 45 days nor
less than 10 days preceding such Dividend Payment Date, as shall be fixed by the
Board of Directors of the Corporation or a duly authorized committee thereof.
If, on any Dividend Payment Date, the holders of the Cumulative
Preferred Stock shall not have received the full dividends provided for in this
Section 2 in cash then such dividends shall cumulate, whether or not earned or
declared, with additional dividends thereon, compounded quarterly, at the
dividend rate of six percent (6%) per annum, for each succeeding full Quarterly
Dividend Period during which such dividends shall remain unpaid.
(b) The amount of any dividends accrued on any share of the
Cumulative Preferred Stock on any Dividend Payment Date shall be deemed to be
the amount of any unpaid dividends accumulated thereon, to and including such
Dividend Payment Date, whether or not earned or declared. The amount of
dividends accrued on any share of the Cumulative Preferred Stock on any date
other then a Dividend Payment Date shall be deemed to be the sum of (i) the
amount of any unpaid dividends accumulated, thereon to and including the last
preceding Dividend Payment Date, whether or not earned or declared, (ii) an
amount determined by multiplying (a) $100.00 by (b) the result (the
"Multiplier") of multiplying one and one-half percent (1.5%) per annum by a
fraction, the numerator of which shall be the number of days from the last
preceding Dividend Payment Date, to and including the date on which such
calculation is made, and the denominator of which shall be the full number of
days in such Quarterly Dividend Period, and (iii) an amount determined by
multiplying the amount set forth in clause (i) above by the Multiplier.
(c) Declaration Prior to Redemption or Liquidation. Immediately
----------------------------------------------
prior to authorizing or making any distribution in redemption or liquidation
with respect to the Cumulative Preferred Stock (other than a purchase or
acquisition of Cumulative Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Cumulative Preferred
Stock), the Board of Directors shall, to the extent of any funds legally
available therefor, declare a dividend in cash on the Cumulative Preferred Stock
payable on the distribution date in the amount equal to any accrued and unpaid
dividends on the Cumulative Preferred Stock as of such date.
3. Redemption.
----------
(a) Optional Redemption. The Cumulative Preferred Stock may be
-------------------
redeemed, in whole or in part, at any time at the election of the Corporation by
resolution of its Board of Directors, on notice as set forth in Section 3(c),
below, at the redemption price of $100.00 per share of Cumulative Preferred
Stock, plus accrued and unpaid dividends to the redemption date (the "Redemption
Price").
3
<PAGE>
In the event that at any time less than all of the Cumulative
Preferred Stock outstanding is to be redeemed, the shares to be redeemed will be
selected by lot or pro rata, except that if the redemption is pro rata, the
Corporation may redeem all shares of Cumulative Preferred Stock held by all
holders of 100 or fewer shares as may be specified by the Corporation.
Notwithstanding anything to the contrary, the Corporation may not redeem less
than all of the Cumulative Preferred Stock outstanding unless all accrued and
unpaid dividends have been paid on all then outstanding shares of Cumulative
Preferred Stock.
(b) Mandatory Redemption. Upon the sale of the Corporation,
--------------------
whether such sale is effected by the consolidation or merger of the Corporation
with or into another corporation or corporations, the sale of all or
substantially all of the Corporation's assets, or the sale or exchange of stock
representing at least eighty percent (80%) of the voting power of the stock of
the Corporation, in terms of number of votes for the election of directors, the
Corporation, if permitted by law and under the Corporation's agreements, shall
redeem all remaining outstanding shares of Cumulative Preferred Stock at a
redemption price per share equal to the Redemption Price.
(c) Notice of Redemption. Notice of any redemption pursuant to
--------------------
this Section 3 shall be mailed, postage prepaid, at least 15 days but not more
than 60 days prior to said redemption date to each holder of record of the
Cumulative Preferred Stock to be redeemed at its address as the same shall
appear on the stock register of the Corporation. Each such notice shall state:
(i) the date fixed for such redemption, (ii) the place or places where
certificates for such shares of Cumulative Preferred Stock are to be surrendered
for payment, (iii) the Redemption Price, and (iv) that unless the Corporation
defaults in making the redemption payment, dividends on the shares of Cumulative
Preferred Stock called for redemption shall cease to accrue on and after the
date of redemption. If less than all the shares of the Cumulative Preferred
Stock owned by such holder are then to be redeemed, such notice shall also
specify the number of shares thereof which are to be redeemed and the numbers of
the certificates representing such shares.
If such notice of redemption shall have been so mailed and if
prior to the date of redemption specified in such notice all said funds
necessary for such redemption shall have been irrevocably deposited in trust,
for the account of the holders of the shares of the Cumulative Preferred Stock
to be redeemed (and so as to be and continue to be available therefor), with a
bank or trust company named in such notice doing business in Los Angeles,
California and having capital surplus and undivided profits of at least
$50,000,000, thereupon, and without awaiting the redemption date, all shares of
the Cumulative Preferred Stock with respect to which such notice shall have been
so mailed and such deposit shall have been so made, shall, notwithstanding that
any certificate for shares of Cumulative Preferred Stock shall not have been
surrendered for cancellation, be deemed to be no longer outstanding and all
rights with respect to such shares of the Cumulative Preferred Stock shall
forthwith upon such deposit in trust cease and terminate, except for the right
of the holders thereof on or after the redemption date to receive from such
deposit the amount payable upon the redemption, but without interest. In case
the holders of shares of the Cumulative Preferred Stock which shall have been
called for redemption shall not within two years (or any longer period if
required by law) after the redemption date claim any amount so deposited in
trust for the redemption of such
4
<PAGE>
shares, such bank or trust company shall, if permitted by applicable law, pay
over to the Corporation any such unclaimed amount so deposited with it, and
shall thereupon be relieved of all responsibility in respect thereof, and
thereafter the holders os such shares shall, subject to applicable escheat laws,
look only to the Corporation for payment of the redemption price thereof, but
without interest.
(d) Status of Shares. Shares of Cumulative Preferred Stock
----------------
redeemed, purchased or otherwise acquired for value by the Corporation shall,
after such acquisition, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as shares of
any series of Preferred Stock, other than shares of Cumulative Preferred Stock.
4. Priority.
--------
(a) Priority as to Dividends. Subject to section 4(b), no
------------------------
dividends (other than dividends payable in Common Stock or in another stock
ranking, with respect to the payment of dividends and upon liquidation,
dissolution, winding-up or otherwise, junior to, or on a parity with, the
Cumulative Preferred Stock) shall be declared or paid or set apart for payment
on the Preferred Stock of any series, or stock of any other class which, in
either case, ranks, as to dividends and upon liquidation, dissolution, winding
up or otherwise, (x) junior to the Cumulative Preferred Stock ("Junior Stock")
or (y) on a parity with the Cumulative Preferred Stock ("Parity Stock") for any
period unless at the time of such declaration or payment or setting apart for
payment (i) full cumulative dividends have been or contemporaneously are
declared and paid (or declared and a sum sufficient for the payment thereof set
apart for such payment) on the Cumulative Preferred Stock for all Quarterly
Dividend Periods terminating on or prior to the date of payment of such
dividends on Junior Stock or Parity Stock, (ii) the Corporation shall not be in
default with respect to any obligation to redeem or return shares of Cumulative
Preferred Stock, and (iii) an amount equal to the dividends accrued on the
Cumulative Preferred Stock from the last Dividend Payment Date to the date of
payment of such dividends on Junior Stock or Parity Stock has been declared and
set apart in cash for payment on the Cumulative Preferred Stock.
(b) Notwithstanding anything to the contrary in Section 4(a)
hereof, cumulative dividends on any Parity Stock may be paid if cumulative
dividends shall be declared upon shares of Cumulative Preferred Stock and such
Parity Stock on a pro rata basis so that in all cases the amount of dividends
--- ----
declared per share on the Cumulative Preferred Stock and such Parity Stock shall
bear to each other the same ratio that accrued dividends per share on the shares
of Cumulative Preferred Stock and on such Parity Stock bear to each other.
(c) Priority on Redemption. The Corporation shall not, directly
----------------------
or indirectly, redeem or purchase or otherwise acquire for value any Junior
Stock or Parity Stock unless, at the time of making such redemption, purchase or
other acquisition the Corporation shall have redeemed, or shall
contemporaneously redeem, all of the then outstanding shares of Cumulative
Preferred Stock at the applicable redemption price (or shall have irrevocably
committed to redeem all of the then outstanding shares of Cumulative Preferred
Stock and have
5
<PAGE>
set aside a sum sufficient for the payment thereof at the applicable Redemption
Price on the date of such subsequent redemption).
5. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of shares of the Cumulative Preferred Stock shall be
entitled to receive for each share of Cumulative Preferred Stock then held, out
of the assets of the Corporation, whether such assets are capital or surplus and
whether or not any dividends as such are declared, the applicable Redemption
Price on the date fixed for distribution, and no more, before any distribution
shall be made to the holders of the Common Stock or Junior Stock with respect to
the distribution of assets.
If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the assets of the Corporation distributable
among the holders of all outstanding shares of the Cumulative Preferred Stock
and of any Parity Stock shall be insufficient to permit the payment in full to
such holders of the preferential amounts to which they are entitled, then the
entire assets of the Corporation remaining after the payment or provision for
payment of the debts and other liabilities of the Corporation shall be
distributed among the holders of the Cumulative Preferred Stock and of any
Parity Stock ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
(b) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a payment
date and the place where the distributive amounts shall be payable, shall be
given by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to the holders of record of the Cumulative Preferred Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
(c) No payment on account of such liquidation, dissolution or
winding up of the affairs of the Corporation shall be made to the holders of any
Parity Stock, unless there shall likewise be paid at the same time to the
holders of the Cumulative Preferred Stock like proportionate distributive
amounts, ratably, in proportion to the full distributive amounts to which they
and the holders of such Parity Stock are respectively entitled with respect to
such preferential distribution.
6. Voting Rights.
-------------
(a) General Voting Rights. Except as otherwise required by law,
---------------------
the holders of the Cumulative Preferred Stock shall be entitled to vote along
with the Common Stock (and not as a separate class) on all matters and shall be
entitled to one vote per share of Cumulative Preferred Stock.
6
<PAGE>
SIXTH: The following is a statement of the designations and powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the Common Stock:
1. Dividends. Subject to the preferential rights, if any, of the
---------
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of Common Stock.
2. Voting Rights. Except as otherwise required by law, at every
-------------
annual or special meeting of stockholders of the Corporation, every holder of
Common Stock shall be entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his name on the books of the Corporation.
3. Liquidation, Dissolution or Winding-Up. In the event of any
--------------------------------------
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.
SEVENTH: The number of directors which shall constitute the whole
Board of Directors shall be fixed by, or in the manner provided in, the Bylaws
of the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation.
NINTH: The Corporation is to have perpetual existence.
TENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision contained in this
Amended and Restated Certificate of Incorporation (including provisions as may
hereafter be added or inserted in this Amended and Restated Certificate of
Incorporation as authorized by the laws of the State of Delaware) in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Amended and Restated Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the right reserved in this Article TENTH.
ELEVENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware (or any
successor section), as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities, or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be
7
<PAGE>
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person. No amendment or repeal of this Article ELEVENTH shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
TWELFTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided that this Article TWELFTH shall not eliminate or limit the
liability of a director (i) for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which such director derives an improper
personal benefit. If the General Corporation Law of the State of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware as so amended. No
amendment to or repeal of this Article TWELFTH shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions occurring prior to such amendment or
repeal.
THIRTEENTH: No stockholders, as such, shall have any preemptive right
to subscribe to an additional issue of stock or to any security convertible into
such stock.
FOURTEENTH: Election of directors at an annual or special meeting of
stockholders need not be by written ballot unless the Bylaws of the Corporation
shall so provide.
8
<PAGE>
IN WITNESS WHEREOF, Rental Service Corporation has caused this Amended
and Restated Certificate of Incorporation to be signed by Martin R. Reid, its
Chief Executive Officer, and attested to by Douglas A. Waugaman, its Secretary,
as of this 20th day of August, 1996.
RENTAL SERVICE CORPORATION
By: /s/ MARTIN R. REID
---------------------------------
Martin R. Reid
Chief Executive Officer
ATTEST:
By: /s/ DOUGLAS A. WAUGAMAN
-----------------------------
Douglas A. Waugaman
Secretary
9
<PAGE>
EXHIBIT 5.1
LATHAM & WATKINS
Attorneys At Law
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Telephone (213) 485-1234
Fax (213) 891-8763
August 22, 1996
Rental Service Corporation
14505 N. Hayden Road, Suite 322
Scottsdale, Arizona 85260
Re: Registration Statement on Form S-1 (File No. 333-05949)
5,668,350 Shares of Common Stock, par value $.01 per share
----------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of 5,668,350 shares of common
stock, par value $.01 per share (the "Shares") of Rental Service Corporation, a
Delaware corporation (the "Company"), under the Securities Act of 1933, as
amended, pursuant to a Registration Statement on Form S-1 (File No. 333-05949)
filed with the Securities and Exchange Commission (the "Commission") on June 13,
1996, as amended by Amendment No. 1 filed with the Commission on July 31, 1996
and Amendment No. 2 filed with the Commission on August 22, 1996 (collectively,
the "Registration Statement"), you have requested our opinion with respect to
the matters set forth below.
<PAGE>
LATHAM & WATKINS
Rental Service Corporation
August 22, 1996
Page 2
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the Shares,
and for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware and we express no
opinion with respect to the applicability thereto, or the effect thereon, of any
other laws or as to any matters of municipal law or the laws of any local
agencies within the state.
Subject to the foregoing, it is our opinion that as of the date hereof
the Shares have been duly authorized, and upon issuance, delivery and payment
therefor in the manner contemplated by the Registration Statement, will be
validly issued, fully paid and nonassessable.
We consent to you filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 10.25
AMENDMENT TO
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDMENT, dated as of August ___, 1996, to the Amended Incentive
Stock Option Agreement, dated as of July 25, 1995 (the "Option Agreement"), is
made by and between Rental Service Corporation, a Delaware corporation,
hereinafter referred to as the "Company," and the employee of the Company or a
Parent Corporation or Subsidiary of the Company who is named on the signature
page hereto, hereinafter referred to as "Employee." Capitalized terms used
herein without definition shall have the same meanings as in the Option
Agreement.
WHEREAS, the Company and Employee have heretofore entered into the
Option Agreement;
WHEREAS, the Option Agreement did not accurately reflect the terms of
exercisability of the Option; and
WHEREAS, the Company and Employee desire to amend the Option Agreement
to correct the terms of exercisability of the Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Commencement of Exercisability. Section 3.1 of the Option
------------------------------
Agreement is hereby amended to read as follows:
"(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 28.23% shall become exercisable on January 26, 1996;
(ii) 17.95% shall become exercisable on December 31, 1996;
(iii) 17.94% shall become exercisable on December 31, 1997;
(iv) 17.94% shall become exercisable on December 31, 1998; and
(v) 17.94% shall become exercisable on December 31, 1999.
(b) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Region has reached certain financial objectives as
compared to the otherwise scheduled to become exercisable in 1998 and 1999
shall become exercisable as follows on a date determined by the Committee
following the end of each of fiscal
<PAGE>
1996 (in the case of the 1998 installment) and fiscal 1997 (in the case of
the 1999 installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(c) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Employee has reached certain individual objectives
based upon the Employee's contributions to the growth of the business by
acquisitions coldstarts or internal growth during each of fiscal 1996 and
1997, portions of the installments otherwise scheduled to become
exercisable in 1998 and 1999 shall become exercisable as follows on a date
determined by the Committee following the end of each of fiscal 1996 (in
the case of the 1998 installment) and fiscal 1997 (in the case of the 1999
installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable."
2. Effect of Amendment. The Option Agreement is hereby ratified and
-------------------
confirmed in all respects, and all terms, conditions and provisions of the
Option Agreement, except as amended by this Amendment, shall remain in full
force and effect.
3. Governing Law. This Amendment shall be administered, interpreted
-------------
and enforced under the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto as of the date first written above.
RENTAL SERVICE CORPORATION
By /s/Martin R. Reid
------------------------
Martin R. Reid
Chief Executive Officer
By /s/Douglas A. Waugaman
------------------------
Douglas A. Waugaman
Secretary
------------------------
[Employee]
3
<PAGE>
EXHIBIT 10.26
AMENDMENT TO
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDMENT, dated as of August ___, 1996, to the Amended Incentive
Stock Option Agreement, dated as of July 25, 1995 (the "Option Agreement"), is
made by and between Rental Service Corporation, a Delaware corporation,
hereinafter referred to as the "Company," and the employee of the Company or a
Parent Corporation or Subsidiary of the Company who is named on the signature
page hereto, hereinafter referred to as "Employee." Capitalized terms used
herein without definition shall have the same meanings as in the Option
Agreement.
WHEREAS, the Company and Employee have heretofore entered into the
Option Agreement;
WHEREAS, the Option Agreement did not accurately reflect the terms of
exercisability of the Option; and
WHEREAS, the Company and Employee desire to amend the Option Agreement
to correct the terms of exercisability of the Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Commencement of Exercisability. Section 3.1 of the Option
------------------------------
Agreement is hereby amended to read as follows:
"(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 21.51% shall become exercisable on January 26, 1996;
(ii) 19.63% shall become exercisable on December 31, 1996;
(iii) 19.62% shall become exercisable on December 31, 1997;
(iv) 19.62% shall become exercisable on December 31, 1998; and
(v) 19.62% shall become exercisable on December 31, 1999.
(b) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Region has reached certain financial objectives as
compared to the Branch Operating Profit Plan for fiscal 1996 and 1997,
portions of the installments otherwise scheduled to become exercisable in
1998 and 1999 shall become exercisable as follows on a date determined by
the Committee following the end of each of fiscal
<PAGE>
1996 (in the case of the 1998 installment) and fiscal 1997 (in the case of
the 1999 installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(c) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Employee has reached certain individual objectives
based upon the Employee's contributions to the growth of the business by
acquisitions coldstarts or internal growth during each of fiscal 1996 and
1997, portions of the installments otherwise scheduled to become
exercisable in 1998 and 1999 shall become exercisable as follows on a date
determined by the Committee following the end of each of fiscal 1996 (in
the case of the 1998 installment) and fiscal 1997 (in the case of the 1999
installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable."
2. Effect of Amendment. The Option Agreement is hereby ratified and
-------------------
confirmed in all respects, and all terms, conditions and provisions of the
Option Agreement, except as amended by this Amendment, shall remain in full
force and effect.
3. Governing Law. This Amendment shall be administered, interpreted
-------------
and enforced under the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto as of the date first written above.
RENTAL SERVICE CORPORATION
By /s/ Martin R. Reid
------------------------------------
Martin R. Reid
Chief Executive Officer
By /s/ Douglas A. Waugaman
------------------------------------
Douglas A. Waugaman
Secretary
---------------------------------------
[Employee]
3
<PAGE>
EXHIBIT 10.27
AMENDMENT TO
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDMENT, dated as of August ___, 1996, to the Amended Incentive
Stock Option Agreement, dated as of July 25, 1995 (the "Option Agreement"), is
made by and between Rental Service Corporation, a Delaware corporation,
hereinafter referred to as the "Company," and the employee of the Company or a
Parent Corporation or Subsidiary of the Company who is named on the signature
page hereto, hereinafter referred to as "Employee." Capitalized terms used
herein without definition shall have the same meanings as in the Option
Agreement.
WHEREAS, the Company and Employee have heretofore entered into the
Option Agreement;
WHEREAS, the Option Agreement did not accurately reflect the terms of
exercisability of the Option; and
WHEREAS, the Company and Employee desire to amend the Option Agreement
to correct the terms of exercisability of the Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Commencement of Exercisability. Section 3.1 of the Option
------------------------------
Agreement is hereby amended to read as follows:
"(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 33.33% shall become exercisable on January 26, 1996;
(ii) 16.67% shall become exercisable on December 31, 1996;
(iii) 16.67% shall become exercisable on December 31, 1997;
(iv) 16.67% shall become exercisable on December 31, 1998; and
(v) 16.66% shall become exercisable on December 31, 1999.
(b) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Region has reached certain financial objectives as
compared to the Branch Operating Profit Plan for fiscal 1996 and 1997,
portions of the installments otherwise scheduled to become exercisable in
1998 and 1999 shall become exercisable as follows on a date determined by
the Committee following the end of each of fiscal
<PAGE>
1996 (in the case of the 1998 installment) and fiscal 1997 (in the case of
the 1999 installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(c) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Employee has reached certain individual objectives
based upon the Employee's contributions to the growth of the business by
acquisitions coldstarts or internal growth during each of fiscal 1996 and
1997, portions of the installments otherwise scheduled to become
exercisable in 1998 and 1999 shall become exercisable as follows on a date
determined by the Committee following the end of each of fiscal 1996 (in
the case of the 1998 installment) and fiscal 1997 (in the case of the 1999
installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable."
2. Effect of Amendment. The Option Agreement is hereby ratified and
-------------------
confirmed in all respects, and all terms, conditions and provisions of the
Option Agreement, except as amended by this Amendment, shall remain in full
force and effect.
3. Governing Law. This Amendment shall be administered, interpreted
-------------
and enforced under the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto as of the date first written above.
RENTAL SERVICE CORPORATION
By /s/ Martin R. Reid
------------------------
Martin R. Reid
Chief Executive Officer
By /s/ Douglas A. Waugaman
------------------------
Douglas A. Waugaman
Secretary
------------------------
[Employee]
<PAGE>
EXHIBIT 10.28
AMENDMENT TO
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDMENT, dated as of August ___, 1996, to the Amended Incentive
Stock Option Agreement, dated as of July 25, 1995 (the "Option Agreement"), is
made by and between Rental Service Corporation, a Delaware corporation,
hereinafter referred to as the "Company," and the employee of the Company or a
Parent Corporation or Subsidiary of the Company who is named on the signature
page hereto, hereinafter referred to as "Employee." Capitalized terms used
herein without definition shall have the same meanings as in the Option
Agreement.
WHEREAS, the Company and Employee have heretofore entered into the
Option Agreement;
WHEREAS, the Option Agreement did not accurately reflect the terms of
exercisability of the Option; and
WHEREAS, the Company and Employee desire to amend the Option Agreement
to correct the terms of exercisability of the Option.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Commencement of Exercisability. Section 3.1 of the Option
------------------------------
Agreement is hereby amended to read as follows:
"(a) Subject to Sections 3.5 and 5.6, the shares granted under this
Option shall become exercisable as follows:
(i) 33.33% shall become exercisable on January 26, 1996;
(ii) 16.67% shall become exercisable on December 31, 1996;
(iii) 16.67% shall become exercisable on December 31, 1997;
(iv) 16.67% shall become exercisable on December 31, 1998; and
(v) 16.66% shall become exercisable on December 31, 1999.
(b) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Employee has reached certain individual objectives
relating to the Employee's performance for fiscal 1996 and 1997, portions
of the installments otherwise scheduled to become exercisable in 1998 and
1999 shall become exercisable as follows on a date determined by the
Committee following the end of each of fiscal 1996 (in the case of the 1998
installment) and fiscal 1997 (in the case of the 1999 installment):
<PAGE>
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(c) Notwithstanding the foregoing, if the Committee determines in its
sole discretion that the Company has reached certain financial objectives
based upon the Company's success in meeting its annual consolidated EBITA
plan during each of fiscal 1996 and 1997, portions of the installments
otherwise scheduled to become exercisable in 1998 and 1999 shall become
exercisable as follows on a date determined by the Committee following the
end of each of fiscal 1996 (in the case of the 1998 installment) and fiscal
1997 (in the case of the 1999 installment):
1998 installment - 50% of such installment
1999 installment - 50% of such installment
(d) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable."
2. Effect of Amendment. The Option Agreement is hereby ratified and
-------------------
confirmed in all respects, and all terms, conditions and provisions of the
Option Agreement, except as amended by this Amendment, shall remain in full
force and effect.
3. Governing Law. This Amendment shall be administered, interpreted
-------------
and enforced under the laws of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the parties hereto as of the date first written above.
RENTAL SERVICE CORPORATION
By /s/ Martin R. Reid
-------------------------------------
Martin R. Reid
Chief Executive Officer
By /s/ Douglas A. Waugaman
------------------------------------
Douglas A. Waugaman
Secretary
---------------------------------------
[Employee]
3
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 4,541,944 4,337,820 4,116,412 4,000,320 5,296,713
Net effect of common
stock, common stock
options and warrants
issued at less than IPO
price within twelve
months, based on the
treasury stock method:
Common stock........... 845,234 845,234 726,704 845,234 9,360
Options................ 148,185 148,185 148,185 148,185 136,980
Warrants............... 59,067 59,067 59,067 59,067 59,067
----------- ----------- ----------- ---------- -----------
5,594,430 5,390,306 5,050,368 5,052,806 5,502,120
=========== =========== =========== ========== ===========
Income (loss) before
extraordinary item..... $ (294,000) $ 1,976,000 $ 3,715,000 $1,918,000 $ 1,227,000
Preferred stock
accretion.............. (1,013,000) (1,646,000) (1,717,000) (846,000) (1,119,000)
----------- ----------- ----------- ---------- -----------
$(1,307,000) $ 330,000 $ 1,998,000 $1,072,000 $ 108,000
=========== =========== =========== ========== ===========
Net income (loss)....... $ (294,000) $ 1,976,000 $ 3,237,000 $1,918,000 $ 1,227,000
Preferred stock
accretion.............. (1,013,000) (1,646,000) (1,717,000) (846,000) (1,119,000)
----------- ----------- ----------- ---------- -----------
$(1,307,000) $ 330,000 $ 1,520,000 $1,072,000 $ 108,000
=========== =========== =========== ========== ===========
Per share amount:
Income (loss) before
extraordinary item.... $ (.23) $ .06 $ .40 $ .21 $ .02
Extraordinary item..... -- -- (.10) -- --
----------- ----------- ----------- ---------- -----------
Net income (loss)...... $ (.23) $ .06 $ .30 $ .21 $ .02
=========== =========== =========== ========== ===========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 30, 1996, except Note 11 to the consolidated
financial statements and Note 3 to Schedule I, as to which the date is August
21, 1996, with respect to the consolidated financial statements and schedules
of Rental Service Corporation as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995, in the Registration
Statement (Form S-1 No. 333-05949) and related Prospectus of Rental Service
Corporation for the registration of 5,668,350 shares of its common stock.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
August 22, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 30, 1995 with respect to the
consolidated financial statements of Acme Holdings Inc. as of December 31,
1993 and 1994, and for each of the three years in the period ended December
31, 1994, in the Registration Statement (Form S-1 No. 333-05949) and related
Prospectus of Rental Service Corporation for the registration of 5,668,350
shares of its common stock.
/s/ ERNST & YOUNG LLP
Orange County, California
August 22, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated May 15, 1996 with respect to the
financial statements of Equipment Rental & Supply, Inc. as of and for the year
ended December 31, 1995, our report dated May 14, 1996 with respect to the
statement of operations of Rental Service Company for the year ended May 31,
1993, our report dated July 11, 1996 with respect to the statement of
operations of Wilson Equipment Co., Inc. for the period from January 1, 1993
through June 28, 1993, our report dated August 7, 1996 with respect to the
combined financial statements of B&S Rental Companies as of and for the eleven
months ended May 31, 1996, and our report dated August 14, 1996 with respect
to the financial statements of CVM, Inc. as of and for the year ended November
30, 1995 in the Registration Statement (Form S-1 No. 333-05949) and related
Prospectus of Rental Service Corporation for the registration of 5,668,350
shares of its common stock.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
August 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of Rental Service Corporation as of and for the year ended
December 31, 1995 and from the unaudited financial statements of Rental Service
Corporation as of and for the six month period ended June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 1,455,000 1,865,000
<SECURITIES> 0 0
<RECEIVABLES> 16,218,000 20,315,000
<ALLOWANCES> 0 0
<INVENTORY> 5,997,000 8,335,000
<CURRENT-ASSETS> 0 0
<PP&E> 77,156,000 124,588,000
<DEPRECIATION> 13,709,000 18,396,000
<TOTAL-ASSETS> 137,832,000 199,837,000
<CURRENT-LIABILITIES> 31,015,000 45,004,000
<BONDS> 0 0
0 0
28,401,000 37,020,000
<COMMON> 46,000 7,523,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 137,832,000 199,837,000
<SALES> 47,170,000 42,530,000
<TOTAL-REVENUES> 65,917,000 58,464,000
<CGS> 35,545,000 33,789,000
<TOTAL-COSTS> 48,162,000 44,658,000
<OTHER-EXPENSES> 8,325,000 8,101,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,314,000 3,684,000
<INCOME-PRETAX> 6,116,000 2,021,000
<INCOME-TAX> 2,401,000 794,000
<INCOME-CONTINUING> 3,715,000 1,227,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 478,000 0
<CHANGES> 0 0
<NET-INCOME> 3,237,000 1,227,000
<EPS-PRIMARY> .30 .02
<EPS-DILUTED> .30 .02
</TABLE>
